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EXCLUSIVE
BANKS MAY SEE MARGIN PRESSURE ONLY IN EARLY NEXT FISCAL
Likely rate hikes by RBI ahead may increase the spread between lending and
deposit rates, protecting net interest margins.
* ETBFSI
* November 03, 2022, 12:48 IST
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The likely continuation of rate hikes by the Reserve Bank of Idia is set to
benefit bank margins at least during the current fiscal.
While the deposit rates are growing too, they catch up with a lag, which will
help lenders protect their margins during fiscal 2023, according to experts, who
see the pressure on banks' net interest margins (NIMs) only in the first quarter
of the next fiscal. Net interest margins are spread between the cost of funds of
banks and the interest they earn in lending those funds, indicating
profitability and growth.
A rate hike by RBI will allow banks to transmit the hikes to lending rates while
deposit rates may not catch up immediately.
Banks with retail-based liability and floating advances are better placed to
protect NIMs.
Banks are facing a fund crunch as they look to cater to the rising credit
demand.
On average, banks have raised interest rates in the range of 25-80 bps across
tenors. Fixed deposit rates of top banks in the three-year to five-year tenor
for amounts below Rs 1 crore are in the range of 5.65 per cent of 6.75 percent.
The policy, or repo, rate is 5.9 per cent.
While banks have been raising funds through higher fixed deposit rates and
certificates of deposit, analysts say they will have to look at other avenues
such as infra bonds, subordinate debt and perpetual bonds to fund the credit
demand.
Massive fundraising
Commercial banks raised Rs 2.41 lakh crore in deposits during the fortnight
ended October 7 as they raised deposit rates to meet the bank credit demand that
continued to rise at a scorching pace during the festive season.
The credit demand is strong from retail borrowers during the festive season and
from corporates during the second quarter-end. Corporates are also tapping the
public bond market due to liquidity squeeze in the system
Bank credit rose by 17.94 per cent year on year (YoY) to Rs 128.6 lakh crore as
of October 7, while deposits at banks increased 9.62 per cent YoY to Rs 172.72
lakh crore, according to the RBI data.
Sequentially, the outstanding loan book of scheduled commercial banks grew by
1.82 per cent (Rs 2.31 lakh crore) from Rs 126.29 lakh crore on September 23,
2022. The YoY growth in credit was 16.4 per cent as of September 23, 2002.
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BANKING
* 1 hr ago
FD INTEREST RATE: SBI, PNB, BANK OF BARODA, CANARA BANK OR OTHER LENDERS —
WHICH PSU BANK IS OFFERING HIGHEST RETURN ON FIXED DEPOSITS?
* 1 hr ago
BANK CREDIT OUTPACES DEPOSIT GROWTH DURING BUSY BIZ CYCLE
* 1 hr ago
HDFC BANK HIKES LOAN INTEREST RATES: EMIS TO INCREASE FURTHER
* 4 hrs ago
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CRORES, SURGE OF 74% YOY
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* BANK-FINTECH RELATIONSHIP A POSITIVE-SUM GAME: CASHE CTO & CBO
The new guidelines pertaining to digital lending, introduced by the RBI are
definitely a welcome move in terms of how the industry should adhere to a
framework while handling customer’s data, said Yashoraj Tyagi, CTO and CBO,
CASHe while speaking at the 4th Edition of ETBFSI CXO Conclave. There has
been a massive shift in the last 5 years in the way customers handle digital
credit. Invariably, this has led to a shift in the way organisations access
data. "Ultimately, as the guidelines dictate, customers should be the centre
of how they choose to give access to data," he said. Additionally, Tyagi
spoke on how BNPL as a financial product, has worked in the Indian economy.
“It has worked so far because India has shifted from a tabooed-economy to one
which is driven by a healthy combination of savings and credit. However, the
possibility of BNPL rising exponentially is doubtful.” Lastly, Tyagi
acknowledged how the Bank-Fintech relationship is a positive-sum game. Both
entities come with their own strengths and key values to the table. So, when
such collaboration happen, both parties tend to benefit.
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EXCLUSIVE
FD INTEREST RATE: SBI, PNB, BANK OF BARODA, CANARA BANK OR OTHER LENDERS — WHICH
PSU BANK IS OFFERING HIGHEST RETURN ON FIXED DEPOSITS?
Fixed deposits continues to remain one of the most popular investment options in
India. If you are planning to invest in a fixed deposit, then you must compare
the latest rates offered by the lenders before choosing one. We have compiled
the latest fixed deposit interest rates offered by public sector banks in India.
Check latest FD interest rates offered by SBI, Punjab National Bank, Bank of
Baroda, Canara Bank, and other PSU banks here
* Anulekha Ray
* ET Online
Click Here to Read This Story
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With the Reserve Bank of India (RBI) hiking repo rates by 190 basis points or
1.9 per cent in a short period, banks have started passing on the benefits to
fixed deposit (FD) investors gradually. Most banks have been increasing their
interest rates on fixed deposits significantly in the last few months. “The
increase in fixed deposit rates is a welcome step for pensioners and senior
citizens who rely significantly on such passive income," said Ankit Jain,
Partner, Ved Jain & Associates.
Fixed deposits (FDs) in a public sector bank, continues to remain one of the
most popular investment options in India. Fixed returns, good liquidity, and
comparatively higher safety than the other investment options such as equity are
the reasons for their immense popularity.
State Bank of India (SBI), the country’s largest lender, hiked interest on its
fixed deposit by 90 basis points in October. Several banks such as Bank of
Baroda, Punjab National Bank, and Canara Bank have introduced special fixed
deposit schemes with attractive interest rates. Investors can earn up to 7-7.25
per cent from fixed deposits. For senior citizens, the interest from the fixed
deposit scheme can go up to 7.5-7.75 per cent.
As the interest rates of fixed deposits are revised very frequently, it is
better to compare the latest rates offered by the lenders before choosing one.
Here are the latest fixed deposit interest rates offered by the public sector
banks in India
Bank 6 months 1 day < 1 year 1 year to < 2 years 2 to < 3 years 3 to < 5 years 5
years and above Bank of Baroda 4.65 5.5-5.75 5.55-6 5.65 5.65 Bank of India 4.6
5.75 - 6.3 5.75-7.25 6.25# 5.75# Bank of Maharashtra 5 5.4-5.7 5.5 5.5 5.5
Canara Bank 5.5 6.25-7 6.25 6.5 6.5 Central Bank of India 4.65-4.75 5.55-5.75
5.6-6.25 5.5 5.6 Indian Bank 4.5-4.75 6.1-6.3 6.5 6.4 6.4 Indian Overseas Bank
4.65 5.7-5.85 5.7-6 5.85 5.85 Punjab National Bank 5.5 6.3-7 6.25 6.1 6.1 Punjab
& Sind Bank 4.8-5.25 5.8-6.10 6.25-7 6.1 6.1 Union Bank of India 4.40-5.25 6.3-7
6.7 6.7 6.7 UCO Bank 4.4 5.3 5.3 5.6 5.3 State Bank of India 5.5 6.1 6.25 6.1
6.1
#Minimum Deposit = Rs 1 lakh
(Data taken from the respective bank's website as on November 3, 2022)
FD interest rates to increase further?
As banks have not passed on entire rate hikes to fixed deposit investors yet,
the interest rate on FDs is likely to increase further in the coming months, say
experts. "With inflation still on the higher side and central banks globally
continuing with rate hikes, the FD interest rates will continue to see an
upswing in the coming months. The transmission of rate hikes to FDs is slower
and may not be 100 per cent, but the combination of reduced liquidity and
sustained rise in key policy rates are expected to keep the FD rates inching
higher. We anticipate that the rates may go up to 8-9 per cent over the next few
months if this situation continues," said Pankaj Bansal, Chief Business Officer,
Bankbazaar.com.
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EXCLUSIVE
BANK CREDIT OUTPACES DEPOSIT GROWTH DURING BUSY BIZ CYCLE
“Credit growth has further accelerated to 18% as of October 21, while deposits
continue to grow at 9.5%. But rather than scale up deposit growth, banks are
falling back on their investment and increasing their ratio of credit to
deposit. Most banks have raised their credit-deposit ratio to over 80%,” said a
TOI report.
* ET Online
Click Here to Read This Story
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Banks in India are witnessing a high credit growth as compared to deposits. The
growth in credit has nearly been double the growth in deposits in the current
financial year. This can largely be attributed to a busy business cycle.
As of September-end, the bank credit growth stood at 16.5%, meanwhile deposits
grew by 9.2%,as per the Reserve Bank of India (RBI) data.
“Credit growth has further accelerated to 18% as of October 21, while deposits
continue to grow at 9.5%. But rather than scale up deposit growth, banks are
falling back on their investment and increasing their ratio of credit to
deposit. Most banks have raised their credit-deposit ratio to over 80%,” said a
TOI report.
It is significant to note that even after the prevailing situation, banks are
not scrambling for retail deposits. The Indian banks have been uncertain about
how long credit growth will sustain and hence, are taking a guarded approach by
raising interest rates through limited-period offers.
The country’s largest lender SBI has seen its credit growing by 20% as of
September-end as compared to expectations of 12% at the beginning of the year.
SBI Chairman Dinesh Khara said that although bank credit had been growing twice
as fast as deposits, SBI has a large base of deposits.
Busy season was the main factor leading to this growth, as per Khara. According
to the TOI report, the SBI chairperson expects overall credit to grow by 14-16%
in this financial year. He called infrastructure, renewable power, oil marketing
companies and services the main drivers of credit.
“As long as there is visibility of demand for the goods they produce, there will
be a demand for credit from businesses. Moreover, it is the cost of raw
materials that have a bigger impact on their costs while expenses on credit
would be less than 10% of their overall costs,” TOI quoted him as saying.
The growth in deposits has been a concern for lenders. According to Bank of
Baroda MD Sanjiv Chadha, the scenario with respect to deposit rates is yet to
stabilise.
“It makes sense to be flexible with rates so that you can align them to stable
rates in coming months. Until we reach a stable rate, the revision will be aimed
at attracting incremental deposits. While it is true the loan growth is robust,
we cannot extrapolate this growth indefinitely into the future,” Chadha said.
(With inputs from TOI)
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EXCLUSIVE
HDFC BANK HIKES LOAN INTEREST RATES: EMIS TO INCREASE FURTHER
HDFC Bank, a private sector lender, increased their lending rate based on the
marginal cost of capital (MCLR). On November 7, 2022, the new loan interest
rates will go into effect.
* Sneha Kulkarni
* ET Online
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Private sector lender HDFC Bank has hiked its lending rate depending on marginal
cost of funds-based lending rate (MCLR). The new loan interest rates are
effective from November 7, 2022.
The Reserve Bank of India has set the marginal cost of funds-based lending rate
(MCLR) as a bank's internal benchmark rate (RBI). It aids banks in establishing
the minimal interest rate for various loan kinds.
According to the HDFC Bank website, effective from November 7, 2022, the
overnight MCLR is now 8.20% from earlier 7.90%. The MCLR for one month is 8.25%
up from 7.90%. The three-month and six-month MCLRs will be 8.30 percent and 8.40
percent, respectively. The one-year MCLR, which is connected to many consumer
loans, will now be 8.55%, the two-year MCLR will be 8.65% from 8.30%, and the
three-year MCLR will be 8.75% from earlier 8.40%.
In November many banks including ICICI Bank, Bank of India raised their lending
rates. Banks must not offer loans that are less than the MCLR or they risk
severe regulatory action. With prior RBI approval, they can, however, lend below
the MCLR in select extreme circumstances. The marginal cost or incremental cost
of arranging each rupee for the borrower is used to calculate the lending
interest rate.
How to find a bank's MCLR Rate?
Banks are required by the RBI to disclose their minimum loan rates, or MCLRs,
for various tenures on a monthly basis. These tenures/maturities include
overnight, one month, three months, six months, one year, and any other tenure
that the bank wishes to publicise. You may get the MCLR rate of several banks by
visiting their official websites.
When did MCLR come into force?
According to the ICICI Bank website, “The RBI replaced the base rate system for
determining interest rates with the MCLR system on Apr 01, 2016. While borrowers
who were issued loans before Apr 01, 2016, are still under the old base rate and
benchmark prime lending rate (BPLR) system, they can opt to move to the MCLR
rate if they think it's beneficial.”
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EXCLUSIVE
BANK OFFICERS' UNION PROTESTS AGAINST VIOLATION OF HR NORMS BY STANCHART;
SUBMITS MEMORANDUM TO CEO
New Delhi, Nov 6 (PTI) The All India Bank Officers' Confederation (AIBOC) has
alleged violation of HR practices by foreign lender Standard Chartered Bank and
submitted a detailed memorandum requesting the bank's CEO for immediate remedial
measures.
* PTI
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New Delhi, Nov 6 (PTI) The All India Bank Officers' Confederation (AIBOC) has
alleged violation of HR practices by foreign lender Standard Chartered Bank and
submitted a detailed memorandum requesting the bank's CEO for immediate remedial
measures. The union also alleged that the bank is delaying in recognising
Association of Standard Chartered Bank Officers (Kolkata) ASCBO despite several
reminders.
The right to form association/union is a fundamental right enshrined under
Article 19 (1) (C) of the Constitution of India, and any attempt to disavow and
thwart the fundamental rights of members of ASCBO will not be condoned by AIBOC,
the memorandum said.
"The obsolete pay scales and the unsettled service conditions beckons for an
overhaul...it is imperative to approve fair and appropriate service conditions
for the officers, in consonance with the industrial norms and practices," it
said.
AIBOC general secretary Soumya Datta urged the management of Standard Chartered
Bank to initiate dialogue with the ASCBO to discuss various issues, including
improvement of service conditions, improve emoluments, and stop the hire and
fire policy, failing which unions would be constrained to take action.
Meanswhile, StanChart said, the bank, which has over 160 years of presence in
India, follows both global and India HR (Human Resource) best practices to
address any concerns of its employees. PTI DP HVA
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EXCLUSIVE
5 BANKS OFFERING LOWEST HOME LOAN INTEREST RATES
As the Reserve Bank of India once again raised the repo rate by 50 basis points
(bps), to 5.90% in September 2022, home loan interest rates have been rising
since May and will continue to do so.
* Sneha Kulkarni
* ET Online
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Home loan interest rates have been on the rise since May and will continue to be
on the upward trajectory as the Reserve Bank of India once again increased the
repo rate by 50 basis points (bps) to 5.90% in September 2022. After the RBI
upped the repo rate, several banks, including ICICI Bank and Axis Bank, as well
as non-banking housing finance companies, such as HDFC Ltd and LIC Housing
Finance, increased their home loan rates by almost the same proportion.
Tania Jaleel2:02 PM (34 minutes ago)to me
Home loan prepayment charges
A home loan repayment consists of two parts: the principal amount and the
interest paid on the loan amount. Both of these components are tax deductible
under Sections 80C and 24(b) of the Income Tax Act of 1961.
According to IDFC First bank, “Prepayment penalties are fees you must pay for
paying your bills early. When banking firms implement this type of fee, it is to
protect themselves from financial losses caused by decreasing interest income.
Lenders typically levy a 2-4 per cent fee on the unpaid principal amount at the
time of prepayment.”
What is pre-EMI interest?
Many banks provide a unique service that allows customers to select the
instalments they want to pay for properties that are still under construction
until the time the property is ready for ownership. Any sum the customer pays in
addition to the interest is used for repayment of the principal. By making the
EMI payments early, the customer gains the benefit of paying off the loan more
quickly. Before applying for the loan, please confirm with your banker that this
option is accessible.
According to the RBI FAQ, “Sometimes loan is disbursed in installments,
depending on the stages of completion of the housing project. Pending final
disbursement, you may be required to pay interest only on the portion of the
loan disbursed. This interest called pre-EMI interest. Pre-EMI interest is
payable every month from the date of each disbursement up to the date of
commencement of EMI.”
Is pre-payment of loan allowed?
“Most banks allow you to repay the loan ahead of schedule by making lump sum
payments. However, many banks charge early repayment penalties up to 2-3% of the
principal amount outstanding. Prepayment penalty may vary according to the
reasons and source of funds - if you obtain a loan from another bank for
pre-payment the charges are usually higher than when you pay from your own
sources. However, you may credit more than your EMI amount into your loan
account on a periodic basis and bring down your interest burden as and when
funds are available with you. Most banks do not charge a pre-payment penalty if
you deposit more than your EMI payable on a periodic basis. Please check such
stipulations while availing the loan,” according to the RBI FAQ on housing loan.
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EXCLUSIVE
BANKS’ DEPOSIT CHASE SLOW DESPITE 2X LOAN GROWTH
According to RBI data, bank credit grew 16. 5% as of September-end, while
deposits have grown 9. 2%. Credit growth has further accelerated to 18% as of
October 21, while deposits continue to grow at 9. 5%.
* Mayur Shetty
* TNN
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MUMBAI: Growth in bank credit is racing ahead almost twice as fast as deposits
for most lenders. The pace of credit growth has been much higher than what most
lenders had forecast in the first quarter of the current financial year. Yet,
banks are not scrambling for retail deposits and are taking a guarded approach
by raising interest rates through limited period offers as they are uncertain
about how long credit growth will sustain.
According to RBI data, bank credit grew 16. 5% as of September-end, while
deposits have grown 9. 2%. Credit growth has further accelerated to 18% as of
October 21, while deposits continue to grow at 9. 5%. But rather than scale up
deposit growth, banks are falling back on their investment and increasing their
ratio of credit to deposit. Most banks have raised their credit deposit ratio to
over 80%.
The country’s largest lender SBI has seen its credit growing by 20% as of
September end as compared to expectations of 12% at the beginning of the year.
SBI chairman Dinesh Khara attributes the growth to ‘busy season’ and expects
overall credit to grow by 14-16% in this financial year. According to Khara, the
main drivers of credit are infrastructure, renewable power, oil marketing
companies and services, which is largely non-banking finance companies. While
demand from oil marketing companies is expected to taper as oil prices moderate,
other sectors are expected to pick up.
While the RBI has been raising interest rates every two months since May, Khara
does not see it hindering credit demand yet. “As long as there is visibility of
demand for the goods they produce, there will be a demand for credit from
businesses. Moreover, it is the cost of raw materials that have a bigger impact
on their costs while expenses on credit would be less than 10% of their overall
costs,” he said.
According to Bank of Baroda MD Sanjiv Chadha, bank credit does outpace deposit
growth during a busy business cycle. “The scenario with respect to deposit rates
is yet to stabilise. It makes sense to be flexible with rates so that you can
align them to stable rates in coming months. Until we reach a stable rate, the
revision will be aimed at attracting incremental deposits. While it is true the
loan growth is robust, we cannot extrapolate this growth indefinitely into the
future,” said Chadha.
Union Bank of India which has registered a 21. 9% growth in credit for the first
half is targeting a credit growth of 1012% for the whole year.
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EXCLUSIVE
THE HITS AND PITS OF BANKING IN Q2
With almost all the banks reporting stellar growth numbers in all parameters, it
can be said that the banking industry has seen robust growth post-covid-19.
However, there have been some outliers and black horses too. Check out a
detailed article on the banking sector's second-quarter results here.
* ETBFSI
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Errors and omissions can be minimized, saving time and resources. Time-consuming
audits and reviews can be automated, allowing round-the-clock monitoring and
validating of records to ensure high levels of transparency, trust, and
accountability.
- Navya Menon
With the earning season of the second quarter of the financial year coming to an
end, the big players in the private and public banking sector have reported
incredible numbers. All the banks have witnessed a double digit growth in
deposits and credit. Not only this, other parameters like the Net Interest
Margin(NIM), Gross and Net Non Performing Assets (GNPA & NNPA), Current and
Savings Account(CASA), Provision Coverage Ratio (PCR) and Capital Adequacy Ratio
(CRAR) have seen drastic improvement this quarter.
ETBFSI has compiled the results of both public and private sector banks to
understand the hits and misses of the banking sector.
As seen from the above diagram, the top private sector players have reported
record breaking numbers. Analyzing each bank individually, this is how the
performance was:
ICICI Bank: They witnessed a 24% YoY rise in operating profit to 1165 crore
rupees, with Profit after Tax(PAT) at 37% growth to 7558 crore rupees. ICICI
also added that credit card spends increased by 43% YoY, indicating robust
demand and growth among consumers. Speaking of credit growth, retail loans have
seen an uptick of 25% YoY with the loan portfolio growing by 54%. Their business
banking vertical has also witnessed a 43% rise. SME businesses accounted for a
credit rise of 27% with corporate portfolio growth at 23% and rural at 12%
uptick YoY.
HDFC Bank:
With a PAT of 10,605 crore rupees, we have seen a 20.1% growth in numbers. As
far as loans are concerned, 26% has been disbursed to corporate, 38% to retail
and CRB has seen a 36% credit disbursement.
IndusInd Bank:
PAT rose to 1805 crore rupees, which is 57% higher than last year. NIM stood at
4302 crores with a 18% YoY and total income grew to 20832 crore rupees with NII
at Rs.8427 crores. CASA occupied 42% of the total deposits, with advances seeing
a 18% rise from 2,20,808 crore rupees to 2,60,129 crore rupees.
Kotak Mahindra Bank:
With a PAT of 2581 crore rupees, NII stood at 5099 crores, up by 27% and
operating profit at 3567 crore rupees. Kotak also kept aside covid related
provisions to the tune of 438 crore rupees.
Axis Bank:
PAT grew by a humongous 70% at 5330 crores. Operating profit and NIM grew by 43%
and 31% respectively. Advances accelerated by 20% with retail growth at 22% and
rural at 28%. Personal loans saw a massive uptick by 33% and SME loans saw a
growth of 28%.
Public Sector Banks
Public Sector banks have been no laggards either. They have seen record numbers,
especially with the largest public sector bank- SBI, which posted its highest
ever quarterly profits. All the banks have seen double digit growth in various
parameters which has lifted the banking sector further.
State Bank of India:
The largest public sector bank reported its highest ever quarterly profit at Rs.
13265 crores, Bank’s net interest income stands at ₹35,183 crores, around 12.83
per cent higher. SBI Chairman Dinesh Kumar Khara said the bank remains 'well
capitalized''. "We've already raised about 11,000 crores. The way I look into
capital, it should be at an optimum level to give enough cushion for
risk-bearing, excess capital is also not good for the bank," he said.
Bank of Baroda
Global advances saw a bumper growth of 41%, along with other parameters such as
deposits growing at 13.6%, agriculture, SMEs, educational loans, personal,
corporate and retail all growing at double-digit. In fact, personal loans grew
at a whopping 172% YoY.3.
Punjab National Bank:
With the global gross banking business rising by 9.33% to 202372 crores, PNB has
reported decent numbers, although the profitability came down by 63% YoY. The
Retail, Agricultural and MSME(RAM) segments made 53.5% disbursals, with an 8.85%
YoY growth. Housing grew at 7.8%, vehicles at 35.3%, personal loans at 36.4% and
MSME at 4.57%. The cost of deposits grew by 3.9% whereas the cost of funds grew
by 3.4%. Savings deposits grew by 5.84% and current accounts grew to 72741.
Canara Bank:
With stellar net profit growth of 89% and retail credit grew at 12.52%. Housing,
agriculture and corporate grew at 17% and 20% (both) respectively. Their RAM(
Retail, Agriculture and MSME) loan book stood at 55% of their loan portfolio.
Operating profit also grew to 27000 crore rupees.
Indian Bank:
Indian Bank witnessed its net profit at Rs.1225 crores with a 13% YoY, with NII
rising by 15% to 4684 crores. RAM grew by 13%, contributing to their domestic
business immensely. Their capital base is healthy with a CRAR of 16%.
The Outliers:
Although the big players reported phenomenally high numbers, there have been
smaller banks like Jammu & Kashmir Bank, where their profits have doubled to 243
crore rupees on the back of higher interest income and lesser bad loans.
Karnataka Bank too recorded all-time high quarterly profits of 411.47 crore
rupee, with a 228% YoY growth. Yes Bank, however, missed the estimates with a
32% drop in profits to 152.8 crore rupees.
In a nutshell, the banking sector has performed better than all the other
sectors in the economy, with record-breaking profits, on the back of advancing
credit and a revival in economic activity. All the banks have witnessed
double-digit growth in advances, backed by a dip in deposit rates, which banks
have expressed is absolutely normal in this kind of macroeconomic environment.
Moreover, a trend which is hard to notice is the surge in demand for personal
loans, where some banks have reported triple-digit numbers.
Additionally, asset quality has improved with banks noticing a drop in NPAs.
However, banks have also been cautious and improved provisioning for the same.
Lastly, Corporate loans continue to be a disappointment, although bankers still
feel they will rise significantly as the economic situation improves in the
coming few quarters.
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EXCLUSIVE
NARCL’S FIRST BID: WILL IT HELP CLEAN BANK’S BALANCE SHEETS?
In this edition of ETBFSI Explains, we look at NARCL which was a step taken by
the Government to clean up the bad loans that existed in the banking system. It
has been over a year and a half since NARCL was established. This article
explores the status of the organisation, the NPAs taken over and what the road
ahead looks like.
* ETBFSI
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- Navya Menon and Sagarika Chetty
In the Budget Speech of 2021, Finance Minister Nirmala Sitharaman proposed the
setup of the National Asset Restructuring Company Limited(NARCL) to deal with
the massive 2 lakh crore rupees bad loans in the wake of financial challenges
thrown by the pandemic.
What is NARCL & IDRCL?
The National Asset Reconstruction Company Ltd or NARCL is the name of the asset
reconstruction company incorporated to take over and dispose of the stressed
assets of commercial banks. The primary role of NARCL is to obtain and culminate
the Non-Performing Asset(NPA) accounts, whereas the entire debt resolution
process will be handled by the service/operational entity- India Debt Resolution
Company Ltd(IDRCL), which will be a mere facilitator.
The stake held by Banks in NARCL:
Canara Bank is NARCL’s largest shareholder with 12% in the ARC. Companies like
SBI, Union Bank, Bank of Baroda and Indian bank each have 9.9%. Punjab National
Bank(PNB) and Bank of India(BOI) have 9% respectively. Bank of Maharashtra, IDBI
and ICICI hold 5%, whereas UCO Bank holds 4%, Indian Overseas Bank(IOB), Axis
and HDFC have a stake of 3% each. The remaining stake is held by other smaller
banks.
How does the NARCL work?
The NARCL has a base capital of 6000 crore rupees with the Public Sector
Banks(PSBs) owning 51% stake.
Given that in phase I, assets worth ₹90,000 crores (out of total planned
acquisition of ₹2,00,000 crores) that have already been fully provided for are
expected to be acquired, recovery will instantly strengthen banks’ balance
sheets. Further, by concentrating on legacy large value accounts of more than
₹500 crores, the NARCL may lead to faster resolution of overall stress.
The settlement of these accounts acquired by NARCL is done in a 15:85 ratio,
where 15% of the settlements are made by cash, whereas the remaining 85% is done
by government security receipts (SRs). Government SRs are issued by Asset
Restructuring Companies(ARCs) when NPAs of these banks or financial institutions
are acquired by them for the purpose of recovery. They are issued in the favor
of lenders by a unique government guarantee for its face value.
The Timeline so far:
NARCL acquired all the necessary approvals to start operating. As many as 38
identified non-performing assets (NPA) worth Rs.82,845 crore were to be
transferred to the bad bank, as confirmed by the SBI Chairman Dinesh Khara in
January this year. Citing ‘procedural delays’, the NPAs worth Rs.50,000 crore
were not transferred to the NARCL by the decided deadline of March 31, 2022. The
timeline was extended by 30 days to April 30, 2022.
So far, the NARCL has to complete the takeover of 18 distressed accounts worth
39921 crores. In September last year, the government had announced a guarantee
worth Rs 30,600 crore to security receipts issued by NARCL. The guarantee is
valid for five years.
Furthermore, lenders were informed that the body had created two lists - list 1
comprising 8 accounts and list 2 with 10 accounts. While the former held a debt
of Rs.16,744 crores, the latter was worth a debt value of Rs.18,177 crore.
What is the present scenario?
A year since its inception, NARCL has finally emerged as the winning bidder for
Jaypee Infratech. The lenders expect this transaction to be done by the first
week of November, with NARCL dealing with loan value worth Rs,9234 crores. This
is against a haircut of 61%, where the lenders i.e. PSU banks would be able to
recover only 39% of the total amount i.e. 3570 crore rupees, triggering a Swiss
Challenge auction.
The sale of bad loans to NARCL had begun in September, when the Ministry of
Finance held a closed-door meeting with bank officials, chaired by Mr Sanjay
Malhotra, Secretary of the Department of Financial Services. During this
meeting, 18 accounts worth 39,921 crores were asked to be sold by the end of
October.
According to reports, firms like Mittal Corp, Rainbow Papers, Jaypee
Infrastructure, Meenakshi Energy, and Consolidated Construction Company are a
part of the first list. The second list contains companies like McNally Bharat
Engineering and Coastal Energen Pvt Limited.
Latest Developments:
A table highlighting the offers made by NARCL so far:
Company Name
Amount offered
Total NPA
% recovered
Jaypee Infra
3570
9234
39%
Meenakshi Energy
1003
3619
28%
Helios Photo Voltaic
35
700
5%
Rainbow Papers
110
1136
9.6%
(All amounts are mentioned in crore rupees)
Post Japyee Infratech proceedings, NARCL will commence with Meenakshi Energy,
where it has revised its offer to 1,003 crores from 900 crores earlier.
Moreover, there are 16 more accounts that the NARCL needs to look into, which
will be restructured to improve the balance sheet of banks.
NARCL has also declined to match Phenoix Arc’s bid for Mittal Corp as Phenoix’s
offer was 78% higher than the Rs.228 crore offer of NARCL. Also, this offer was
on a full cash basis as compared to the 85% SRs concept proposed by NARCL.
Additionally, in this week NARCL has offered to acquire Helios Photo Voltaic.
The ARC has offered a meager 5% i.e 35 crores rupees for the recovery
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EXCLUSIVE
TECHNOLOGY AND TALENT: TWO CHALLENGES FOR INDIAN BANKS
Are banks facing a tech and talent crunch today? Top bankers of India
highlighted how technology and talent have become the major challenges for
Indian banks and how they're striving amid such shortcomings.
* Anushka Sengupta
* ETBFSI
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Sanjiv Chadha, MD & CEO, Bank of Baroda said how the banking sector is facing
two central challenges — technology and talent and how they're battling with it.
"Today's banking has two central challenges — technology and talent and between
the two, talent is possibly even more important as you can't even have a
technological implementation without having the right talent for it," he said.
He highlighted how the issue is more so in the case of public sector banks
because they have been unfortunately providers of talent to the industry and for
some reasons, have not had either the humility or again the need to accept and
attract talent from outside.
A research by BCG suggests that banks today need cloud first tech architecture,
platform based technology, agile way of working and DevOps along with in house
engineering.
"With bolder digital transformations, banks can keep pace with the evolving
digital ecosystem, and achieve productivity excellence," it said.
The research also revealed that banks have increased their productivity due to
digitisation and embedded finance, upgradation of public digital infra, etc and
have also seen reduction in branches due to video banking.
While Chadha focused on the requirement of talent in the banking industry,
Amitabh Chaudhry, MD & CEO, Axis Bank classified the type of talent required in
the banking space.
"It is not just technology alone, there is this huge amount of data which is
coming our way, what do you do with that data, it's not just about saying that
we need to change the customer journeys but it is also about what is the UI-UX
there, so there's very different kinds of talent which are needed across the
banking space," he said.
Amitabh highlighted how hiring is now a constant effort for banks with such
attrition rates and how the right kind of partnership is also required between
the banks and the employees.
Prime Minister Narendra Modi also recently in a video message to the Second
United Nations World Geospatial Information Congress said that technology and
talent are the two pillars of India's development journey and emphasised on the
importance of technology as an agent of inclusion in the country.
He said that India is a young nation with great innovative spirit and
emphasising on how technology brings transformation and inclusion he said how
even the smallest vendors in India accept and prefer digital payments.
Dinesh Kumar Khara, Chairman, State Bank of India said that the transformation
that will come is going to happen with a blend of both digital and physical.
"I think it is going to be a blend of both the digital and the physical and
increasingly with the the adoption of the digital, what is required is that the
teams within the bank will have to reorient. There is a need for giving impetus
to the newer skills because eventually when it comes to development, we have to
give required emphasis for identifying such skills, grooming them and creating a
cutter, so it's altogether a paradigm shift," he said.
A report by IBM also revealed how the Indian banking industry is experiencing a
major disruption and change and that the investment in new technology and
commitment to fundamental transformation have never been higher.
"The radical shift toward ubiquitous digitization provides both impetus and
opportunity for India’s banks. With a rapidly expanding digital economy, banks
in India that have not invested significantly in digitization now have a massive
incentive to do so, along with increasing government expectations that they
adequately serve the growing digital community," said the report.
A.K Goel, MD & CEO, Punjab National Bank also said how the bank had faced a
digitisation challenge and how it has transformed ever since.
"The only challenge after my taking charge was to drive the digitisation in the
bank. However, even though we were a little behind the digitisation journey,
through the last six months basically we have started our digital transformation
journey. Our priority is to use the digitalization technology and change the
mindset of the employees, create awareness among the customers, etc," he said.
The bankers were speaking at FIBAC 2022, organised by Federation of Indian
Chambers of Commerce and Industry (FICCI) and Indian Banks Association (IBA).
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EXCLUSIVE
DIGITAL RUPEE LAUNCHED - ITS IMPACT ON INDIAN ECONOMY AND BANKS
Digital currency launched by RBI shall be backed by the sovereign (central
government), shall be a legal tender and shall act as a close substitute for
paper currency for all its functions. Digital Rupee as a medium of exchange is
expected to facilitate easier, faster, and cheaper methods of transacting
business.
* Jyoti Prakash Gadia
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In the first week of October 2022, the Reserve Bank of India issued a Concept
Note on Central Bank Digital Currency (CBDC), which sought to explain RBI's
approach toward the introduction to CBDC.In less than one month on Ist November
2022, the RBI has launched on a pilot basis, the Digital Rupee -wholesale
segment. The Digital Rupee for the retail segment is also proposed to be
launched on a pilot basis within a month in select locations in closed user
groups, as announced by RBI. This indicates the agility on the part of RBI and
the strength and experience that our country has gained in the field of Digital
Transformation. The full-fledged launching of CBDC is expected in due course
after the assessment of the results of this initial first launching on a pilot
basis.CBDC is expected to have far reaching impact on the economy and
functioning of Banks
Digital currency launched by RBI shall be backed by the sovereign (central
government), shall be a legal tender and shall act as a close substitute for
paper currency for all its functions. Digital Rupee as a medium of exchange is
expected to facilitate easier, faster, and cheaper methods of transacting
business. In the first pilot case, the Usage of the Digital Rupee currency shall
be for settlement of secondary market transactions in Government Securities.This
is expected to make the inter-bank market more efficient. Settlement in CBDC
would reduce transaction costs by pre-empting the need for settlement guarantee
infrastructure or for collateral to mitigate settlement risk . On day one of the
pilot launch, the nine identified banks undertook 48 transactions aggregating Rs
275 crores.The pilot project has got an encouraging response and shall gain
momentum over a period of time.
Each participating bank needs to maintain a separate CBDC account with RBI by
transferring the requisite amount of funds to execute the individual
transactions of sale and purchase of government bonds with other participant
banks. Each transaction Is undertaken on a real-time basis i.e. transaction day
plus zero (T+0) day instead of the existing T+1 day basis for government
securities deals. Moreover, Such transactions ions are directly executed and do
not involve any cost unlike the general transactions, which are done through
clearing corporations of India for which transaction charges are paid . Further,
the trades are settled on the basis of the gross amount of bonds for each
separate transaction,as against the netting process in case of general
transactions.
The technology and modalities for implementation will evolve over time as the
various stakeholders gain experience based on this pilot project. Blockchain
technology is expected to be put to use to ensure transparent, secure and
scalable transactions, overtime.
Going forward, in the future, RBI proposes to introduce CBDC for other wholesale
transactions and cross-border payments based on the learnings from this first
pilot case. The essence of the mechanism involved will focus on speed, accuracy,
transparency and, cost effectiveness.
As regards the retail segment pilot project, detailed guidelines are expected to
be issued within a month, for which initially closed user groups may be used
consisting of customers and merchants.
Impact on the economy and banks
The digital currency introduced by RBI will have a significant impact on the
Indian Economy in general and banking sector in particular. First of all, the
new Digital Rupee issued by RBI shall form a part of the overall money supply in
the economy, which will in turn impact total demand and prices. The velocity of
circulation of currency will undergo a change to. The overall cost of
transactions is expected to be reduced, bringing in efficiency. The cost of
printing new currency notes will come down with lower volumes of paper currency.
With RBI's own Digital currency in circulation gaining ground, the role of
cryptocurrencies is expected to be impacted too.
In so far as Banks are concerned, new processes will evolve over time to handle
and use the Digital currency for ,not only government securities transactions
but also for other dealings with depositors and
borrowers.
The maintenance, transportation, and distribution of paper currency notes
through the 'currency chests 'of the Banks will get reduced in volumes. The
burden of note sorting , segregation of soiled and reissuable currency notes etc
shall also be reduced. The problem of counterfeit fake currency notes is
expected to be reduced with Digital Rupee coming into active usage.
The overall cash dependence in the economy is expected to come down.The digital
currency is likely to further improve the welfare distribution of funds. The
digital currency can help in evolving modified and improved Banking products and
services. It can also help in prevention of frauds by effectively tracking end
use of funds.
The Digital Rupee has the potential of transforming the economy and Banking
sector in multiple ways. Real-time visibility and insights into the economy
shall be available for policymakers and overall cost-effectiveness and
efficiency shall improve.
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