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EXCLUSIVE


BANKS FOR NO PROVISIONING ON STANDARD ASSETS AS FUND SHORTAGE WORSENS

The lifting of provisioning on standard assets can free up substantial capital
for banks to meet the huge credit demand; may petition RBI.

 * ETBFSI Research
 * ETBFSI
 * December 21, 2022, 13:35 IST

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Banks, which are facing an acute shortage of funds to meet the huge credit
demand, want the Reserve Bank of India (RBI) to reduce asset provisioning norms
to free up capital for lending.

For non-performing assets of up to 1 year, a provision of 15 per cent has to be
made, for those above one year it is 25-40 per cent in the first three years and
100 per cent beyond that.



In contrast, banks require to maintain much lower provisioning for standard
assets; loans for agriculture, housing (individual) and micro and small
enterprises attract provisioning of 0.25 per cent while credit to commercial
realty requires a 1 per cent provisioning. Advances restructured and classified
as standard in sync with the RBI’s norms for areas affected by natural
calamities require provisioning of 5 per cent.

Banks want the provisioning on standard assets to go so that they can use the
capital to meet lending purposes. The banks under the aegis may move the RBI
with their demand.

The money matrix

With the credit growth averaging 17 per cent and the Reserve Bank of India
drying up liquidity to fight inflation, banks are left scrambling for deposits.

For the last few years, deposits had been growing at a fast clip, especially
when compared to credit. However, in the current year, with the reversal of this
trend, the y-o-y change in credit has outpaced deposits, reducing the
availability of cheaper CASA deposits.

Customers are moving their funds to fixed deposits (FDs), shifting from saving
deposits as banks raise FD rates and credit offtake picks steam.

Saving bank deposits of banks declined Rs 54,021.77 crore while FDs were up Rs
1,16,218.25 crore for the fortnight ended September 9, 2022. All scheduled banks
reported a deposit rise of Rs 62,196.47 crore during the fortnight as banks
raised deposit rates.



Apparently, a significant part of the funding gap has been met by the
mobilisation of CDs. The outstanding CDs stand at Rs 2.37 lakh crore as of
August 26, 2022, as compared to just Rs 0.6 lakh crore a year ago.

With a drop in NPAs to a six-year low of 5.9% in March 2022 banks have better
balance-sheets and are in a position to address the credit demand.



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EXCLUSIVE


HOW METAVERSE WILL UNLEASH NEW ERA IN BANKING: OPPORTUNITIES AND CHALLENGES

Metaverse is the new hot potato with companies investing billions of dollars in
this new technology. Will it be viable? Will it disrupt traditional banking
models? What are the use cases and what could be the potential threats of having
such advanced technology for the ordinary masses to make seamless transactions?
In this chapter of ETBFSI Explains, we decode the universe of metaverse in
banking.

 * ETBFSI

Click Here to Read This Story
 * 
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- Navya Menon

Gone are the days when people had to wait for lunchtime to get over and have
their banking queries solved, or the need to visit the bank umpteen times to get
loan approvals. Digitisation has taken the world by storm, with credit
disbursements getting done in an astonishing two-minute time frame.

However, the new kid on the block is metaverse, which grabbed a lot of eyeballs
among various industries and the banking sector is no exception. Post the
pandemic, people have been reluctant to venture out of the comfort of their
homes and the metaverse capitalizes on this exact opportunity.



Imagine depositing money into the bank without actually visiting the branch and
having avatars like the bank manager, your relationship manager and other bank
employees guide, interact and engage with you in the virtual world, while you
sit on your couch and actually have an immersive experience without moving an
inch!

Sounds interesting right?

How Metaverse can act as medium to address consumer pain points?

With the help of metaverse, banks which currently do not function 24/7 owing to
higher operating costs can set up their virtual branches and help customers
access their services any time, any day and anywhere. Speaking at the ETBFSI
Converge, Hitesh Sachdev, Head of Startups and Innovation at ICICI Bank says
that rental agreements and mortgages can also be signed up in the virtual space.

Source: UXDA

What are its use cases in banking sector?

Apart from allowing customers ubiquitous access, there are other benefits of
embracing this new technology. A report by Accenture beautifully sums up some of
the key opportunities that banks can tap into, to capitalize on metaverse.


 * Showcasing real-estate projects by just sitting at home
 * Creating short-run engagement with customers
 * Experience by foreign banks can be created for ultra HNIs
 * Offering clients the ability to check balances, pay bills, make transfers and
   transact using AR/VR channels

 * Tapping on employee experience by delivering immersive learning in the safety
   of fully simulated customer environments
 * Smoother on-boarding of customers by creating stronger community bonds
   amongst new joiners and corporate start groups
 * The presence of virtual branches provide high-touch service for clients
   looking for mortgages or other sophisticated products
 * Having remote advice which is convenient and having annual portfolio reviews,
   financial planning sessions and mortgage advice delivery
 * Promoting collaboration and real-time analysis when showcasing new investment
   products to prospective clients
 * Facilitating digital payments of secure wallet functionality and payment
   rails for metaverse products services and economies
 * Launch of digital asset issuance by developing digital assets of new and
   existing products for customers.
 * Marketing and brand extension can be promoted by virtualizing familiar brand
   interaction such as checking refinancing rates and branch placement
 * Digital asset services secure, insure and lend against digital assets, NFTs,
   virtual real estate and other third party assets
 * Leveraging holistic data from digital asset uses and metaverse customer
   activities.

Also read: Metaverse can bring emotional connect to digital banking: bankers



Why banks are chasing metaverse?

Metaverse is expected to become a $5 trillion market by 2030 as bankers believe
that it is all about image. Adopting the metaverse indicates that banks are
tech-savvy and pioneer a high-technology environment.

However, Hitesh feels that gaining big in the metaverse predominantly depends on
adoption and having the right target audience is key. He sums it up as‘ right
audience, right use cases and right customer segment’ forms the holy trinity of
hitting the right chord of the metaverse.

For instance, overseas, HSBC Bank has purchased land in the sandbox to engage
with online sports fans and e-sports enthusiasts and JP Morgan Chase has a
global banking giant which has been established.

In India, Kiya.ai launched India’s first banking meraverse application called
Kiyaverse. A bunch of public and private sector banks have expressed interest
and the Union Bank of India has even started with its own digital banking
Metaverse lounge called ‘Uni-Verse’.

This specific app allows customers to vist a bank without actually visiting a
bank, choosing digital avatars for themselves, entering the banking lounge and
accessing banking services and lastly, getting details on social security loans
and other key information. However, transactions cannot be made in this space
owing to regulatory and security issues.

Also read: Metaverse impact on India's economy could be $79-$148 billion by
2035: Deloitte

Challenges involved:

Data privacy remains a huge risk according to Hitesh and creating trust remains
vital as the transactions have to remain safe and secure. He adds that
authentication layers have to be built. Interoperability will have to remain
important as it depends on the third party. Lastly he adds a caveat that the
return on investment will not be viable right now.

In a nutshell, though metaverse offers a lot of opportunities for the banking
sector to thrive on, however, the challenges around the cost matrix, investment
returns and data security. Only time can tell whether this technology will be
worth the investment made.



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EXCLUSIVE


BANKS TURN CAUTIOUS IN CORPORATE LENDING AS CREDIT GROWTH HITS RECORD HIGH

Wary of higher NPAs like the ones ratcheted up in the last decade, banks are
avoiding risky proposals from corporates with ratings of BB and below.

 * ETBFSI

Click Here to Read This Story
 * 
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The yields have also increased by 255 basis points (bps) since April 2022 and
was at 6.92 per cent in October 2022, he says in the report.With credit demand
at record highs, banks have turned cautious and are raising parameters for
lending.

Banks are avoiding risky proposals and turning down loan requests from
corporates with lower credit rating.

However, with interest rates rising and loans becoming more expensive, banks are
worrying about the repayment capacity.



“The only thing when we do underwriting is we should see that it should suit our
appetite. Appetite is not in terms of how much NPA we can have; it should rather
be how much lower NPA we should have,” said Dinesh Khara, Chairman, SBI, while
addressing the media on November 5, according to a report.

“We should identify the risk and have the mitigations in place. And as long as
we’re in a position to do that, we will not like to touch the credit which is
not in line with our risk appetite,” he added.
SBI is now turning down loan requests from companies with ratings of BB and
below, said the report.
The gross and net NPAs at 3.52 per cent and 0.8 per cent, respectively in Q2
FY23, which is the best level since fiscal 2002.

Industry credit growth
The credit outstanding of the industry segment registered a robust growth of
12.6 per cent y-o-y in September 2022 from 1.7 per cent in the year-ago period.
The growth was due to robust growth in the MSMEs (29.6%) which were driven by
ECLGS, inflation-induced working capital requirements, ease of doing business
supported by increasing digitisation in the banking system for faster loan
turnarounds and demand for new capex. The demand for the new capex is taking
place with rising demand from infrastructure (road, telecom, renewables), auto
and consumer durable companies. The large enterprise segment (share of 75.7 per
cent within the industry) reported a growth of 7.9% from a drop of 2.1 per cent
over a year ago.



All the industry sub-segments witnessed growth in credit in September 2022.
Petroleum, coal products and nuclear fuels witnessed the highest growth of 75.9
per cent y-o-y vs 20.3 per cent in the year-ago period due to higher working
capital requirements driven by high crude oil prices and currency depreciation,
followed by the chemical and chemical products which rose 22.5 per cent y-o-y
versus marginal growth of 1.9 per cent in the year-ago period. The
infrastructure subindustry (share of 37.5% within the industry) registered a
growth of 10.9 per cent from 3.4 per cent in the year-ago period.

Within infrastructure, telecommunication and other infrastructure grew at a
robust rate of 16.3 per cent and 19.0 per cent y-oy. Within the infrastructure,
roads and airports reported growth of 13.4 per cent y-o-y each in the month.


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