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* Banking
BANK CREDIT GROWTH SEES A BIG UPTICK IN Q3, SHIFTS FROM BOND MARKET
The incremental credit to deposit ratio beginning Q3 FY22 has touched 133 as
only two during H1 FY22. Incremental deposits in the banking system have dropped
Rs 2.2 lakh crore, while credit growth has picked up by Rs 3.5 lakh crore, SBI
Ecowrap said.
* ETBFSI
* January 12, 2022, 12:21 IST
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The credit growth of banks has turned buoyant in the third quarter with the
corporates going for capacity expansion. The incremental CD ratio beginning Q3
FY22 has touched 133 as only 2 during H1 FY22.
"Incremental deposits in the banking system declined by Rs 2.2 lakh crore in
this time period, whereas credit growth has picked up by Rs 3.5 lakh crore, SBI
Ecowrap said. With people preferring precautionary motive given the continued
uncertainties, the deposit growth in the banking system has been led by CASA
deposits, far outpacing time deposits.
The recent credit growth is visible across sectors. Sectors where demand for
credit started picking up during last three months include NBFCs, telecom,
petroleum, chemical, electronics, gems & jewellery and infrastructure, including
power and roads.
These are mostly having big-ticket disbursements.
SBI said that demand from non-PSU credit is set to outpace that of PSU credit in
Q4 FY22 with sectors such as healthcare, commercial real estate,
pharmaceuticals, infrastructure, NBFCs, and construction receiving the largesse
of such credit. It said credit is sought mostly by mid-rung entities.
Capacity utilisation
SBI Research said the recent increase in credit is substantiated by its recent
in-house industry survey which suggests capacity utilization remained robust,
with more than two-thirds of respondents suggesting current capacity utilisation
of more than 70% while 36% respondents, from diverse sectors such as textile,
petrochemicals, building materials etc. indicating better utilisation levels.
Credit returns to banks
It said the reverse credit flow from banks to the bond market in FY21 is now on
the wane as the deleveraging of corporates and substituting of high-cost debt
with low-cost debt from the bond markets seems to have been largely completed.
The Commercial Paper (CP) issuances increased by around 40% in the first nine
months of FY22 indicating recourse to working capital requirement. However, bond
primary issuances declined by more than 25% during the same period. "Corporates
across sectors are now taking recourse to term loans in anticipation of a future
growth revival on the back of several government initiatives."
Also, the capital to risk-weighted assets ratio (CRAR) of scheduled commercial
banks (SCBs) has touched a new peak of 16.6% and their provisioning coverage
ratio (PCR) too increased from 67.6% in March 2021 to 68.1% in September 2021
(excluding AUCA), which will be an enabler for future credit growth.
The worry is the recent surge in omicron infections has pulled down the SBI
Business Activity Index to a two month low, it said.
However, the percentage of rural infections to new cases at 18.8% are still at
significantly low levels. The share of the top 15 districts in new cases is also
at 51%.
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RESPONSIBILITY RESTS WITH BANKS TO KEEP DEPOSITORS’ MONEY SAFE: ALLAHABAD HC
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JPMORGAN PROFIT BEATS ESTIMATES ON M&A BOOST
JPMORGAN-JPMorgan profit beats estimates on M&A boost
* Reuters
Click Here to Read This Story
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JPMorgan Chase & Co reported a 14% fall in fourth-quarter earnings on Friday but
sailed past analysts' estimates, helped by a stellar performance at its
investment banking unit that offset a slowdown in its trading arm.
The country's largest lender, whose fortunes are often seen as a barometer of
the health of the U.S. economy, posted a 28% jump in investment banking revenue,
while overall trading revenue fell 13%.
Large U.S. lenders have benefited from higher consumer spending, while their
trading arms gained from exceptional volatility in financial markets last year.
However, soaring inflation, a potential Omicron-induced economic slowdown and
trading revenues returning to normal levels after an exceptional year are set to
challenge the banking industry's growth in the coming months.
JPMorgan's shares, up 6% this year, slipped 3% in trading before the bell on
Friday.
"The economy continues to do quite well despite headwinds related to the Omicron
variant, inflation and supply chain bottlenecks," JPMorgan Chief Executive Jamie
Dimon said.
"We remain optimistic on U.S. economic growth as business sentiment is upbeat
and consumers are benefiting from job and wage growth."
The trading shortfall in the forth quarter was cushioned by yet another strong
showing at its investment bank as global mergers and acquisitions activity
shattered all-time records in 2021 and pushed investment banking fees to a
record-high in the first half of the year.
Wall Street banking remained strong for most of the past year, as large,
cash-flush financial sponsors and corporates embarked on a dealmaking spree,
helping drive up investment banking fees to their highest-ever levels.
During the quarter, JPMorgan maintained its position as the banking world's
second-biggest provider of worldwide M&A advisory after Goldman Sachs, according
to Refinitiv. The league tables rank financial services firms by the amount of
M&A fees they generate.
Overall, the lender posted a profit of $10.4 billion, or $3.33 per share, in the
quarter ended Dec. 31. Analysts had estimated a profit of $3.01 per share,
according to Refinitiv data.
Revenue remained nearly flat at $30.3 billion. The bank's earnings were also
buoyed by reserve releases of $1.8 billion.
During the quarter, JPMorgan took down more funds that it had set side during
the height of the pandemic in anticipation of an expected wave of loan defaults.
But that didn't happen, thanks to a consumer-friendly monetary policy and
government stimulus checks that buoyed consumer spending, allowing banks to
release billions from their loan-loss reserve.
Citigroup will report results later on Friday. Wells Fargo & Co reported an 86%
jump in fourth-quarter profit on Friday, propped up by gains from the sale of
its corporate trust and asset management businesses.
Goldman Sachs, Wall Street's premier investment bank, will report earnings on
Tuesday, while Morgan Stanley and Bank of America round out the earnings season
on Wednesday.
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CITI TO SELL SE ASIAN CONSUMER BANKING BUSINESS FOR $3.6 BN
US financial giant Citigroup said Friday it will sell its consumer banking
businesses in Indonesia, Malaysia, Thailand and Vietnam for $3.6 billion, as it
pushes ahead with global streamlining plans. Singapore's United Overseas Bank
(UOB) will buy the franchises, which include Citi's retail banking and credit
card businesses.
* AFP
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US financial giant Citigroup said Friday it will sell its consumer banking
businesses in Indonesia, Malaysia, Thailand and Vietnam for $3.6 billion, as it
pushes ahead with global streamlining plans. Singapore's United Overseas Bank
(UOB) will buy the franchises, which include Citi's retail banking and credit
card businesses.
The total price of the acquisition is Sg$4.9 billion ($3.6 billion).
As part of the deal, around 5,000 Citi employees are expected to transfer to
UOB, the lenders said.
The sale is part of Citi's plans to streamline its global operations and focus
on institutional clients, rather than consumer banking.
The bank previously announced it was exiting consumer franchises in several
markets across the Asia-Pacific and elsewhere.
Mark Mason, Citi's chief financial officer, said that "the sale of these four
consumer markets, along with our previously announced transactions, demonstrate
our sense of urgency to execute our strategic refresh".
Wee Ee Cheong, UOB's deputy chairman and chief executive officer, said the bank
"believes in Southeast Asia's long-term potential and we have been disciplined,
selective and patient in seeking the right opportunities to grow".
The transaction is expected to be completed between mid-2022 and early 2024
depending on the progress of the regulatory approval process, Citi said.
Indonesia, Malaysia, Thailand and Vietnam are among Southeast Asia's biggest
markets, with a combined population of more than 470 million people and home to
a rapidly growing middle class.
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KOTAK MAHINDRA BANK TO PROVIDE OFFERS ON APPLE PRODUCTS
Customers can avail the offers between January and March in all their Apple
products.
* ETBFSI
Click Here to Read This Story
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Kotak Mahindra Bank has announced offers for its customers on Apple products,
which include iPhones, iPads, MacBooks, Apple Watches, AirPods, and HomePods.
Debit and credit cardholders with the bank can avail a maximum cashback of Rs
10,000 on Apple products, while no cost EMIs are available for up to 12 months
on select products.
Cashbacks are available on both full card swipes and card EMIs on offline as
well as online channels.
The offer is valid from January 1 to March 31, 2022, at authorised Apple
resellers, and on ecommerce websites like Amazon and Tata Cliq.
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RESPONSIBILITY RESTS WITH BANKS TO KEEP DEPOSITORS’ MONEY SAFE: ALLAHABAD HC
Holding that those who deposit money in banks are honest and it is the
responsibility of the banks to keep their money safe ‘at any cost’, the
Allahabad high court on Wednesday denied bail to four persons accused of
fraudulently withdrawing money from the bank account of a retired high
Click Here to Read This Story
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Prayagraj: Holding that those who deposit money in banks are honest and it is
the responsibility of the banks to keep their money safe ‘at any cost’, the
Allahabad high court on Wednesday denied bail to four persons accused of
fraudulently withdrawing money from the bank account of a retired high court
judge. The court further observed that “those who do not deposit crores of
rupees in banks and rather hide the same in the basements of their houses, are
responsible for hollowing out the economic prosperity of the country”.
While denying bail to Neeraj Mandal alias Rakesh and three others, Justice
Shekhar Kumar Yadav further opined that “the bank has to take responsibility for
such cases wherein the money of their customers is withdrawn by cyber criminals
as such customers are more honest towards the country since they put their white
money in banks”.
“Bank account holders’ money should be safe. Not only because the customer
deposits money in the bank so that he/she can withdraw it when needed, but also
because the money deposited by the customers in the bank is white and due to
which, the economic condition of the country also improves. On the other hand,
there are people in the country who do not deposit crores of rupees in the bank
and keep it hidden in the basements of their houses. The banks do not get any
benefit from it, and they also hollow out the economic condition of the country.
In such a situation, that customer of the bank is more honest towards the
country and his money should be kept safe by the bank at all costs and if in any
way the money is withdrawn by cybercriminals, then for this, the bank has to
take responsibility for it,” the court opined.
The court was dealing with the bail plea of Neeraj Mandal alias Rakesh and three
others in connection with a case, wherein money was fraudulently withdrawn from
the bank account of a retired high court Judge of Allahabad high court, Justice
Poonam Srivastava. An FIR was registered in this connection by her at police
station Cant, Prayagraj on December 8, 2020.
The matter was probed and the three accused were arrested from Jamtara in
Jharkhand. Thereafter, they moved the court by way of filing bail pleas and
opposed the charges against them.
Earlier, at one stage in June 2021, during the course of the hearing, the court
had observed that the police authorities are not making serious efforts in
controlling these types of fraudulent activities. Again in August 2021,
expressing concerns over the spreading nationwide network of cyber thugs, the
high court had observed that cyber thugs are eating up the entire country like
termites and are responsible for the weakening of the economic condition in the
country.
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INVESTMENT BANKERS MAKE RS 2,200 CRORE OFF IPOS IN 2021; SBI CAPS TOPS
Investment banking activities generated a record $1.1 billion in 2021, which is
8.5 per cent higher compared with 2020, making it the highest-ever annual period
since records began in 2000.
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I-bankers logged their best year in 2021 as they collected Rs 2,200 crore in
fees, driven by a historic IPO boom that saw 63 issuers, led by new-age tech
companies, garnering a whopping Rs 1.2 lakh crore ($16.6 billion) from the
primary market.
At $16.6 billion, the initial public offers (IPO) set a record in 2021,
bettering the previous record of $10.8 billion in 2017 by a wider margin.
While the number of IPOs more than doubled from a year ago to 63, the proceeds
were more than four-times the amount raised from the same period previous year
and the momentum is likely to continue as more IPOs are anticipated next year,
including the mega LIC IPO, according to a report by Refinitiv, an LSEG (London
Stock Exchange Group) Business, and one of the world’s largest providers of
financial markets data.
Total business
Investment banking activities generated a record $1.1 billion in 2021, which is
8.5 per cent higher compared to 2020, making it the highest-ever annual period
since records began in 2000, the report said.
Of the total, equity capital markets underwriting fees touched $433.8 million,
up 49.7 per cent over 2020 and the debt capital market underwriting fees
totalled $164.8 million, down 24.4 per cent year-on-year, and this was the
lowest since 2018.
Overall the equity capital markets raised $35.6 billion in 2021, down 4.3 per
cent in proceeds from 2020, despite a 73.6 per cent growth in volume as deals
were done in smaller values.
Follow-on offering
Follow-on offerings, which accounted for 52 per cent of overall ECM proceeds,
raised USD 18.6 billion, again down 42.8 per cent, but in volume it was up 21.4
per cent.
Equity capital market issuances by the financial sector accounted for the
majority of the activity with 30.9 per cent market share worth $11 billion, down
20.3 per cent year-on-year.
Telecom saw a 46.5 per cent increase in proceeds and captured 17.4 per cent
market share, followed by materials with 11.9 per cent market share.
Company-wise
Among the I-bankers, SBI Caps took the overall top spot in investment banking
fee league tables with 7.8 per cent wallet share and $86.9 million in related
fees, according to the report.
From a category point of view, ICICI Bank led the ECM underwriting fee chart
with $3.9 million in related proceeds and 10.8 per cent market share, followed
by JP Morgan and Axis Bank capturing 10.5 per cent and 8.6 per cent market
share, respectively; and Axis Bank topped the ranking in the bonds underwriting
108 issues worth $9.7 billion and accounted for 16.6 per cent of the market
share.
Completed M&A advisory fees grew 6.7 per cent to $327.6 million, while
syndicated lending fees declined 11.1 per cent to $192.1 million.
Deal making
On the other hand, deal making hit a three-year high, despite challenges posed
by the pandemic. The report expects the deal momentum to continue on the back of
growing investor demand and ample liquidity as companies reshape their
businesses through M&As.
M&As reached a three-year high at $125.7 billion, up 53.7 per cent over 2020.
While average deal value was $95 million, up 15.5 per cent, there were 21 deals
of over $1 billion, with a cumulative total of $50 billion, up from 16 deals
worth $34.6 billion in 2020.
Domestic M&As amounted to $44.9 billion, up 22.6 per cent, led by Piramal
Finance acquiring DHFL for $4.7 billion, making it the largest deal of the year.
Inbound M&As nearly doubled (up 93.1 per cent) to reach $ 69.8 billion, the
highest annual period since records began in 1980.
The US was the most active foreign acquirer with $33.3 billion worth of deals.
Majority of the deal making was in the financial sector at $29.8 billion, up
171.3 per cent from 2020, which was 23.7 per cent of all deals.
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PAYTM PAYMENTS BANK LEADS UPI BENEFICIARY CHART; SBI BIGGEST REMITTER IN
DECEMBER
Paytm Payments Bank Ltd (PPBL) claimed to have become the first beneficiary bank
in the country to achieve the landmark of over 926 million UPI transactions in a
single month. "We are humbled to receive such an encouraging response from our
users who have helped us become the most preferred beneficiary bank for UPI
payments.
* PTI
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Paytm Payments Bank has emerged as the biggest receiver of UPI amount with
926.17 million transactions while public sector bank SBI topped the chart of
being the biggest remitter in December, according to data released by the
National Payments Corporation of India (NPCI). Paytm Payments Bank Ltd (PPBL)
claimed to have become the first beneficiary bank in the country to achieve the
landmark of over 926 million UPI transactions in a single month.
"We are humbled to receive such an encouraging response from our users who have
helped us become the most preferred beneficiary bank for UPI payments.
"We will continue to leverage our experience and technological strength to offer
superfast UPI Money Transfer and the convenience of using Paytm Wallet and bank
account for everyday payments," PPBL Managing Director and CEO Satish Gupta said
in a statement.
State Bank of India followed PPBL as the second-largest beneficiary with 664.89
million transactions.
According to the NPCI, 98.79 per cent of the transactions were approved on the
PPBL platform.
"In the October-December 2021 quarter, PPBL registered a total of 2,507.47
million beneficiary transactions, compared with 964.95 million beneficiary
transactions in the same quarter in 2020.
"This is a year-on-year increase of 159.85 per cent. It has remained the largest
UPI beneficiary bank throughout the year (except in May 2021), and continues to
grow month-on-month," PPBL said in a statement.
Paytm founder and CEO Vijay Shekhar Sharma on Tuesday had said the company is
betting big on the payments business.
It expects revenue from payments services, including merchants transfers, to be
around USD 140 million (about Rs 1034 crore) in the current quarter, he had
said.
According to the NPCI data, Standard Chartered bank had the highest approval
rate of 96.74 per cent in remittance of UPI transactions, while Citi Bank
registered the highest approval rate of 99.84 per cent among UPI beneficiaries.
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BOMBAY HC ALLOWS DISH TV PROMOTERS TIME TO FILE RESPONSES IN YES BANK’S PLEA
"If we disclose the results, we later can’t say it is subject to the court’s
order and, in that sense, we can’t reverse that and that’s why the company has
submitted the results in a sealed cover to the court," argued Aspi Chinoy,
senior advocate appearing for DTH company.
* Maulik Vyas
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* Gaurav Laghate
* ET Bureau
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The Bombay High Court on Thursday allowed Dish TV and its promoter group entity,
World Crest Advisors LLP, time to file a response to the petition filed by Yes
Bank Ltd.
The private lender has sought the court’s intervention to direct the
direct-to-home (DTH) company to disclose the results of its annual general
meeting (AGM) held on December 30.
While hearing a petition filed by Yes Bank, Justice AK Menon directed World
Crest Advisors and Dish TV to file their response by January 18 and has posted
the case for further hearing on January 20.
"If we disclose the results, we later can’t say it is subject to the court’s
order and, in that sense, we can’t reverse that and that’s why the company has
submitted the results in a sealed cover to the court," argued Aspi Chinoy,
senior advocate appearing for DTH company.
Navroz Seervai, senior advocate appearing for World Crest Advisors, argued that
they are seeking time to file a reply in the case. "We feel that they (Yes Bank)
can’t file such an intervention application in our petition," argued Seervai.
While countering this, senior counsel Darius Khambata, appearing for Yes Bank,
argued that the earlier order of the Bombay High Court was totally
misinterpreted.
Originally, World Crest Advisors had sought the court’s intervention to declare
it the owner of over 44 crore shares (about 24.19% equity) of the company that
its lender, Yes Bank, currently holds.
However, on December 23, the court in its order observed that it was not
inclined to grant any relief (to World Crest) but the result/outcome of the
Annual General Meeting (AGM) that was to be held on December 30 would be subject
to the outcome of the case.
Later, on December 30, Dish TV, in a notice to stock exchanges, claimed that the
high court had directed it to disclose voting results after the final hearing.
Yes Bank is now seeking the court’s intervention to declare the results of the
AGM.
In May 2020, YES Bank invoked promoters’ pledged shares in Dish TV, taking
control of a 24.19% stake in the company.
ET on September 24 reported that the dispute between Goel and YES Bank over
corporate governance and fundraising plans was escalating and was reaching the
courts.
The bank wants to dissolve the entire board and remove the promoter family. It
believes the board is functioning in cahoots with the minority shareholders (the
promoters), who should not have representation on the board.
Dish TV, which has been trying to raise funds for some time, decided to go ahead
with a Rs 1,000-crore rights issue, the proceeds of which were to be used to
acquire new customers and for marketing and promotions. The lender has objected
to the issue.
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BUDGET UNLIKELY TO ALLOCATE ANY FUND FOR BANK RECAPITALISATION: REPORT
It can be noted that in the past, the bank recapitalisation allocation is one of
the most keenly awaited numbers in the annual budget exercise.
* PTI
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Mumbai, The upcoming budget is unlikely to make any provision for
recapitalisation of state-owned lenders, as over Rs 3.36 lakh crore has been
spent on the banks in the last six years, a domestic rating agency said on
Thursday. The banks will raise capital through internal accruals and fundraising
from the market, Icra said in a note, adding that the lenders have the ability
to manage.
Courtesy of the over Rs 3.36 lakh crore of fund infusions from the taxpayers,
the state-owned banks' stock of net non-performing assets has reduced to 2.8 per
cent as of September 2021 from the 8 per cent level of March 2018, the Icra note
said.
"With high provisions on legacy stressed assets, the earnings outlook for public
banks also seems healthy, as we expect most public banks to incrementally remain
profitable and generate growth capital requirements internally," it said.
It can be noted that in the past, the bank recapitalisation allocation is one of
the most keenly awaited numbers in the annual budget exercise.
The agency said recoveries from legacy NPAs as NARCL (National Asset
Reconstruction Company) becomes operational could aid the bottom lines of the
banks in the coming years.
It said public banks were also able to roll over their additional tier I bonds
that were due for a call option in FY22, reflecting a strong investor appetite
for their issuances, which bodes well for their future issuances.
"With cleaner balance sheets and an improved earnings outlook, banks can also
raise capital from market sources as they have done in recent years.
"...for the first time in over a decade, we do not expect any capital to be
budgeted by the government of India for public banks despite the enhanced
regulatory capital requirements," it noted.
The agency also said it expects the budget to have some provision for a
permanent refinance window from the RBI, as such entities account for a fourth
of the overall lending in the economy.
"We expect the Budget to continue with some of the liquidity and guarantee
schemes to ensure near-term funding availability for NBFCs (non-infra) and to
provide guidance on the medium-term support framework for the sector, which
could boost investor confidence and would be key for a sustainable revival," it
added.
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SWITZERLAND TESTS DIGITAL CURRENCY PAYMENTS WITH TOP INVESTMENT BANKS
The trial, called Project Helvetia, could bring the introduction of central bank
digital currencies a step nearer in Switzerland, which has conducted some of the
most advanced central bank digital currency (CBDC) experiments in Europe.
* Reuters
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ZURICH: Switzerland's central bank has successfully used digital currency to
settle transactions involving five commercial banks, the Swiss National Bank
said on Thursday, the latest trial of the technology in wholesale markets.
The trial, called Project Helvetia, could bring the introduction of central bank
digital currencies a step nearer in Switzerland, which has conducted some of the
most advanced central bank digital currency (CBDC) experiments in Europe.
Central banks across the world have stepped up work on CBDCs, in part to make
existing payment systems more efficient and to counter the challenge from
cryptocurrencies, with research focusing on versions for both wholesale or
retail use.
Under Helvetia, named after the symbol for Switzerland, the SNB integrated CBDCs
into payment systems and used them in simulated transactions in the experiment
which involved UBS , Credit Suisse Goldman Sachs Citigroup and Hypothekarbank
Lenzburg.
The scheme showed it was possible to instantaneously execute payments, which
ranged in size from 100,000 to 5 million Swiss francs ($109,469 to $5.47
million), eliminating counter-party risk.
"We have demonstrated that innovation can be harnessed to preserve the best
elements of the current financial system, including settlement in central bank
money, while also potentially unlocking new benefits," said Benoit Coeuré, head
of the Bank for International Settlements (BIS) Innovation Hub, which also took
part in the experiment.
The project, which took place over three days towards the end of 2021, also
involved Swiss stock exchange operator SIX, Switzerland's main provider of
financial infrastructure services.
It involved the issuance and redemption of wholesale CBDCs as well as using them
for payments and for the settlement of securities purchases in Switzerland as
well as cross-border transactions.
It followed earlier experiments by the SNB, BIS and SIX into the use of digital
currencies.
Central banks across the world have been stepping up work on CBDCs, in part to
make existing payment systems more efficient, with research focusing on versions
for both wholesale and retail use.
While retail CBDCs would be used by households and businesses for everyday
transactions, wholesale versions could be used to make large-scale payments
between banks or other entities with central bank accounts.
Backers say wholesale CBDCs could also make settling securities trades - which
can take days, with several parties involved - more efficient.
A CBDC could be programmed with instructions to deliver the security instantly
upon receipt of digital cash.
While central banks in Hong Kong, Thailand and the United Arab Emirates, as well
as Singapore, have looked at using CBDCs for wholesale cross-border payments,
few have examined in detail how a CBDC would be integrated with commercial
lenders.
The group involved in Helvetia will now assess the results before deciding on
next steps.
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CREDIT OFFTAKE FROM SCHEDULED COMMERCIAL BANKS TO MSME SECTORS SURGE: CMIE
“The take-off is sudden and it is relatively big and the only set of enterprises
to see an increase in bank loans are medium, micro and small enterprises,” CMIE
said in its weekly analysis. According to CMIE, these enterprises have largely,
or possibly almost entirely, benefited from the central government’s Emergency
Credit Line Guarantee Scheme (ECLGS), launched in November 2020.
* Yogima Seth Sharma
* ET Bureau
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Offtake of credit from scheduled commercial banks to medium, micro and small
industrial enterprises has zoomed in recent months on the back of the
government’s emergency credit line guarantee scheme (ECLGS), the Centre for
Monitoring Indian Economy said.
“The take-off is sudden and it is relatively big and the only set of enterprises
to see an increase in bank loans are medium, micro and small enterprises,” CMIE
said in its weekly analysis.
According to CMIE, these enterprises have largely, or possibly almost entirely,
benefited from the central government’s Emergency Credit Line Guarantee Scheme
(ECLGS), launched in November 2020.
ECLGS loans are top-up loans to help existing business enterprises overcome
their difficulties arising out of lockdowns and other pandemic related
ill-effects.The scope of the scheme was enhanced in November 2020, March 2021
and May 2021. Till November 2021, Rs 2.9 lakh crore was sanctioned under the
scheme.
Citing the RBI data, CMIE said the net increase in outstanding bank lending to
medium, micro and small enterprises between April 2020 and November 2021 was Rs
1.37 lakh crore.
“It seems that the ECLGS was effective in arresting any major financial stress
in the operations of the MSME sector. But what explains the sharp pick-up in
loans to the medium, micro and small enterprises in 2021-22 is that these loans
are 100% guaranteed by the central government and there is no processing fee,”
CMIE added.
Reiterating the findings of a recent study by TransUnion CIBIL (ECLGS Insights
Report, December 2021), CMIE said that 45% of the ECLGS loans were used to clear
vendors, 13% for paying salaries and 29% to restart operations.
According to CMIE, outstanding loans of scheduled commercial banks to
medium-sized enterprises grew from Rs 1 lakh crore for three years till August
2020 to Rs 1.8 lakh crore by October 2021 with the average monthly outstanding
SCB credit to medium-sized industrial enterprises during April-November 2021 43%
higher than it was in 2020-21.
CMIE said this is an extraordinary increase in loans outstanding to medium-sized
industrial enterprises for two reasons. “First, the overall growth in credit has
been modest at only around 8% in a similar comparison. In comparison to this
overall trend, the sudden spike in growth in loans to medium-sized industrial
units is extraordinary,” it said.
“Secondly, prior to this sudden increase, loans outstanding against these
enterprises had remained stagnant for over three years. The sudden spurt
therefore is extraordinary, again,” it added.
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