Banking and Financial news DT.22/09/2017

Private banks’ market share in loans likely to rise to 40% by FY20: ICRA (BL, BS, FE 22.09.17)

Here’s a warning that public sector banks (PSBs) and their owners — the government — need to sit up and take notice. Private sector banks (PVBs) will increasingly eat into PSBs’ market-share on the advances front, going by credit rating agency ICRA’s assessment. The agency has assessed that the market share of PVBs in banking sector advances is expected to increase to about 40% by FY 2020 from 27.5% as on March 31, 2017. According to ICRA, this increase in PVBs’ market-share is after considering the capital constraints of PSBs, and assuming an incremental market-share of 80% for PVBs and a credit growth of 7-9% for the banking sector during FY 2018-2020. PVBs had an almost 100% share in the incremental bank credit in the trailing twelve months (TTM) at the end of Q1 (April-June) FY18, said ICRA. Karthik Srinivasan, Group Head Financial Sector Ratings, ICRA, opined that the Indian banking industry is currently going through a transition and PVBs and PSBs are facing different challenges. Underscoring that PSBs are plagued with asset quality issues leading to higher credit costs and losses, he said with increasing regulatory capital requirements, weak internal accruals and limited capital infusion by the government in relation to requirements, these banks have been into capital-conservation mode by constraining their lending activities. “PVBs, on the other hand, face challenges of increasing competitive intensity because of weak credit demand, and the buoyant debt capital markets pose challenges of balancing growth and profitability. “Notwithstanding these challenges, PVBs have performed well and capitalised on the opportunities by delivering a credit growth at three-year CAGR (compounded annual growth rate) of 17.8%, as against 2.5% for PSBs, and with relatively better asset quality,” said Karthik. ICRA has assessed that the Tier-I capital of PSBs stood at 9.7% (of risk weighted assets) as on June 30, 2017, as against regulatory requirements of 9.5% required by March 31, 2019, indicating the limited capital cushion available to grow the advances. PSBs’ advances grew by less than 1% year-on-year during Q1 FY18. As for PVBs, the agency said with Tier-I capital of 14.1% as on June 30, 2017, they are well capitalised to capture the lending opportunities ceded by PSBs. Importantly, sustaining such high levels of growth going forward will be critically dependent on their ability to provide better services and to leverage technology to improve deposit mobilisation, it added.

Financial inclusion providing full range of banking services: SBI chief (BL, BS, FE 22.09.17)

India has taken a series of steps to ensure the common man has access to financial services, SBI Chairman Arundhati Bhattacharya said as she called for collaboration among the government, the banking system and the technology providers to make it successful. “Financial inclusion as we see it today is not only providing the entire range of banking services, but also insuring that we provide opportunities for investment, insurance and pension products to every single Indian, no matter how small or how remote,” Bhattacharya said. Financial inclusion she said has four key aspects —— accessibility, affordability, quality and usability. Giving a brief picture of the activities in India towards financial inclusion, she cited the example of the Unified Payment Interface for seamlessness payments between various organisations. Bhattacharya said the presence of these platforms has actually reduced the cost of transactions to probably the lowest anywhere in the world. “This is the way that we have gone ahead with financial inclusion hoping, thereby, to empower the population to have the benefit of the financial system, in order to scale whatever they are doing. However, there is one thing that is a major challenge. And that one thing is, in the initial stages, such accounts are really not commercially viable, she said. As a result, Bhattacharya said, “If this really had to have traction and be successful in any country, there has to be collaboration.” “Collaboration amongst the government, the banking system and the technology providers,” she said. “It becomes extremely difficult if the banking system is privately owned, because privately owned banks, even though they may feel that this is the right way to go, they don’t have the ability to do so, because quarter and quarter they have to report results,” Bhattacharya said. Noting that in the initial phases, the amount that one has to invest in such accounts is not going to show quarterly results, she said therefore, there needs to be a rethinking from the point of view of investors as to what they are going to give a premium on and what they’re going to discount. “Very often, and because we are owned 57% by the government, we are told very frequently that there is a discount, on account of the fact they know we have to carry out certain government mandates, such as these programmes,” she said. “I think it’s high time that society at large realise that if you’re going to have a stable society, if you are going to have sustainable growth, then this is the way to go. And therefore, any organisation that is part of such things should actually be given a premium, and not a discount,” Bhattacharya argued.

Bandhan Bank IPO to hit markets next fiscal (BL 22.09.17)

Private sector Bandhan Bank said it is planning to come out with an initial public offer (IPO) in the early part of the next fiscal. “We have recently appointed five merchant bankers and the process of IPO has just started. We are not looking to go public this fiscal but maybe next fiscal,” Bandhan Bank MD Chandra Shekhar Ghosh said. It should happen before August next year, he said. The RBI’s guidelines mandated the bank to get itself listed within three years from the commencement of banking operations. The bank started operations in August 2015. The bank’s capital adequacy ratio stood at 26% as on June 30. Meanwhile, he said, Bandhan-Konnagar, a not-for-profit organisation working in the sphere of women empowerment, needs support from various stakeholders, including corporates to uplift families out of debilitating poverty. So far, the NGO has supported about 55,000 families across nine states since its launch in 2001, Ghosh who is mentor and founder of the NGO, said. Currently, only a few corporates including ITC and Bandhan Bank contribute to the NGO. “For scaling up our effort, we would require more and more institutions to join our hands and help in the programme — Targeting the Hardcore Poor (THP),” he said. He said a few state governments such as Rajasthan, Bihar and Jharkhand have supported the programme.

Recognition for Suryoday bank (BL 22.09.17)

Suryoday Small Finance Bank Ltd has been included in the Second Schedule to the Reserve Bank of India Act, 1934, according to a central bank statement. R Baskar Babu, MD & CEO, said following the inclusion in the Second Schedule his bank can participate in the money market. “We can raise money through Certificate of Deposits (CDs). “And it (the inclusion) also gives comfort to the other banks dealing with us as the RBI does an inspection before including a bank in the Second Schedule. It is a recognition that the bank has taken off in the right manner and has got processes and controls in place.”

FY18 PSB capital infusion may be upped to Rs 25k cr (BS 22.09.17)

In a bid to shore up the capital base of public-sector banks (PSBs) struggling with massive stressed assets, the government is considering a proposal to provide as much as Rs 25,000 Cr for infusing capital into PSBs this fiscal, against the budgeted Rs 10,000 Cr, an official source said. “A proposal to allocate the same amount of funds for capitalisation as in 2016-17 is under consideration. But a final decision is yet to be made,” said the source. As part of its Indradhanush plan, the government is supposed to provide Rs 70,000 Cr over a four-year period through 2018-19 (Rs 25,000 Cr in each of the first two years and Rs 10,000 Cr in each of the last two years) for the recapitalisation of PSBs. Analysts had termed the budgetary allocation of Rs 10,000 Cr for recapitalisation in 2017-18 too low, considering that PSBs are struggling with massive bad loans. While the government has agreed to offer more support, in keeping with the latest policy, any such capital infusion will be tied to strict conditions, including effective NPA management, sale of non-core assets, further closing of loss-making branches and temporary trimming of employee benefits, if required. According to latest data, as many as 13 of the top 16 PSBs have gross NPAs of above 10%, while two of them (Central Bank and UCO Bank) just about manage the mandatory 9% capital adequacy norm. In a recent report, global rating agency Fitch said that India’s PSBs will need capital infusion of $65 billion to meet all of global Basel III banking rules by March 2019. “…state banks, which account for 95% of the estimated shortage, have limited options to raise the capital they still require”, the agency said. Such state-run banks are likely to rely on the government to meet core capital requirements, it added. According to the Fitch, the government is committed to investing only another $3 billion in fresh equity for 21 state banks over FY18 and FY19, having already provided most of the originally budgeted $11 billion. It says while the government has budgeted for $3 billion (Rs 20,000 Cr) over two years through 2018-19, it will have to pump in more than double, even on a bare minimum basis, if it is to raise loan growth, address weak provision cover, and aid in effective non-performing loan or bad loan resolution.

Indian Bank raises Rs 2,000 cr for infrastructure, affordable home loans (BS, FE 22.09.17)

Indian Bank said it has raised Rs 2,000 Cr to finance infrastructure and affordable housing. The amount raised through issuance of long term bonds is part of the bank’s Rs 5,000 Cr fund raise plan to support infrastructure and affordable housing in the country. “The board of directors …on September 21, 2017 accorded approval for issuance of 7 year long term bonds amounting to Rs 2,000 Cr in tranches out of the Rs 5,000 Cr,” it said in a regulatory filing. Earlier in May this year, Indian Bank had informed about board’s approval to raise Rs 5,000 Cr for the intended purpose. Providing affordable housing is one of the ambitious projects of the government, ‘Housing for All by 2022’. Boosting infrastructure is another key area that has been accorded key priority, Indian Bank had said. Stock of the bank today closed 1.16% lower at Rs 281.15 apiece on BSE.

Credit growth unlikely to pick up during festive season: Study (FE 22.09.17)

Credit growth is unlikely to pick up during the festival season, though improvement is expected in September industrial growth numbers due to restocking by the automobile industry, an SBI report said. The yearly SBI Composite Index for September 2017 is at 22-month high of 53.6 (moderate growth) compared to last month’s index of 50.9 (low growth), said the SBI Ecowrap report. The monthly index also jumped to one and half year high of 54.2 (moderate growth) in September, compared 49.9 (low decline) in August. The SBI Composite Index, an indicator of manufacturing activity in the economy, aims to foresee the periods of contraction and expansion. “The good news is that based on the SBI Composite Index, we believe that the industrial growth (IIP new series) may grow at the highest rate in September,” the report said. The possible traction in September growth rate is because of evidence of restocking in automobiles. The discounts offered by vehicle dealers possibly enabled them to clear stock and facilitate restocking post GST, it said. The bad news is that there is hardly any difference in credit growth in festive and post-festive months, if “we look at system wise credit data”, the report said. This means that the current 6.5% pre-festive credit growth may well be the norm in coming months. “This is contrary to current market perceptions that there could be a pickup in credit growth in festive months,” the report said. It further said the infrastructure sector has been marred by persistent policy logjams, particularly those associated with delayed clearances on the part of the government, aggressive bidding by private developers during the high growth phase and inadequate appraisal mechanisms by financiers, all bringing the infrastructure sector “growth to a standstill”. Even as the government is “contemplating a comprehensive package”, the project-wise data indicate that currently there are 354 unresolved projects worth Rs 18.1 lakh Cr, it said. State-wise analysis suggests that five states (excluding others and multi-state) account for 52% of total projects under consideration. The list is topped by Odisha, followed by Maharashtra and Jharkhand.

 

Govt. looking at ₹50,000 Cr growth stimulus (BL, FE 22.09.17)

India's government is considering a plan to loosen its fiscal deficit target to enable it to spend up to 500 billion rupees ($7.7 billion) more to halt an economic slowdown, two government officials with direct knowledge of the plan said. Growth in Asia's third-largest economy slowed to a three-year low of 5.7% in the quarter that ended in June, and Finance Minister Arun Jaitley said that the government was looking for ways to speed it up. The officials, who declined to be named as the measures have not been made public yet, said the extra spending was estimated to widen the federal fiscal deficit for the financial year ending next March to 3.7% of GDP from a budgeted target of 3.2%. “The fiscal deficit is not a sacrosanct number,” one of the officials said. The official said that the economy was passing through a "transitory phase” after the government's decision late last year to outlaw old high-value banknotes and after the launch of a nationwide goods and services tax in July. India's benchmark 10-year bond rose 2 basis points to 6.68% after Reuters reported on the extra spending plan. Although growth was already slowing, Prime Minister Narendra Modi's decision last November to scrap the old banknotes, in a bid to flush out money hidden from tax officials, wiped out about 86% of the currency in circulation almost overnight. The decision hurt consumer demand in an economy where most people were paid and spent in cash, analysts said. With the economy still reeling from the cash clampdown, the faulty implementation of the goods and services tax then made doing business far more complicated for many companies. Jaitley has held a series of meetings with cabinet colleagues and other government officials this week to explore ways to revive the economy. “The government could ask parliament to give its approval to defer the fiscal consolidation path this year,” the second government official said.

India growing pretty robustly: World Bank chief (BL 22.09.17)

India has been growing "pretty robustly”, World Bank President Jim Kim has said as he predicted a strong global growth this year. Kim also called for more cooperation among the multilateral system, private sector and the governments to take advantage of the current win-win situation. “That dormant capital will earn a higher return, where developing countries will have access to much more capital for the infrastructure needs, even for investing in health and education, investing in resilience to climate change and other factors,” Kim said. He said Japan, Europe and the US along with India were growing and there was a levelling-out in developing countries. “A country like India is growing, has been growing pretty robustly. We think Japan is growing. Europe is growing in a much more healthy way. The US continues to grow. There is a levelling-out in developing countries,” he said, adding that the growth will be more robust this year. In June, the World Bank predicted a 7.2% growth rate for India this year against 6.8% growth in 2016. India remains the fastest growing major economy in the world, the World Bank officials had said. “It used to be that commodity importers were doing much better than commodity exporters. But that’s levelling out. So the growth is relatively more evenly distributed,” Kim said. He said in terms of indebtedness, the bank was watching very carefully the debt-to-GDP ratios of every single country.

World trade likely to grow at 3.6% in 2017 (BL 22.09.17)

World trade in goods is estimated to grow 3.6% in 2017 compared with the 1.6% increase in 2016, according to the revised estimates circulated by the World Trade Organisation (WTO). Growth in global trade for 2017 was earlier projected at 2.4% by WTO, which has now attributed the improved outlook to a resurgence of Asian trade flows. “This was mainly due to intra-regional shipments picking up and a recovery in import demand in North America,” an official release said. However, the rapid pace of trade growth in 2017 is unlikely to be sustained next year for a number of reasons and the increase could be at a more moderate 3.2%, the forecast cautioned. “The improved outlook for trade is welcome news, but substantial risks that threaten the world economy remain in place and could easily undermine any trade recovery,” WTO Director-General Roberto Azevêdo said. “These risks include the possibility that protectionist rhetoric translates into trade restrictive actions, a worrying rise in global geopolitical tensions and a rising economic toll from natural disasters.” The reasons for a likely moderation of growth in trade in 2018 are manifold. “First, trade growth in 2018 will not be measured against a weak base year, as is the case this year. Second, monetary policy is expected to tighten in developed countries as the Federal Reserve gradually raises interest rates in the US and the European Central Bank looks to phase out quantitative easing in the Euro area,” the forecast report pointed out. Another reason for a likely slowing down of growth next year is that the fiscal expansion and easy credit in China are likely to be reined in to prevent the economy from overheating.

'Part of forex reserves can be used to boost growth’ (BL, BS 22.09.17)

Given the lack of considerable space both on the monetary and fiscal front to support economic growth, part of the country’s forex reserves can be used to support GDP numbers, says a Deutsch Bank report. According to the global financial services major, forex reserves could be used for funding growth — critical public infrastructure projects and the macro backdrop is also suitable for this. It said India’s reserves adequacy strength remains considerably stronger than what is prescribed and hence a case can be made in favour of using a small portion of these reserves for public investment, which in turn would help to support growth. “If $15 billion worth of forex reserves were channelled towards public investment in infrastructure, this would reduce total reserves by only 3.5% but would add about 0.6% to GDP, which could help to support growth in the near term,” Deutsche Bank said in a research note. The report further noted that even if this transfer were to be made, the reserves adequacy position would hardly change and would remain significantly above the comfort range as prescribed by the IMF. It said this arrangement “merits a serious debate at this juncture”, given the backdrop of low inflation, positive real rates, commitment towards fiscal consolidation and strong external position.

Indian economy to grow 6.7% in 2017-18, says OECD (FE 22.09.17)

Indian economy is projected to grow at a lower than expected rate of 6.7% this fiscal due to the “transitory effects” of demonetisation and the GST implementation, according to Paris-based think tank OECD. The Organisation for Economic Cooperation and Development (OECD) has also revised downwards its estimate for the country’s growth in next financial year (2018-19) to 7.2%. For this period, the GDP expansion was pegged at 7.7% in June. In 2017-18, India’s growth is forecast to be 6.7% compared to June projection of 7.3%, as per the OECD Interim Economic Outlook. The report said that in India, “the transitory effects of demonetisation and of the implementation of the Goods and Services Tax (GST) have led to a downward revision in 2017 growth projections, while business investment has remained weak”. In the longer run, the GST is expected to boost investment, productivity and growth, it added. The GST came into effect from July 1 while demonetisation — cancellation of old Rs 500 and 1,000 currency notes as part of efforts to tackle black money menace — happened in November last year. With regard to the global economy, the OECD said growth this year is projected to pick up to around 3.5% and rise to 3.7% in 2018. “Overall, the global GDP projection has slightly improved since the OECD June 2017 Economic Outlook, with the near-term momentum becoming more synchronised across the world… Developments in emerging market economies have been more diverse with positive surprises in China and Russia, and a downward revision in India in part due to transitory factors,” it said..

 

Rupee takes a beating as Fed gets ready to pare balance-sheet (BL, FE 22.09.17)

The rupee was beaten down on Thursday following the outcome of the US Federal Reserve’s two-day meeting that ended on Wednesday. The currency was down 0.82% and closed at 64.80 against the dollar on Thursday. The Fed confirmed its intention to begin balance-sheet normalisation in October and take it forward in a gradual manner. It also left the median projection for the Federal fund rates for this year (2017) unchanged at 1.4%. This leaves room for one more rate hike at one of the two meetings pending for this year on November 1 and December 13. The expectations of the Fed increasing rates in December are high. The Fed is confident that the US economy is performing well, which the Fed Chair Janet Yellen reiterated in her press conference. Although concerns were raised about a slowdown this quarter due to the impact of the storms, the Fed has raised the growth forecast for the entire year. It has projected the US to grow at 2.4% in 2017, up from a 2.2% projected in June. The Fed will begin unwinding its $4.5-trillion balance-sheet from October in line with the plan laid out in June. According to that, $6 billion of maturing Treasury securities will not be reinvested from October, which will be increased by $6 billion every three months until the outflow reaches $30 billion per month. For agency debt and mortgage-backed securities, it will begin with $4 billion per month and will increase by $4 billion every three months until it reaches $20 billion each month.

Govt Plans Big Push to Boost BharatQR and BHIM Usage (ET 22.09.17)



The government is going all out to expand the use of two mobile payment solutions -BharatQR and BHIM (Bharat Interface for Money) -by retail merchants to achieve its target of 25 billion digital transactions by March 2018. Working on a strategy to promote cashless transactions, the government is said to be looking at ways to make digital payments cheaper than cash, and also digitise recurring payments, such as utility bill payments and recharges. “We plan to create BHIM as the best-in-class payment application and also promote BharatQR for all forms of payments at merchant locations,“ said Ajay Kumar, additional secretary, ministry of electronics and information technology. The government also intends to make BharatQR available even to merchants without current accounts, Kumar said, adding that even savings bank accounts should be good enough to start BharatQR-based payments. According to the official, once banks are technologically equipped, they will roll out BharatQR-based payments on a large scale. All major banks are working on it and should be rolled out very soon, he said, pointing out that even government ministries have been advised to promote digital payments by acquiring merchants themselves. “The petroleum ministry will try to have petrol bunks on BharatQR, and the ministry of food and public distribution can install BharatQR for payments at Public Distribution System shops. It is going to be a collaborative effort,“ Kumar said, adding that the government is maintaining a central dashboard to track digital payments across departments.

 

Sambamurthy appointed as NPCI interim chairman (BL 22.09.17)

National Payments Corporation of India (NPCI), the umbrella organisation for all retail payment systems in the country, has appointed B Sambamurthy as interim Chairman of the board. According to a NPCI statement, he will replace M Balachandran, who was Non-Executive Chairman of NPCI from September 23, 2013 till September 20, 2017. Sambamurthy was formerly Director and CEO of the Institute for Development and Research in Banking Technology (IDRBT) and Chairman and Managing Director of Corporation Bank prior to that. He has been the nominee director from the RBI on the board of NPCI since December 5, 2013.

Canara HSBC Oriental Life eyes Rs 850 cr in new business premium (BS 22.09.17)

With high growth in the past two financial years, Canara HSBC Oriental Life Insurance is targeting 40-50% increase in 2017-18 in new business premium. The target is Rs 850 Cr and the hope is for as much as Rs 1,000 Cr, said Anuj Mathur, CEO. The company has booked profit over Rs 100 Cr annually for three years, with its bancassurance (banks as partners) model. Those with a predominant share of this route incur much lower cost, as they do not have to invest in building infrastructure for an agency network. “Hence, we achieved an early break-even and are generating profits,” said Mathur.  Insurers growing in excess of 30-40% yearly are all backed by bancassurance, he said. At present, the company is well capitalised, with a strong solvency ratio of 400% against the sectoral standard of 150%, and overall persistency of 83%. The company might think of listing its business on the bourses in three or four years, if the shareholders feel the need to dilute their holding. said Mathur. At present in the segment, only ICICI Prudential Life is listed on bourses. Two others, SBI Life and HDFC Life, are in line to list their shares in this financial year. ICICI Lombard, a private general insurer, will also be listing shortly. And, two other general insurance companies — GIC Re and New India Assurance — have filed their draft prospectus with the regulator for an initial public offer of equity.

In row with banks, IRCTC disallows a number of lenders to use its payment gateway for debit cards(FE 22.09.17)

A squabble between banks and Indian Railway Catering and Tourism Corporation (IRCTC) over fees has resulted in the latter disallowing a number of lenders from using its payment gateway for debit cards. Bankers explained that IRCTC had stopped them from operating on the website because they were unwilling to share a portion of the convenience fees earned on customer transactions. The Indian Railways subsidiary’s website is among the most busy portals in the country. Currently, the IRCTC website allows card-based payments only for cardholders of Indian Overseas Bank, Canara Bank, United Bank of India, Indian Bank, Central Bank of India, HDFC Bank and Axis Bank. Earlier this year, IRCTC had asked banks to share with it half the convenience fee that lenders recover from card transactions on the website. The Indian Banks’ Association (IBA) is understood to have been discussing the issue with IRCTC and the Indian Railways with a view to resolving the matter. Post-demonetisation, IRCTC had waived the convenience fee of Rs 20 it was charging customers. “Every day we are losing 50,000 transactions,” a senior executive with SBI said. “Normally, the merchant pays the acquiring bank. But, since IRCTC does not pay us, we were recovering our costs from customers and that is how it had been all these years.”

 

General insurers’ gross direct premium grows 32% in August (FE 22.09.17)

General insurance companies registered 32% growth in gross direct premium underwritten to Rs 11,931.02 Cr in August, according to Insurance Regulatory and Development Authority of India data. After a single-digit growth in July, the general insurers again saw double-digit growth in August, largely due to the strong growth by private and health insurance companies. The gross premium underwritten by insurers in the same month a year ago was Rs 9,013.43 Cr. The Irdai data showed that in the current financial year, gross direct premium underwritten by the industry was Rs 55,006.57 Cr compared to Rs 45,307.15 Cr seen in last fiscal a growth of around 21.41%. In the first five months of current financial year, private sector insurers grew at 24.47% and received Rs 24,658.09 Cr in gross direct premium. While, public sector insurers saw lower growth compared to private peers at 12.54% and receiving Rs 25,251.26 Cr in gross direct premium in April-August period. In August, all four public sector insurers New India Assurance, United India Insurance, National Insurance and Oriental Insurance saw growth in the range of 8-14%. “In the month of July, three out of four public sector insurance companies saw negative growth, but again in August we have seen growth coming back in the industry. In terms of segment such as motor and health continued to remain top segments for us in the month of August,”said a senior official from leading public sector insurer.