Banking News 1st and 2nd January 2021
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MUFG Bank telephonically terminates 8 permanent employees without notice : AIBEA
Hyderabad, Jan 1 (UNI) UNITED NEWS OF INDIA
All India Bank Employees’ Union (AIBEA) on Friday said MUFG Bank, a Bank of Tokyo-Mitshibishi earlier and operating with three Branches in Delhi, Chennai and Mumbai, has telephonically terminated eight permanent employees without any notice.
In a circular to its Units and Members, AIBEA General Secretary Ch Venkatachalam said 14 permanent employees are working in the Bank in the workmen cadre besides officers. All of them have been working in the Bank for the past 25 years and more. They are covered by our Bipartite Settlement also. All of them are members of the Union – All India MUFG Bank Employees Association, which is affiliated to AIBEA, he said.
Mr Venkatachalam said the Bank has been in the process of centralization of its operations in India and its employees sought know the details of this process to ascertain the impact of the same on their job and job security.
But surprisingly, the AIBEA General Secretary said, on the evening of December 29, around 4.30 PM, eight permanent employees of the Bank— 5 in Delhi and 3 in Chennai were telephonically terminated with immediate effect.
This was followed by an email to the employees informing their termination from the Bank‘s service with immediate effect from the close of business hours on December 29.
Mr Venkatachalam said they were also informed that their dues were credited to their account and they need not come to the Bank from December 30.
While the employees were under utter shock, they were virtually evicted from the bank premises and their Access Card, ID Card, etc. were snatched from them by the HR Head. Files and papers belonging to the Union have been confiscated, he said.
In the name of centralization, the Bank has made hundreds of fresh appointments of employees and officers in Mumbai. But these permanent employees have not been given any opportunity or option to relocate to Mumbai and have been forcibly thrown out in the streets all of a sudden in a most cruel and inhuman way, the top union leader asserted and said these are pandemic times and Union Home Ministry had issued clear guidelines to deal with the workers in private sector including instructions that employees should not be deprived of their wages, etc.
But it is so painful and disheartening that this foreign Bank which has come to India to do banking business is flouting all rules, laws and guidelines and have thrown permanent employees out of job in a most illegal and unfair manner, Mr Venkatachalam said.
Members will recall that this Bank of Tokyo is already a notorious Bank and about 20 years ago, it suddenly closed their Kolkata Branch overnight without any notice and which led a prolonged agitation including a call for All India Strike by AIBEA.
Shamefully, once again, the Bank has now resorted to such blatant and flagrant unfair labour practice by terminating the employees on phone. All rules, laws and norms have been thrown to the wind and Bank is terminating permanent employees in this brazen manner just like throwing tissue paper in the dustbin in the washroom.
Obviously this is unfair, cruel and inhuman besides being thoroughly illegal and unlawful. Obviously this cannot be accepted or tolerated.
From AIBEA we have already taken up the matter with the Finance Minister Nirmala Sitharaman and Union Minister of State for Labour and Employment (Independent Charge) Santosh Kumar Gangwar, he said, adding that we have also made the complaint to the Chief Labour Commissioner (Central), Government of India DPS Negi.
PMC Bank case: Bust bank invites bids
for sale of yacht, jets owned by
promoters of largest borrower
Shritama Bose | December 30, 2020
A public notice issued by the administrator sought sealed bids for a Dassault Falcon 2000 and a Bombardier Challenger 300, both currently parked at the Mumbai airport
In July 2020, PMC Bank had sought the first round of bids for the two jets and a yacht belonging to the promoters of the Housing Development and Infrastructure (HDIL) group, the Wadhawans
A troubled cooperative bank which has been under the central bank‘s supervision for more than a year has pinned its hopes of a turnaround on the sale of two French-manufactured jet planes. The administrator for Punjab & Maharashtra Co-operative (PMC) Bank on Tuesday invited fresh bids for two aircraft owned by the promoters of the bank‘s largest borrower, ostensibly after the failure of the first attempt made earlier this year.
A public notice issued by the administrator sought sealed bids for a Dassault Falcon 2000 and a Bombardier Challenger 300, both currently parked at the Mumbai airport.
In July 2020, PMC Bank had sought the first round of bids for the two jets and a yacht belonging to the promoters of the Housing Development and Infrastructure (HDIL) group, the Wadhawans. It is unclear whether the yacht has found a buyer. Attempts to contact PMC Bank‘s recovery cell and administrator AK Dixit were unsuccessful. An email sent to the bank remained unanswered till the time of going to press.
The notice makes no mention of reserve prices for the jets and simply states that the earnest money to be deposited is 10% of the offer amount. Interested bidders will have to submit their bids by February 17, 2021, and the bids will be opened on February 20.
A scheme of resolution for PMC Bank has so far been elusive even as Yes Bank and Lakshmi Vilas Bank were resolved this year. On September 22, 2020, almost exactly a year since the Reserve Bank of India (RBI) superseded the bank‘s board, Dixit took over from JB Bhoria as its administrator. Since he took over, PMC Bank has sought expressions of interest (EoIs) from interested investors and received four proposals. According to a recent report by Business Standard, UK-based Liberty Group, a combine of the Centrum group and BharatPe, and two business families from Mumbai and Hyderabad have expressed interest in taking over the bank.
As depositors with the bank continue to hold protests at RBI‘s various offices across Mumbai, governor Shaktikanta Das has said the response to the resolution process has been ―positive‖. During the post-policy press conference on December 4, he had said, ―The bank and its management are fully engaged with the investors who had purchased the information memorandum…let us see what is the response and after that we can take a view on this.
Nirav Modi extradition: UK court extends fugitive diamond merchant’s remand till January 7
PTI | Dec 30, 2020
The 49-year-old businessman, who has been behind bars at Wandsworth Prison in south-west London since his arrest last year following India’s extradition request for him, appeared via videolink for a routine 28-day remand hearing on Tuesday before Westminster Magistrates’ Court in London
The jeweller has been in prison since he was arrested on March 19, 2019, on an extradition warrant executed by Scotland Yard and his attempts at seeking bail have been repeatedly turned down
Fugitive diamond merchant Nirav Modi, wanted in India in connection with the estimated USD 2-billion Punjab National Bank (PNB) scam case, was on Tuesday further remanded in custody until January 7 by a UK court hearing his extradition case. The 49-year-old businessman, who has been behind bars at Wandsworth Prison in south-west London since his arrest last year following India‘s extradition request for him, appeared via videolink for a routine 28-day remand hearing on Tuesday before Westminster Magistrates‘ Court in London.
The final hearings in the extradition case are scheduled over two days, on January 7 and 8 next year, when District Judge Samuel Goozee is scheduled to hear closing arguments from both sides before he hands down his judgment a few weeks later.
At the last full hearing in the case in November, Judge Goozee heard the arguments for and against the admissibility of certain witness statements provided by the Central Bureau of Investigation (CBI) and Enforcement Directorate (ED) and ruled that the evidence to establish a prima facie case of fraud and money laundering against the fugitive diamantaire is broadly admissible. He concluded that he considered himself ―bound‖ by the previous UK court rulings in the extradition case of former Kingfisher Airlines chief Vijay Mallya.
The Crown Prosecution Service (CPS), arguing on behalf of the Indian authorities, had stressed that the evidence, including witness statements under Section 161 of the Indian Code of Criminal Procedure (CrPC), meets the required threshold for the UK court to determine whether Modi has a case to answer before the Indian judicial system.
―The argument that this is a very specific case, distinguishable from Mallya is frankly nonsense,‖ said CPS barrister Helen Malcolm. That Mallya has a case to answer in India in his fraud and money laundering case has cleared various levels of the UK judicial system and is currently undergoing a ―confidential‖ legal issue before UK Home Secretary Priti Patel can consider signing off on his extradition.
Modi‘s barrister, Clare Montgomery, who was also the defence counsel in Mallya‘s case, however, disputed that the Section 161 witness statements qualify as similar.
―The government of India case is not as strong as it was in Mallya,‖ said Montgomery, as she also raised a specific issue over a witness who was said to speak no English in his testimony for the CBI but signed a statement in English for the ED.
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Modi is the subject of two sets of criminal proceedings, with the CBI case relating to a large-scale fraud upon PNB through the fraudulent obtaining of ―Letters of Understanding‖ (LoUs or loan agreements), and the ED case relating to the laundering of the proceeds of that fraud. He also faces two additional charges of ―causing the disappearance of evidence‖ and intimidating witnesses or criminal intimidation to cause death added to the CBI case.
The jeweller has been in prison since he was arrested on March 19, 2019, on an extradition warrant executed by Scotland Yard and his attempts at seeking bail have been repeatedly turned down. The charges against him centre around his firms Diamonds R Us, Solar Exports and Stellar Diamonds making fraudulent use of a credit facility offered by PNB or LoUs.
The CPS, on behalf of India, have told the court during the course of two separate set of hearings in May and September that a number of PNB staff conspired with Modi to ensure the LoUs were issued to his companies without ensuring they were subject to the required credit check, without recording the issuance of the LoUs and without charging the required commission upon the transactions.
Modi‘s defence team has sought to counter allegations of fraud by deposing witnesses to establish the volatility of the gems and jewellery trade and that the LoUs were standard practice. His severe depression has also been raised as part of the arguments against extradition.
Finmin approves 8.5% interest for
EPFO subscriber
Our Bureau New Delhi | December 30, 2020
Finance Ministry has approved interest rate at 8.5 per cent for over six crore subscribers of Employees Provident Fund Organisation (EPFO). This interest rate is for fiscal year 2019-20. A senior labour ministry official confirmed the approval from Finance Ministry. Now, interest is expected to be credited in one-go soon. In March, the Central Board of Trustees (CBT) under the chairmanship of Labour Minister Santosh Gangwar had agreed for bringing down the rate of interest to 8.5 per cent for FY 2019-20 from 8.65 per cent for 8.65 per cent of FY 2018-19.
Later it was decided to credit it into two parts, 8.15 per cent initial and 0.35 per cent later. The EPFO had earlier planned to liquidate some of its investment in exchange traded funds to meet the deficit for providing 8.5 per cent interest for the last fiscal. However, it could not do so because of
the choppy market conditions amid lockdown induced by Covid-19.
IBC emerges as major mode of NPA recovery in 2019-20
Our Bureau Mumbai | December 29, 2020 Of the total amount of Rs. 1,72,565 crore recovered, IBC route
accounted for Rs. 1,05,773 crore
Non-performing assets (NPAs) recovered by scheduled commercial banks through the Insolvency and Bankruptcy Code (IBC) channel increased to about 61 per cent of the total amount recovered through various channels in 2019-20 against 56 per cent in 2018-19, according to latest Reserve Bank of India (RBI) data.
IBC, under which recovery is incidental to rescue of companies, remained the dominant mode of recovery, according to RBI‘s ―Report on Trend and
Progress of Banking in India 2019-20.‖
In absolute terms, of the total amount of Rs 1,72,565 crore recovered through various channels in 2019-20, IBC route accounted for Rs 1,05,773 crore. In 2018-19, of the total recovered amount of Rs 1,18,647 crore, the recovery via IBC channel was Rs 66,440 crore.―Going forward, insolvency outcomes will hinge around uncertainties relating to Covid-19.
―The government has suspended any fresh initiation of insolvency proceedings in respect of defaults arising during one year commencing March 25, 2020 to shield companies impacted by Covid-19,‖ RBI said.
SARFAESI channel
The report observed that the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, (SARFAESI) channel also emerged as a major mode of recovery in terms
of the amount recovered as well as the recovery rate, the report said.
Under SARFAESI, Rs 52,563 crore was recovered in 2019-20 against Rs 38,905 crore in 2018-19.
With the applicability of the SARFAESI Act extended to co-operative banks, recovery through this channel is expected to gain further traction, the report said.
Apart from recovery through various resolution mechanisms, banks also clean up balance sheets through sale of NPAs to assets reconstruction companies (ARCs) for a quick exit.
During 2019-20, asset sales by SCBs to ARCs declined which could probably be due to SCBs opting for other resolution channels such as IBC and SARFAESI, RBI said.
The acquisition cost of ARCs as a proportion to the book value of assets declined suggesting lower realisable value of the assets, it added.
Banking sector to be tech-driven: Khandelwal
Surabhi Mumbai | December 29, 2020
The banking sector will be driven by technology in coming days with more applications being run in cloud, believes Dilipkumar Khandelwal, Global Chief Information Officer for Corporate Functions and the Global Head of Technology Centres at Deutsche Bank.
According to him, more and more technology and applications will be run in cloud and Deutsche Bank has already moved in that direction and is partnering with Google for their cloud solution.
―That is one of the boldest steps we have taken in Deustche Bank. Cloud is our future and we will move a lot of these applications or recreate and refactor them into the cloud world. We did our letter of intent with Google. We are building a partnership with an ultimate view that a lot of
applications will be hosted on public cloud,‖ Khandelwal told BusinessLine in a recent interaction.
Big cloud providers are investing heavily in security and safeguarding the data. They are experts on infrastructure and are doing a lot of work to ensure that data is protected in the best possible manner, he further said.
Tech hub
Underlining the use of technology in banking, Khandelwal also said India is emerging a tech hub for the sector.
―Banking will be one of the sectors where technology will play a massive role in terms of service being offered to customers. Technology in the banking sector needs to be in the front,‖he said, adding that India will be the technology hub for evolving banking of the future.
―India is very attractive, especially for the financial sector. There is availability of banking knowledge as well as quality talent. India also has a great start-up culture and a lot of start-ups are trying to solve issues on communications, payments, KYC which all impact banking technology
directly,‖ he further said.
Non-performing assets recovered via IBC rise 61% in 2019-20
Our Bureau Mumbai | December 29, 2020
Non-performing assets (NPAs) recovered by scheduled commercial banks via the Insolvency and Bankruptcy Code (IBC) channel increased to about 61 per cent of the total amount recovered through various channels in 2019-20 against 56 per cent in 2018-19, according to latest Reserve Bank of India data.
IBC, under which recovery is incidental to rescue of companies, remained the dominant mode of recovery, according to RBI‘s ―Report on Trend and Progress of Banking in India 2019-20.‖
In absolute terms, of the total amount of Rs.1,72,565 crore recovered through various channels in 2019-20, IBC route accounted forRs.1,05,773 crore. In 2018-19, of the total recovered amount of Rs.1,18,647 crore, the recovery via IBC channel was Rs.66,440 crore.
―Going forward, insolvency outcomes will hinge around uncertainties relating to Covid-19.
―The government has suspended any fresh initiation of insolvency proceedings in respect of defaults arising during one year commencing March 25, 2020 to shield companies impacted by Covid-19,‖ the central bank said.
The report observed that the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, (SARFAESI) channel also emerged a major mode of recovery in terms of the amount recovered and the recovery rate, the report said.
Under SARFAESI,Rs.52,563 crore was recovered in 2019-20
against Rs.38,905 crore in 2018-19.
With the applicability of the SARFAESI Act extended to co-operative banks, recovery through this channel is expected to gain further traction, the report said.
Assets reconstruction companies Apart from recovery through various resolution mechanisms, banks also clean up balance sheets through sale of NPAs to assets reconstruction companies (ARCs) for a quick exit.
During 2019-20, asset sales by SCBs to ARCs declined which could probably be due to SCBs opting for other resolution channels such as IBC and SARFAESI, RBI said.
The acquisition cost of ARCs as a proportion to the book value of assets declined suggesting lower realisable value of the assets, it added.
Apart from recovery through various resolution mechanisms, banks also clean up balance sheets through sale of NPAs to assets reconstruction companies (ARCs) for a quick exit.
During 2019-20, asset sales by SCBs to ARCs declined which could probably be due to SCBs opting for other resolution channels such as IBC and SARFAESI, RBI said.
The acquisition cost of ARCs as a proportion to the book value of assets declined suggesting lower realisable value of the assets, it added.
Rollback of policy support can impact health of banks: RBI
Our Bureau Mumbai | December 29, 2020
The Reserve Bank of India has warned that as policy support is rolled back, the impact of the Covid-19 pandemic can make a dent in the health of banks and non-banks in 2020-21.
With the gradual rollback of policy measures, deterioration in asset quality may pose challenges, although the build-up of buffers like Covid-19 provisions and fund-raising from market may help alleviate the stress, the RBI said in the Report on Trend and Progress of Banking in India 2019-20. The RBI observed that with the loan moratorium coming to an end, the deadline for restructuring proposals is fast approaching. And, with the possible lifting of the asset quality standstill, banks‘ financials are likely to be impacted in terms of asset quality and future incomes.Going forward, the housing finance sector may need to brace for large slippages of loan assets and higher provisioning, said the report.The RBI underscored that the data on gross non-performing assets (GNPA) of banks are yet to reflect the stress, obscured as they are under the asset quality standstill with attendant financial stability implications.An unprecedented economic contraction has taken its toll on the financials of banks and non-banks and purveyed a generalised risk aversion that has reduced the efficacy of the financial intermediation function, it added.Although stretched asset valuations are in apparent disconnect with the real economy, life support in the form of adequate credit flows to some of the productive and Covid-stressed sectors has been deficient. Going forward, the restoration of the health of the banking and non-banking sectors depends on how quickly the animal spirits return, and on the revival of the real economy,‖ the RBI said.Its analysis of published quarterly results of a sample of banks indicates that their GNPA ratios would have been higher, in the range of 0.10 per cent to 0.66 per cent, at end-September 2020. Scheduled commercial banks‘ GNPA ratio declined from 9.1 per cent at end-March 2019 to 8.2 per cent at end-March 2020 and further to 7.5 per cent at end-September 2020.
Subdued profitability:The central bank assessed that going forward, the muted credit expansion, the persistence of a low interest rate environment and the impending asset stress on account of the pandemic suggest that the profitability of banks is likely to remain subdued.
Covid-19 provisioning and ploughing back of dividends would help shield banks‘s balance-sheets from stress to a certain extent, it said.
Govt to soon initiate Bank Investment Company
K Ram Kumar Mumbai | December 28, 2020
The government is likely to set in motion the process of establishing a Bank Investment Company (BIC) to hold its stake in public sector banks (PSBs) following substantial consolidation in the public sector banking space and clean-up of banks‘ balance sheet in the last couple of years.
With the banking space seeing fast-paced changes vis-a-vis business models and technology, top bankers feel now is the right time to set up a BIC so that decisions can be taken quickly without the fear of the 3Cs — Central Vigilance Commission, Comptroller and Auditor General and Central Bureau of Investigation.
BIC was mooted in 2014 by the Reserve Bank of India‘s (RBI) PJ Nayak Committee Report to review governance of boards of banks.
While the government, as per one of the Committee‘s recommendations, has already set up a Bank Boards Bureau (in 2016) for selecting the top management of PSBs, it has kept the BIC proposal on hold so far.
―PSBs are very large commercial organisations. We have to take quick calls. Currently, the 3Cs are holding us back to an extent. The holding company (Holdco) structure has to be formed now. The Government is believed to be evaluating this. This is the right time as our (PSBs) balance sheets are adequately provisioned ,‖ a top banker said.
Autonomy to public sector banks
Referring to several countries, including Singapore, the UK and Belgium, having intermediate investment companies to hold the equity in banks, the RBI report observed that this has operationally distanced the governments from the banks.This has discouraged direct intervention and suasion, and has helped align the governments‘ role as that of the principal shareholder in the banks, focused on financial returns, it added.
The report noted that the SUUTI (Specified Undertaking of the Unit Trust of India) example in relation to Axis Bank is broadly similar. The character of BIC‘s business would make it resemble a passive sovereign wealth fund for the Government‘s banks.
―Today, things are moving so fast that in one year the business model can change completely. The technology can change. So, we can‘t wait for a year or one-and-a-half years for vigilance clearance to finalise a vendor. We have to be very quick, otherwise we will lose ground to the agile private sector rivals,‖ the banker quoted above said.
Recap burden In the context of the Government facing fiscal constraints and its reported plan to have a maximum of four public sector units and a minimum operating unit in each of the 18 identified strategic sectors, top bankers opine it may be apposite to put in place a BIC.
The reason: by allowing more retail and private sector participation in the ownership of PSBs, the burden on the Government for recapitalising them will come down.
The RBI report emphasised that reducing the proposed BIC‘s investment in a PSB to less than 50 per cent will free the bank from external vigilance emanating from the Central Vigilance Commission, from the Right to Information Act, and from Government constraints on employee compensation.
―The trade-off is worth grasping, as more competitive public sector banks will enhance financial returns to the Government with no effective dilution of control,‖ the Committee said.
Banks set for asset quality shock, future income woes in FY21: RBI
The reason being lifting of the loan moratorium, closure of restructuring window soon and the possible lifting of asset quality standstill, which actually saved the banks so far from higher provisioning because of COVID-19 relief
Anand Adhikari | December 29, 2020
The Reserve Bank of India (RBI) says that the Indian banks’ financials are likely to be impacted in terms of asset quality and future income in 2020- 21.
The reason being lifting of the loan moratorium, closure of restructuring window soon and the possible lifting of asset quality standstill, which actually saved the banks so far from higher provisioning because of COVID-19 relief.
The RBI has made these observations in its report on trend and progress of banking in 2019-20.
“Going forward, banks will have to adapt and adjust to the rapidly evolving economic landscape due to these challenges and also the entry of niche players and emerging financial technologies,” says the RBI report.
In 2019-20, the profits of commercial banks have turned around after incurring losses in two consecutive years. However, the public sector banks (PSBs) continued their losses for the fifth year in a row. At the system level, the banks’ return on assets (RoA) and return on equity (RoE) also turned positive during 2019-20.
The moderation in the gross NPAs, which started after the peak in March 2018, continued through 2019-20 and 2020-21 so far, to reach 7.5 per cent by September-end 2020. These encouraging NPA numbers are a
result of lower slippages which declined to 0.74 per cent in September 2020 and resolution of a few large accounts through the IBC process.
However, the accretion to NPAs as per RBI’s income recognition and asset classification norms would have been higher in the absence of the asset quality standstill provided as a COVID-19 relief measure. “Given the uncertainty induced by COVID-19 and its real economic impact, the asset quality of the banking system may deteriorate sharply, going forward,” warns RBI.
In terms of capital, although Indian banks had comparatively stronger capital buffers while entering the global financial crisis in 2008, they have significantly weaker capital position in comparison to their global counterparts in the COVID-19 pandemic. This is again one of the concerns as COVID losses or NPAs would come out only after the end of the restructuring window.
In addition, the share of unsecured lending in the portfolio of both banks and non-banks has increased sharply over the last three years. In recent years, the banks have been reorienting their loan book away from the industrial sector and towards retail loans in view of lower delinquency rates of the latter.
“The growing share of unsecured credit card loans of banks is up from 3.1 per cent per cent to 5.2 per cent within a span of five years – does not, however, augur well for their risk profile,” says the RBI report.
The central bank said it undertook an array of policy measures to mitigate the effects of Covid-19
Banks’ gross bad loans ratio fell to 7.5% at Sept-end: RBI
29th Dec 2020
RBI released a report on the performance of the banking sector during 2019-20 and 2020-21, so far The CRAR to 14.7% at end-March 2020 strengthened from 14.3% at end-March 2019
The Reserve Bank of India (RBI) today released a report on the performance of the banking sector during 2019-20 and 2020-21, so far. The report, Trend and Progress of Banking in India 2019-20, is based on the impact of Covid-19 on banking and non-banking sectors and the way forward.
During 2019-20 and first half of 2020-21, scheduled commercial banks (SCBs) consolidated the gains achieved after the turnaround in 2018-19.
The gross non-performing assets (GNPAs) ratio of scheduled commercial banks declined from 9.1% at end-March 2019 to 8.2% at end-March 2020 and further to 7.5% at end-September, the Reserve Bank of India (RBI) said on Tuesday.
The capital to risk-weighted assets ratio (CRAR) strengthened from 14.3% at end-March 2019 to 14.7% at end-March 2020 and further to 15.8% at end-September 2020, it said in a report submitted to the Ministry of Finance.
This was partly aided by recapitalisation of public sector banks and capital raising from the market by both public and private sector banks.
The RBI said net profits of banks turned around in 2019-20 after losses in the previous two years. In H1:2020-21, their financial performance was shored up by the moratorium, standstill in asset classification and ploughing back of dividends.
The central bank said it undertook an array of policy measures to mitigate the effects of Covid-19.
Its regulatory ambit was reinforced by legislative amendments, giving it greater powers over cooperative banks, non-banking financial companies (NBFCs) and housing finance companies (HFCs). It also undertook a series of initiatives to bolster its supervisory framework.
The recovery process gained traction with the resolution of large accounts through the Insolvency and Bankruptcy Code. The Securitisation and 18 Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002 (SARFAESI) channel also aided the process of recovery.
The RBI said balance sheet growth of urban cooperative banks moderated in 2019-20 on lower deposit accretion and muted expansion in credit. While their asset quality deteriorated, increased provisioning resulted in net losses. The performance of state cooperative banks improved — both in terms of profitability and asset quality.
The consolidated balance sheet of NBFCs decelerated in 2019-20 due to near stagnant growth in loans and advances although some improvement became visible in H1:2020-21. Notwithstanding a marginal deterioration in asset quality, the NBFC sector remains resilient with strong capital buffers.
The Report also offered some perspectives on the evolving outlook for India‘s financial sector.
Banks’ financials may face pressure from higher NPAs and muted income growth, says RBI report
With the loan moratorium coming to an end, the deadline for restructuring proposals is fast approaching and with the possible lifting of the asset quality standstill, banks’ financials are likely to be impacted in terms of asset quality and future income
MONEYCONTROL NEWS
DECEMBER 29, 2020
The Reserve Bank of India (RBI) on December 29 said banks‘ financials may likely come under pressure as COVID-19- related relaxations are withdrawn slowly and asset quality pressure becomes evident.
With the moratorium coming to an end, the deadline for restructuring proposals is fast approaching and with the possible lifting of the asset quality standstill, banks‘ financials are likely to be impacted in terms of asset quality and future income, the RBI said in its Trend and Progress report.
In anticipation of higher loan delinquencies, banks have announced ambitious plans to shore up their capital bases to adhere to regulatory requirements and to be lending-ready as and when credit demand bounces back, the report said.
―Going forward, banks will have to adapt and adjust to the rapidly evolving economic landscape due to these challenges and also the entry
of niche players and emerging financial technologies,‖ the RBI said.
In the wake of COVID-19, the RBI announced a six-month moratorium on all term loans for banks and followed it up with a one-time loan restructuring plan. The government put all fresh bankruptcy cases on hold till March, 2021, while the Supreme Court in an interim order asked banks not to tag any loan as NPA that were on standard as on August 31.
Although, banks‘ financial conditions improved on lower slippages and higher capital buffers and provisions, subdued economic conditions amplified risk aversion and dragged down credit off-take, the RBI report said.
During FY21 so far, the safe haven appeal of banks led to a sharp accretion to deposits, the report said.
―With credit demand remaining anaemic, as the deleterious effects of COVID-19 played out on the economy, banks preferred to park funds in
safer G-Secs to partially offset the impact of low lending,‖ the report said.
Banks have been parking an average of Rs 6 lakh crore in the RBI‘s reverse repo window almost every day due to falling loan demand and excess liquidity in the banking system.
RBI says write-offs helped banks lower bad loans
Commercial banks in India managed to bring down their NPAs to 7.5 per cent of advances as of September 2020 from 8.2 per cent in March 2020 and 9.1 per cent in March last year
In absolute terms, gross NPAs declined to Rs 899,803 crore in March 2020 from Rs 936,474 crore in March 2019
George Mathew | Mumbai | December 30, 2020
The Reserve Bank of India (RBI) on Tuesday said commercial banks managed to lower their bad loans, or non-performing assets (NPAs), largely driven by loan write-offs and warned that the asset quality of the banking system may deteriorate sharply in the coming months due to the uncertainty induced by Covid pandemic.
Commercial banks in India managed to bring down their NPAs to 7.5 per cent of advances as of September 2020 from 8.2 per cent in March 2020 and 9.1 per cent in March last year. Banks wrote off a record Rs 237,876 crore in fiscal 2019-20, enabling the banks to show lower NPAs, the RBI said in its ̳Report on trend and progress of banking in India 2019-20‘. The central bank has warned that the modest NPA ratio of 7.5 per cent at end-September 2020 ―veils the strong undercurrent of slippage‖. The accretion to NPAs as per the Reserve Bank‘s Income Recognition and Asset Classification (IRAC) norms would have been higher in the absence of the asset quality standstill provided as a Covid-19 relief measure. The RBI had allowed six months moratorium on loan repayments due to the Covid impact. ―Given the uncertainty induced by Covid and its real economic impact, the asset quality of the banking system may deteriorate sharply, going forward,‖ the RBI report said.
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In absolute terms, gross NPAs declined to Rs 899,803 crore in March 2020 from Rs 936,474 crore in March 2019. ―NPAs older than four years require 100 per cent provisioning and, therefore, banks may prefer to write them off. In addition, banks voluntarily write-off NPAs in order to clean up their balance sheets, avail tax benefits and optimise the use of capital,‖ the RBI said. ―At the same time, borrowers of written-off loans remain liable for repayment,‖ it said. PSU banks wrote off loans worth Rs 178,305 crore in 2019-20 while private banks had written off Rs 53,949 crore, the RBI report said. Banking sources said very little is known about the identity of the borrowers and the amount written off in the case of individual borrowers. While banks claim that the recovery measures continue even after loans are written off, sources said not more than 15- 20 per cent is recovered and the write-off figures every year are rising, much faster than recoveries and recapitalisation. What‘s disturbing banking observers is that banks made additions of Rs 378,228 crore to NPAs in March On the other hand, reduction in NPAs was much lower at Rs 155,905 crore during the year.
The central bank‘s report has warned that an increase in the restructured advances ratio to 0.43 per cent at end-September 2020 from 0.36 in March 2020 may be ―indicative of incipient stress‖.
The RBI said the rapid credit growth during 2005-12, coupled with absence of strong credit appraisal and monitoring standards and wilful defaults are responsible for sizeable asset impairments in subsequent years. ―Large borrowal accounts (exposure of Rs 5 crore and above) constituted 79.8 per cent of NPAs and 53.7 per cent of total loans at end September 2020,‖ it said, adding: ―The share of special mention accounts (SMA-0) saw a sharp rise in September 2020‖.
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RBI says 37.91% of loans were under moratorium as of August-end
Ankur Mishra | December 29, 2020
Krishnan Sitaraman, senior director, Crisil Ratings, said 37.91% of loans under moratorium seems a little higher than expectation. It looks like there could be higher degree of moratorium sought by retail customers
Similarly, loans under moratorium in private banks remained at 33.96% and the same was 20.93% for foreign banks
Loans under moratorium have not significantly declined since April 2020, when 50% of outstanding loans were under moratorium according to Reserve Bank of India (RBI) data. In a response to a Right to Information (RTI) query filed by FE, the RBI has said 37.91% of outstanding loans in the banking system were under moratorium as on August 31, 2020. According to provisional data provided by the regulator, 41.33% of loans in public sector banks (PSBs) were under moratorium till August this year. Similarly, loans under moratorium in private banks remained at 33.96% and the same was 20.93% for foreign banks.
Data shared by the RBI show that 12.09% fewer borrowers (by value) were granted moratorium in the second phase, compared to the first phase. In its financial stability report released in July, the RBI said 50% of total outstanding in the banking system was under moratorium as on April 30, 2020. The regulator had earlier allowed customers to avail a repayment break for six months – between March and August. The moratorium was granted in two phases of three months each starting March 1.
Krishnan Sitaraman, senior director, Crisil Ratings, said 37.91% of loans under moratorium seems a little higher than expectation. It looks like there could be higher degree of moratorium sought by retail customers.
Anil Gupta, sector head, financial sector ratings, ICRA, said: ―Out of six equated monthly instalments (EMIs), if a borrower did not pay a single instalment, then he may be qualified for moratorium by the RBI.‖ The number of customers who have not paid a single EMI between March and August is more important, he added. ―If you go by collection data released by banks, those borrowers who did not pay a single EMI may be less than 10%,‖ Gupta said.
ICRA had earlier said 27% of companies rated by it opted for moratorium till August end. The rating agency on Monday said gross and net non- performing assets (NPAs) of banks are likely to rise in near term. While gross NPAs are expected to rise 10.1-10.6%, net NPAs are likely to rise 3.1-3.2% by March 2021. ICRA has also revised its loan restructuring estimates downward to 2.5-4.5% of advances, against 5-8% earlier.
The RBI had allowed restructuring of loans impacted by Covid-19 after the moratorium ended in August.
35 lakh jobs gone in November, unemployment shoots up
Samrat Sharma | December 28, 2020 While 50,000 jobs were lost in October, November witnessed a
much higher shedding of jobs at 35 lakhs
In the first weeks of December, more workers joined the workforce in the search of jobs
The employment condition in India fell from the growth trajectory since the beginning of the fiscal‘s third quarter. After the employment fell 20.3 per cent on-year in Q1 amid the nationwide lockdown, it recovered to a contraction of 3.5 per cent in Q2 as the economy started to recover. However, this improvement lost momentum in Q3, even as the economy
showed more signs of recovery. While 50,000 jobs were lost in October,
November witnessed a much higher shedding of jobs at 35 lakhs, according to CMIE‘s Consumer Pyramids Household Survey. At 39.36 crore in November 2020, employment is still about 1 crore short of what it was in the March 2020 quarter.
In the first three weeks of December, more workers joined the workforce in the search of jobs. Though it led to a marginal improvement in aggregate employment compared to November, it also pushed up the unemployment rate in the first three weeks. While the employment rate rose marginally from 37.4 per cent in November to a three-week average of 37.5 per cent, the unemployment rate shot up from 6.5 per cent to 9.5 per cent in the same duration.
Consequently, it is expected that the employment numbers by the end of the third quarter would be nearly 39.5 crore, if the numbers do not deviate significantly in the remaining days of the month. This implies that employment in Q3 FY21 would be 2.5 per cent lower than the 40.5 crore employed in Q3 FY20.
Since employment and economic growth is believed to be closely associated with each other, it is estimated that the economy would shrink marginally less than it did in the September 2020 quarter. The Indian economy shrank by 7.5 per cent in Q2, after registering a record fall of 23.9 per cent in the first quarter. In both quarters, real GDP fell more sharply than employment.
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