Federal Bank Q2 net up 30.8% to Rs 263 cr on robust interest income (BL, BS, FE, ET 17.10.17)
Private-sector lender Federal Bank’s net profit for the second quarter ended September 2017 rose by 30.8% to Rs 263 Cr on robust growth in net interest income. It had posted a net profit of Rs 201 Cr in July-September 2016. Federal Bank’s stock was trading 3.16% up at Rs 121 per share on BSE. Its net interest income rose by 23.8% to Rs 899 Cr in Q2 of FY18 from Rs 726 Cr in the same quarter a year ago. Its, other income comprising fees, commissions and treasury revenues rose marginally to Rs 287 Cr from Rs 272 Cr in the second quarter of 2017. The asset quality showed some improvement in percentage terms with the gross non-performing assets (GNPAs) at 2.39% at end of September 2017 as against 2.78% a year. The provisions and contingencies were almost flat at Rs 176 Cr compared to 168 Crs in the second quarter of 2017. Banks's Capital Adequacy Ratio (CAR) stood at 14.63% at end of September 2017, up from 12.85% in September 2016.
Moody’s affirms State Bank’s ratings (BL 17.10.17)
Moody’s has affirmed the ratings on SBI’s local and foreign currency deposits of Baa3/P—3 apart from affirming the Baa3 rating on its senior unsecured debt issued through its London branch and the Baa3 rating on its medium term note programme. While retaining the ratings today, the global ratings agency noted that since the merger of its associate banks in April, SBI’s asset quality deteriorated significantly, which is also due to the economic disruptions since last November. At end-March 2017, the state-run lender’s gross NPA ratio jumped to 9% on a consolidated basis from 6.9 on a solo basis. Also at the end of June, the consolidated NPA ratio jumped further to 9.9%. But the agency sees some of the negative pressure on the asset quality as “one-off effect of the merger, and expects asset quality to remain broadly stable, because the bank has been proactive in recognising legacy credit issues, while it has de-risked its new origination book over the last two to three years.” Moody’s also noted that a large proportion of these NPAs are under different resolution processes, and, as such, any resolutions can improve SBI’s asset quality metrics. It also warned that “there are still some downside risks to asset quality”. Within the corporate book, SBI has identified potential weak loans (the so-called watchlist loans) that could slip within this financial year which represent 1.3% of its gross loans as of Q1. There are also risks emerging from its SME, retail and farm loan books and this was evident in the Q1 numbers with 60% of its fresh slippages emerging from these segments. “But these risks are somewhat mitigated, given the bank’s loss absorbing buffers; specifically, its improving capitalisation and loan loss reserves. In June 2017, SBI raised Rs. 15,000 Cr through a QIP issue. “As a result, by end June, it reported a common equity tier 1 ratio of 10.2%, up from 9.9% in March,” Moody’s said. SBI also has access to a number of sources of capital, including the remaining 62.1% in its life insurance arm which is valued at about Rs. 43,500 Cr and the potential capital injections from the government, as well as an ability to access the equity capital markets. Moody’s expects that SBI’s profitability to gradually improve, as credit costs come down.
DCB Bank Q2 profit up 22% (BL 17.10.17)
DCB Bank reported a 22% increase in second quarter net profit at Rs. 59 Cr against Rs. 48.5 Cr in the year-ago period. Net interest income was up 30.5% year-on-year (y-o-y) to Rs. 248 Cr (Rs. 190 Cr in the year-ago period). Other income edged up to Rs. 65 Cr (Rs. 62 Cr). Net interest margin (NIM) in the reporting quarter was higher at 4.22% (3.96%). The bank, in a statement, said interest on income tax refund has not been included in NIM computation. During the reporting quarter, deposits were up 16% y-o-y to Rs. 20,567 Cr. Advances rose 20.5% y-o-y to Rs. 17,395 Cr. Murali M Natrajan, MD and CEO, said, “...We remain cautious with respect to loan growth. We have to continue to be vigilant in managing credit quality.” Provisions (other than tax) and contingencies nudged up to Rs. 30 Cr (Rs. 26 Cr). Gross non-performing assets (GNPAs) rose to Rs. 316 Cr as at September-end 2017 from Rs. 255 Cr in the year-ago period. The gross NPA ratio edged up to 1.80% (1.75%).
IDBI Bank staff plan strike over ‘inadequate’ wage hike offer (BL 17.10.17)
The United Forum of IDBI Officers and Employees is planning a strike on October 24 and 25 to protest the ‘inadequate response’ to the long-pending demand for a wage hike. The latest offer amounted to a hike of only 7-8% against a demand of 15%, due from as far back as November 1, 2012, the forum said. The forum could not accept the proposal for this and other reasons, Ratnakar Wankhade and Vithal Koteswara Rao AV, joint convenors, explained. Other pain points include introduction of a concept of additional protection allowance and withdrawal of certain pay slip components from the date of settlement. When combined, these would have a deleterious effect on the gross emoluments and superannuation benefits. So the forum had no other option but to reject the proposal. Similarly, the bank’s response to all other crucial issues raised by the forum forming part of the strike notice has been apathetic and evasive. Individually, the officers and employees’ associations have adopted utmost restraint and used all persuasive efforts at their command to avoid a confrontation. “But, owing to the lack of a reciprocal approach from the bank, we have been pushed to an inevitable situation of intensifying the agitation and declaring a fresh plan of action culminating in the two-day nation-wide strike,” they stated.
Bank recapitalisation must not be piecemeal: SBI new chairman (FE 17.10.17)
Days after Finance Minister Arun Jaitley expressed concern about the ailing banking sector in India, saying rebuilding capacity of banks is government’s top agenda, SBI’s Chairman Rajnish Kumar has said that recapitalisation of banks should not be done piecemeal. In an interview, the newly appointed Chairman of India’s largest bank said, “Recapitalisation is the need of the hour…. Recapitalisation bonds is one way to do that (but) it should not be done piecemeal, it should come in one go; it should come with a business plan for all the banks.” Last week, during his week-long visit to the United States, Finance Minister Arun Jaitley said the Indian government is working on a plan to rebuild the capacity of the banking sector so that it could support growth. “We need to rebuild the capacity (of the banking sector),” Jaitley had said at Harvard University in Boston. Speaking about the bad loans problem, Rajnish Kumar said that non-performing assets (NAPs) is the one area which is “impacting” the public sector banks, and that it needs to be addressed in a planned manner. The SBI Chairman said that credit growth and asset resolution both were in bank’s top agenda. “We have to address the internal organisation structure. We have made one managing director responsible for stressed asset resolution; others can focus on credit growth,” Rajnish Kumar said. On being asked where the money is going to come for the recapitalisation of banks, Rajnish Kumar said, “You had recapitalisation bonds for the banks in 1995, and that was a 20,000 Cr programme. In terms of time-value money even 100000 Cr would not look much.” The SBI chairman also said the bank will also try to consolidate some of its debt. He said that the growth, in terms of percentage, looks a bit lower, but in terms of retail, it seems intact.
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WPI inflation softens to 2.60% in Sept on lower food, vegetable prices (BL, BS, FE, ET 17.10.17)
Wholesale inflation fell to 2.60% during September 2017, which was 64 basis points lower than 3.24% clocked in August 2017. An official statement said the dip was driven by lower fruits and vegetable prices that fell by 15% during September 2017 compared with August 2017. However, compared with September 2016, vegetable prices rose by 15.48%, and the price of fruits was up by 2.93%. Onion prices, too, zoomed 79.78%. Inflation was at 1.36% in September 2016. Compared with August 2017, there was marked increase in the price of fuel and power that rose by 1.7%. This was driven by a 10% firming up of liquefied petroleum gas or cooking gas and an 8% rise in naphtha. Petrol price rose 3% while jet fuel rose 5%. Furnace oil, kerosene and diesel rose 2%. But compared with September last year, LPG prices were higher by 20.75%, while petrol prices rose 15.79% and prices of diesel increased by 15.70%. The index for Manufacture of Motor Vehicles, Trailers and Semi-Trailers fell by 1.3% due to the lower price of passenger vehicles that fell by 7% over August 2017 prices. Metal prices, too, firmed up with the index for ‘Manufacture of Basic Metals’ group rising by 2.7% over August 2017. The price of galvanised plain and galvanised corrugated steel sheets rose by 8%, pig iron by 7%, ms pencil ingots, cold rolled coils & sheets, including narrow strip, hot rolled coils & sheets, including narrow strip and other ferro alloys rose by 5% each. Industry, however, was upbeat in its reaction. In an e-mailed statement, CII Director-General Chandrajit Banerjee, said: “The lower inflation print has benefited from the softening of primary articles, particularly food prices. When taken together with the consumer price index inflation number which has remained unchanged during the month, the data would help boost sentiment.” FICCI President Pankaj Patel said: “Even the retail inflation numbers released earlier showed some softening in case of food prices. Overall, inflation remains within Reserve Banks’s indicative trajectory and this is an encouraging sign.” Both Patel and Banerjee called for a repo rate cut.
Economic recovery likely to have taken hold in Sep qtr: Morgan (BL 17.10.17)
Continued strength in import growth is a reflection of healthy underlying demand trend and an indication that growth recovery is expected to have taken hold in the September quarter, says a Morgan Stanley report. According to the global financial services major, global economic growth is expected to stay positive and accordingly exports are likely to remain supportive going ahead. Supportive export growth “coupled with robust consumption trends, we now have a clear runway for growth and expect that recovery should have taken hold in the September quarter,” Morgan Stanley said in a research note. India’s export soared by 25.67% to USD 28.61 billion in September, logging its highest growth in last six months, while import too rose by 18.09% to USD 37.6 billion in September from USD 31.83 billion in the year-ago month. “The sharp improvement in export growth was even stronger than what we and the consensus expected,” the report said, adding that the uptick was fairly broad based, with strength in oil and non-commodity exports, while non-oil commodity exports held up well. The report noted that the continued strength in import growth is a reflection that underlying demand trends stayed healthy in the month. Robust sales of passenger cars, two wheelers and medium and heavy commercial vehicles, also supported this view. The report further noted that the GST Council recently approved a package of measures to relieve some procedural requirements for exporters, and this in turn has alleviated some of the earlier concerns on the impact that GST implementation could have had on exports.
I do see case for fiscal stimulus, says NITI Aayog VC Rajiv Kumar (BL, BS 17.10.17)
Niti Aayog Vice Chairman Rajiv Kumar has pitched for fiscal stimulus to boost growth with a rider that additional expenditure should be used only for increasing productivity and capital expenditure. Faced with slowing economic growth, the industry has been clamouring for a stimulus package from the government. "I do see a case for stimulus," Kumar said. He added however that additional expenditure should be used judiciously. Kumar's comments come amid Finance Minister Arun Jaitley saying that he has not promised any fiscal stimulus, but would respond to the emerging situation. "I have not used that phrase (fiscal stimulus). I said, we will respond to situations and your fraternity translated the word respond as meaning stimulus. So you are the ones who should be answering and not me," the minister told reporters in Washington yesterday in response to a question. Jaitley's remarks followed increased speculation over a possible fiscal stimulus that can go above Rs 40,000 Cr after six successive quarters of dip in the economic growth, which slid to 3-year low of 5.7% in the April-June quarter. The finance ministry has pegged the fiscal deficit target for 2017-18 at 3.2% of the GDP and 3% for the following year. Any fiscal stimulus to boost sagging growth would push up the fiscal deficit.
Bad loan recast failures portend more pain for banks as India’s economy is forecast to slow to a 4-year low (FE 17.10.17)
Sagging economic growth in India is complicating efforts to clean up a mountain of bad debt at the nation’s banks. Loans worth 1.7 trillion rupees ($26 billion) have been withdrawn in total since the 2001 inception of the Corporate Debt Restructuring Mechanism through to the end of August, according to the latest data from the agency that brokers agreements between borrowers and lenders. That’s a net increase of 446 billion rupees from the end of 2016, and already exceeds the 415 billion rupees of loans that couldn’t be revamped last year, the data show. The jump in failures underscore the challenges banks face in rehabilitating their assets with growth in the economy forecast to slow to a four-year low. Lenders are stuck with 1.5 trillion rupees of live cases with the CDR forum, mainly from steel sector. The central bank had asked lenders more than two years ago to choose legal action over the mechanism to tackle the problem. “There’s excess capacity for some of these borrowers while certain policy changes also contributed to the failures,” said Rajesh Mokashi, MD at CARE Ratings in Mumbai. “Bankers are feeling the pinch to take haircuts as offers from buyers of non-performing loans are sub-optimal.” The record $180 billion of stressed assets in the system is hindering the banks ability to bolster credit at a time when the economy is still suffering from last year’s cash ban and the disruption in supply chains triggered by a sales tax introduced on July 1. Growth has been slowing for the past five quarters and a Bloomberg survey published last month forecast India’s GDP will grow at 6.8% in the year to March 2018. The absence of hard-coded timeline and the failures at banks and lenders’ debt resolution forum has prompted authorities into stronger actions, according to the central bank. Specific measures taken over the past few months will add a sense of urgency to the task, RBI Governor Urjit Patel said last month. There’s been some progress. The CDR panel has resolved cases involving 137 billion rupees of loans this year compared with 86 billion rupees in 2016, the data show.
Retail inflation remains steady, but RBI may not cut rates (BL 17.10.17)
CPI inflation for September 2017 remained steady at 3.28% year-on-year, as against most expectations of the number inching up. While food inflation eased further, core CPI inflation (excluding food and fuel), moved up due to impact of HRA implementation. While the September CPI inflation number is well within the RBI’s projection of 2-3.5% for the first half of the current fiscal, upside risks to inflation on account of fiscal slippages, implementation of the Seventh Pay Commission recommendations by States, and hardening of core inflation, can nudge inflation to 4.2-4.6% in the second half, in line with the RBI’s estimates. This may leave very little scope for further rate cuts in FY18. Given that the focus has been on steering the trajectory of inflation towards its target over the medium term, rather than past data, how inflation trends over the second half of the fiscal will be keenly watched. Over the past year, the steady fall in CPI inflation has been led by food that has a 45% weightage in the CPI basket. From 6.3% in April 2016, food inflation slipped to a negative 1.2% in June 2017, before inching up in July and August. Vegetable prices (of onion and tomatoes in particular) that shot up in August, have been receding. Vegetable inflation is down to 3.9% in September from 6% in August. Cereals that have the highest weightage within food, have also witnessed some easing in prices. However, inflation in milk and milk products that commands the second-highest weightage, has inched up in September. So has inflation in meat and fish. Pulse prices continue to see a significant drop — inflation within this basket slipped into the negative territory in December 2016 and the fall has only gotten accentuated since then. In September, pulse prices fell 22.5% y-o-y. Oversupply of pulses due to bumper crop, alongside rising imports led to the steep fall in prices. However, core CPI inflation has been on the rise. From 4.5% in August, it moved up to 4.6%, largely due to the impact of higher HRA allowances under the Seventh Pay Commission.
RBI governor calls for better access to currency swap lines (BS 17.10.17)
The governor of the RBI called on major central banks to extend their network of currency swap lines deep into emerging markets, saying a type of “virtual apartheid” in the provision of foreign currencies hampers efforts to fight financial instability. Urjit Patel’s unusually forthright language — central bankers rarely criticize each other in public — offers a glimpse of tensions among policy makers as an improvement in the global economy encourages some central banks to step back from the easy-money policies they have pursued for more than a decade. So-called swap lines have emerged since the financial crisis as an important tool in stabilizing the financial system by allowing central banks to funnel foreign currencies to banks in their home countries during a funding squeeze. Access to dollars in particular is critical to the global banking system. A patchwork of swap lines exists between the Federal Reserve, the European Central Bank (ECB), the Bank of Japan and other major central banks, while the People’s Bank of China has established its own swap lines with countries as diverse as South Korea, Argentina and Ukraine, partly as a way to boost international use of the yuan and grease the wheels of Chinese trade. But Mr. Patel said at a seminar hosted by the Group of 30 in Washington that there is a stark asymmetry in how central banks make their currencies available to their counterparts across the world.
Diwali dhamaka: Markets touch historic peaks (BL, BS 17.10.17)
There was Diwali cheer on Dalal Street on Wednesday as key index Nifty of the National Stock Exchange (NSE) closed above the psychological mark of 10,200. The BSE’s 30-share Sensex too closed at 32,663 and is now just a stone’s throw away from yet another milestone. Relentless buying by domestic institutional investors (DIIs) pushed stock markets to historic highs, the parallel of which can only be drawn with the year 2000 and 2008 bull runs. Yet there was euphoria on Monday on the back of positive macro data and encouraging comments by the International Monetary Fund (IMF). Wholesale inflation softening to 2.6% in September from 3.24% in August and exports growing at six-month high rate of 25% in the month enthused investors. IMF chief Christine Lagarde last week said the Indian economy was on a “very solid track” in the medium term, triggering all-round buoyancy in the market. The rupee appreciating further to 64.68 against the dollar (intra-day) on the forex market too fuelled the rally in stocks on Monday. According to Taimur Baig, Chief Economist, DBS Group Research, complacency was seeping into the markets and ignoring geopolitics could be hazardous for markets. “The current dynamic of modest growth, low inflation, and easy liquidity has left investors so comfortable that the market is hardly pricing in geopolitical risks, despite rising tensions and uncertainties,” said Baig. “The general view is whether it is North Korea or Iran, Catalonia or Italy, market-damaging outcomes are unlikely given the high stakes involved. Markets typically struggle to price such risks, which is understandable, but complacency in the presence of so many risk points is unwelcome.”
Insider trading: DCB Bank under SEBI lens (BL 17.10.17)
The DCB Bank counter is being probed by market regulator SEBI for alleged insider trading and front running. Source close to the regulator said that the probe is primarily linked to the period around October 2015 when DCB Bank shares had suffered a severe crash. During the second quarter results in October 2015, DCB announced an ambitious target for branch expansion to 300 from around 150 in the coming years and even said it would double its employee headcount to over 5,000 from 3,700. But to the surprise of many, the bank proactively issued a warning that such an aggressive expansion plan would affect its ROA (return of assets) and profitability. Soon after the announcement, DCB shares hit the lower circuit of 20%. From around Rs. 140 at the start of October, DCB shares had crashed to Rs. 80 by the end of the month without any meaningful broader market move. The share price had nearly doubled to Rs. 150 in just a year between September 2014 and June 2015. The bull run in the counter began in September 2013 when DCB was traded at around Rs. 40. According to the source SEBI was studying details of key shareholders and bank insiders who bought and sold DCB Bank shares in both cash and derivative segments in 2015. An angle that SEBI was looking at apart from bank insiders was how Ambit Corporate Finance, an arm of Mumbai-based Ambit Capital, ignored the bullish sentiment towards DCB Bank displayed by an analyst in one of its own research house and kept paring its holding in the counter.
Dewan Housing stand-alone net rises 26% (BL 17.10.17)
Dewan Housing Finance Corporation (DHFL) reported a 26% increase in second quarter stand-alone net profit at Rs. 293 Cr against Rs. 233 Cr in the year-ago period. The company’s board of directors declared an interim dividend of Rs. 3 per share on equity shares of face value Rs. 10 each. Revenue from operations was up 21% year-on-year (y-o-y) at Rs. 2,610 Cr in the reporting quarter. Finance cost increased 17% y-o-y to Rs. 1,903 Cr, while other expenses jumped 74% to Rs. 183 Cr. Loans sanctioned during the reporting quarter soared 68% to Rs. 14,201 Cr. Disbursements jumped 51% to Rs. 9,950 Cr. Loan book outstanding grew 24.6% to Rs. 81,390 Cr during the quarter, as against Rs. 75,223 Cr in the corresponding quarter of the previous year. Net interest margin was flat at 3.05%. Gross non-performing assets to gross advances ratio was also flat at 0.96%. As at September-end 2017, the company’s average loan ticket size moved up to Rs. 14.6 lakh (Rs. 13.41 lakh as at September-end 2016).
Bajaj Finance's Q2 profit up by 37% at Rs 557 cr (BS 17.10.17)
Bajaj Finance, the lending subsidiary of Bajaj Finserv, has posted a heavy rise in profit in the quarter ended September on the back of rising net interest income (NII) and growth in assets under management (AUM) with new loans booked. The non-banking finance company’s (NBFC) net profit during the quarter saw a 37% rise to Rs 557 Cr from Rs 408 Cr in the same period for the previous year. The NII for the quarter ended September increased 41%, year on year, to Rs 1,958 Cr from Rs 1,385 Cr. Total income rose by to Rs 3,102 Cr, from Rs 2,341 Cr in year-ago quarter, up by 33%. The NBFC’s capital adequacy in September was 25.42% with a tier-I capital ratio of 19.86%. The company has raised Rs 4,500 Cr of equity capital through institutional investors during the quarter. The company’s AUM during the quarter was Rs 72,139 Cr, up from Rs 52,332 Cr in the corresponding quarter of previous year, up by 38%. This rise was due to year on year growth in rural lending by 137% and commercial lending by 57%. Lending to small and medium businesses continued to be the slowest segment with a growth of 18% over the year-ago period. Bajaj Finance’s gross NPA ratio during the September quarter stood at 1.68%, a marginal improvement from 1.7% in the previous quarter. The company’s provisioning coverage ratio also improved marginally from previous quarter to 70%.
APY subscribers cross 69 lakh with contribution of Rs 2,690 cr (BS 17.10.17)
The number of Atal Pension Yojana subscribers has increased to over 69 lakh with a total contribution of Rs 2,690 Cr, a finance ministry statement said today. Atal Pension Yojana (APY) was introduced in 2015 by the government as a self- contributory savings pension scheme with guaranteed pension of Rs 1,000 to Rs 5,000. The statement, quoting Pension Fund Regulatory and Development Authority (PFRDA) Chairman Hemant G Contractor, said there is a need to increase the pension coverage as a large section of the society still does not have access to pensions. This a cause of concern for the PFRDA as well as the government, he said speaking at a conference here. Contractor informed the gathering that on an average, a little less than 2% of the eligible population is covered under APY and "hence a lot has to be done to provide people a regular access to old age income". In a video message, Secretary of Department of Financial Services Rajiv Kumar said the pension coverage in this country is at around 12% and banks and other stakeholders need to work towards greater coverage under the scheme. He said his department was monitoring the progress under the scheme and stressed targets allocated under the scheme to banks should be accomplished.
Sundaram BNP Paribas Q2 disbursements up 32% (BL 17.10.17)
Sundaram BNP Paribas Home Finance plans to raise about Rs. 1500 Cr during the second half of this fiscal to fund its growth plans. Around 70% will be raised through debentures and short-term market borrowings. The company has reported a net profit of Rs. 40.31 Cr for the quarter ended September 30, 2017, compared with Rs. 39.21 Cr in the same period last year. It registered a 32% increase in home loan disbursements at Rs. 439 Cr for the second quarter of this fiscal against Rs. 334 Cr in the year-ago quarter “The strong 32% growth in home loan disbursements in Q2 gives us the confidence that the worst may be behind the sector. While Andhra Pradesh, Karnataka and Kerala registered good growth, the most heartening news has been the growth of almost 40% registered in the Chennai market,” said Srinivas Acharya, MD. More than 40% of the company’s disbursement is for the affordable housing segment, which will continue to be an important growth driver in the second half of the fiscal. “We expect second half to be equally good and are targeting growth of 20% this year in home loan disbursements.”
Zeta Banks on Kotak to Push Corporate Play (ET 17.10.17)
As the next round of fintech growth is expected through collaboration between banks and technology startups, Mumbai-based payments technology company Zeta is looking to partner with banks to scale-up operations rapidly. Zeta, which is hoping for a 50-times growth in transaction volume through its platform, has tied up with Kotak Mahindra Bank to extend its corporate payment solutions to companies who have their employees' salary accounts with the bank. Kotak has around 20,000 corporates and manages close to 2.4 million salary accounts. “In collaboration with Kotak Mahindra Bank, we are offering 10 digital tax benefit solutions to their customers who have salary accounts and through this partnership we have the scope to reach out to more than 10 million employees,“ said Bhavin Turakhia, CEO of Zeta. A customer who has the salary account with Kotak Mahindra Bank will now be getting two cards, one debit card for his salary account and another Zeta-Kotak cobranded card which can be used for all his employee benefit payments like petrol, medical expenses, meals among others. Expenses incurred in this account will not only be digitally checked and tabulated by Zeta but also integrated seamlessly with the corporate's back-end thereby reducing hassles and paperwork. Zeta currently has around 1,500 corporates who use their digital payment solutions for their employees and manages 3 million transactions per month through their platform.
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Aditya Birla Group exits low margin business but on growth path, say analysts (BL 17.10.17)
Kumar Mangalam Birla’s elaborate restructuring of the conglomerate that he leads, the Aditya Birla group with a combined market cap of $50 billion, will set the different group companies on a firm growth path over the next few years, analysts say. “Some of the moves may seem premature right now,” said Mayuresh Joshi, Vice-President, Angel Broking, “but it seems that they are focussing on the four-five verticals that have the most potential for growth.” In the last few months, the group completed the biggest chunk of the restructuring process, merging Aditya Birla Nuvo with Grasim, while hiving off the various financial services businesses into the new Aditya Birla Capital. Meanwhile, the cement company Ultratech closed a Rs. 16,189-Cr acquisition; it sold its textile business in Grasim Bhiwani Textiles to Mumbai-based Donear group and, if market speculation is to be believed, has put its fertiliser business Indo Gulf Fertiliser on the block. At the same time, the group has plans to launch a payment bank once its telecom arm Idea merges with Vodafone to lead the industry, and has just received the RBI approval to start an asset reconstruction company under its financial service arm.
Axis Bank Q2 net up 35% on lower loan-loss provisioning (BL, BS 18.10.17)
Relatively lower loan-loss provisioning vis-a-vis the year-ago period helped Axis Bank report a 35% increase in second quarter net profit, even as it continued to face asset quality pressures, especially on account of RBI directed asset-classification downgrade of some loan accounts. The bank reported a net profit of Rs. 432 Cr in the reporting quarter (Q2 FY18) against Rs. 319 Cr in the year-ago period. In Q2 FY18, net interest income saw a muted 1% growth at Rs. 4,540 Cr. Other income edged up 2% y-o-y at Rs. 2,586 Cr. Advances were up 16% to Rs. 4,10,171 Cr and deposits rose 9.50% to Rs. 4,16,431 Cr. Jairam Sridharan, CFO, said the bank’s loan growth bounced back across all segments — retail (23%), SME (15%) and corporate (10%). Gross non-performing asset (NPA) additions in Q2 stood at Rs. 8,936 Cr, of which corporate slippages were Rs. 8,110 Cr. The corporate slippages predominantly came from low-rated accounts. As at September-end 2017, GNPAs stood at Rs. 27,402 Cr against Rs. 16,379 Cr as on September-end 2016. The bank has created total provisions aggregating Rs. 1,618 Cr on these accounts, which among others are from steel, power, and IT/ITeS sectors, during the quarter. Sridharan said his bank has exposure to 20 out of the 40 accounts that banks’ have jointly proceeded against under the Insolvency and Bankruptcy Code (IBC). The bank’s funded exposure to these 20 accounts is Rs. 7,041 Cr. It holds total provisions of Rs. 3,886 Cr towards them.
Bad loan divergence troubles (BL 18.10.17)
When Axis Bank, along with other private banks, reported sharp divergences from the asset classification and provisioning of the RBI norms last year, the bad loan issue appeared to be bottoming out. But after reporting bad loan divergences to the tune of Rs. 9,478 Cr pertaining to FY16, Axis Bank has reported another Rs. 4,867 Cr of divergences pertaining to FY17 in the latest September quarter. This has led to a sharp rise in quarterly slippages, taking the gross non-performing assets as a% of loans to nearly 6% as of September 2017. Given that the risk-based supervision or RBS (another acronym to watch keenly after AQR) is an annual exercise conducted by the RBI, further slippages on this count are unlikely this fiscal. But continual sharp divergences in asset classification from the RBI norms, year after year, highlight gaps in the earlier clean-up exercise, not lending much comfort to investors. Also, continued stress from outside the bank’s watch list, a substantial rise in write-offs and significant fall in net interest margin remain a cause for concern. Slippages into NPAs that peaked in the September quarter last year, had since moderated. From Rs. 8,772 Cr in September quarter last year, gross slippages had tapered to Rs. 3,519 Cr in June 2017. But with the bad loan divergence reported for FY17, the slippages are back to Rs. 8,936 Cr in the latest September 2017 quarter.
1,000 branches rationalised post the merger of associate banks, says SBI Deputy MD (BL 18.10.17)
State Bank of India (SBI) has rationalised 1,000 branches in the April-September 2017 period, post acquisition of five associate banks and the Bharatiya Mahila Bank. Prashant Kumar, Deputy Managing Director, SBI, said: “After the merger we had almost 24,000 branches. So far, 1,000 branches have been rationalised. This (rationalisation) we were planning to do by December-end but we could complete that by September-end. So, the entire branch rationalisation part is over.” Out of 80,000 employees of the erstwhile associate banks, almost 3,500 had opted for voluntary retirement, Kumar said at an event where SBI Foundation, the CSR subsidiary of State Bank of India, sanctioned Rs. 10 Cr for conservation and restoration of Mumbai’s iconic Chhatrapati Shivaji Maharaj Terminus (CSMT), a UNESCO world heritage site. Kumar said his bank is in the process of completing recruitment of almost 2,000 probationary officers. After assessing the manpower requirement, the bank may go for recruitment in the clerical cadre also.
Andhra Bank puts up Rs 1,653-cr of NPAs for sale (BS 18.10.17)
Government-owned Andhra Bank has put up 62 stressed loan accounts, with a combined principal balance of Rs 1,653 Cr, for sale in a move to partly reduce the burden of non-performing assets (NPAs). This will be the second NPA sale by the bank in this financial year. In June, it sold Rs 3,871 Cr of NPAs. The bank had added Rs 2,214 Cr in new NPAs during the 12 months ended June; reduction in NPAs stood at Rs 456 Cr during the same period. The present round of auction, which would take the total sale of NPAs to a little over Rs 5,500 Cr, comes ahead of the announcement of financial results for the September quarter. The loan accounts of L&T Chennai Tada Tollways (Rs 108 Cr), Chennai Elevated Tollway (Rs 60.96 Cr) and Bartronics India (Rs 78.56 Cr) are some of the large NPAs in the current asset sale. As on June, gross and net NPAs had risen to 13.33 % and 9.09 %, respectively, from 10.3 % and 6.21 % in June 2016. The gross and net NPA ratios were 5.75 % and 2.99 %, respectively, in June 2015. Close to 70 % of the bank’s Rs 194,280 Cr NPAs arise from its operations in Delhi, Telangana and Maharashtra. Iron and steel, infrastructure, textiles and construction contribute to the bulk.
Karnataka is number one in Mudra loan disbursements (BL 18.10.17)
Karnataka has emerged as the top State in disbursements of loans under the Pradhan Mantri Mudra Yojna, according to Ananth Kumar, Union Minister for Chemicals and Fertilizers. Inaugurating the ‘Mudra’ promotion campaign in Mangaluru, he said that 8.4 Cr beneficiaries have been provided Mudra loans of Rs. 3.5 lakh Cr in the country. Of them, the share of Karnataka stood at Rs. 24,894 Cr with 27.29 lakh beneficiary accounts at the end of September. The loans up to Rs. 10 lakh are provided without collateral securities under the scheme. He urged the bankers in Dakshina Kannada district to come forward to set up an entrepreneurship training centres. The Centre will extend support, he said.
PM's Economic Advisory Council member Surjit Bhalla says India likely to stick to deficit target (BL 18.10.17)
India is likely to stick to its fiscal deficit target of 3.2 percent of GDP, and may accelerate sales of government stakes in lenders and other companies as part of an effort to recapitalise banks, an adviser to Prime Minister Narendra Modi said. Many policy makers in New Delhi, including the head of a government policy think tank have suggested fiscal stimulus is needed to boost economic growth but the central bank has warned that missing the target could hit macro-economic stability. Indian stocks slid last month on reports that a stimulus package worth up to 500 billion rupees ($7.7 billion) might be in works - one that would widen the deficit to 3.7 percent of GDP. Surjit Bhalla, however, told that the government has stuck to its fiscal deficit targets over the past three years and is expected to do so this year as well. Bhalla said the council had made the recommendations on the fiscal deficit target and banking reform to Modi and Finance Minister Arun Jaitley.
RBI highlighted economic growth likely to improve in second half of fiscal: MPC Minutes (FE 19.10.17)
The Reserve Bank of India (RBI) highlighted upside risks to inflation in the 7th meeting of the monetary policy committee held on October 3 and 4 and said economic growth is likely to improve in the second half of the fiscal year. The central bank had kept its key repo rate steady at 6% at its monetary policy review on October 4. Consequently, the reverse repo rate remained at 5.75%, while the marginal standing facility rate and the bank rate was unchanged at 6.25%. “For keeping headline inflation close to 4% on a durable basis, it is important to recognise near and medium-term risks to the inflation outlook. “We have to be vigilant on account of uncertainties on the external and fiscal fronts; this calls for a cautious approach. I, therefore, vote for keeping the policy repo rate on hold, while maintaining the stance as neutral,” RBI governor Urjit Patel had said, the minutes of the meeting showed. Apart from the governor, deputy governor Viral Acharya and executive director Michael Debabrata Patra were also in favour of keeping the repo rate unchanged. Ravindra H Dholakia, professor, Indian Institute of Management, Ahmedabad had recommended at least a 25 basis points cut in the repo rate. The other two members of the committee, Chetan Ghate, professor, Indian Statistical Institute and Pami Dua, director, Delhi School of Economics also voted to keep the repo rate unchanged. The governor had argued that the headline consumer-price inflation has risen sharply in the last two months and there has been a broad-based increase in inflation excluding food and fuel, the minutes of the meeting showed. He had said rising international crude prices and global geo-political uncertainty and volatility in financial markets have imparted uncertainty to the near-term overall inflation outlook. “A combination of farm loan debt waivers by state governments and the implementation of the pay commission award could entail some fiscal slippages and pose a risk to inflation,” Patel had added.
Nifty PSU Bank index hits fresh 9-month low (BS 18.10.17)
Shares of public sector banks (PSBs) came under pressure with the Nifty PSU Bank index hitting fresh nine-month low on the National Stock Exchange (NSE). The index hit an intra-day low of 2,958 - its lowest level since January 6, 2017 - and has slipped 20% from its recent closing high of 3,723 on July 31, 2017. By comparison, the benchmark Nifty 50 was up 1.4%, while Nifty Bank (down 3%) and Nifty Private Bank index (down 1%) were down less than 4% during the period. Among individual stocks, State Bank of India (SBI), Oriental Bank of Commerce and Corporation Bank have lost 20% to 23% in past two-and-a-half months. Union Bank of India, Vijaya Bank, Punjab National Bank, Punjab & Sind Bank, Bank of India, Bank of Baroda and Canara Bank down 16% to 19% during the period. The fall on Wednesday was triggered by Axis Bank that lost nearly 9% to Rs 468 levels following its September quarter numbers that showed worsening asset quality. The bank's gross non-performing assets (NPAs) and net NPAs stood at 5.9% and 3.12% in Q2FY18 against 5.03% and 2.30% in Q1FY18, respectively. In the year-ago quarter, gross NPAs were at 4.17% and net NPA were at 2.02% of the loan book.
Gold loan NBFCs report lower delinquency, soaring profits because of this big step (FE 19.10.17)
Gold loan NBFCs are reporting lower delinquency leading to lesser auctions by switching over to periodic collection of interest and shorter product tenures. Profitability of the gold loan lenders have surged back to the levels seen in 2012 with rating agency Crisil reporting that fiscal 2017 saw return on assets rise to over 4% from around 2.5% for fiscal 2014, with the players making two major changes to their business model. It is estimated that less than 2% of the total gold stock in India is used for pledging gold loans. Gold loans normally have a tenure of one year and used to be repaid in one bullet repayment along with interest. However, in the past couple of years, forced by a decline in gold prices, these companies have started collecting interest from borrowers at periodic intervals without waiting for loan maturity. VP Nandakumar, managing director and CEO of Manappuram Finance said that regular interest collection like the EMI model has helped in lowering delinquency leading to lesser auctions. “Earlier the payment of principal and interest was clubbed together at the end of the tenure and some found it difficult to muster the amount needed. Monthly or quarterly payments have helped in lowering the payment at the end of the tenure leading to lower defaults,” he said. “Periodic interest collection has ensured the loan-to value ratio remains intact and gold price declines do not result in interest loss, which was a key reason for reduced profitability in the preceding few years. It also reduces the chances of delinquency as the borrower’s equity in the pledged gold does not reduce,” said Krishnan Sitaraman, senior director, Crisil Ratings, in the report.
Merger with Shriram: Holding firm discount could hurt IDFC shareholders (BL 18.10.17)
Holding company discount could mar shareholder value of IDFC if it went ahead with a merger deal with Shriram City Union Finance (SCUF) in the proposed manner. Anil Singhvi, former CEO, Ambuja Cement, and Founder, IiAS, a proxy advisory firm, says government of India which owns a 16.38% stake in IDFC could suffer the most if IDFC went ahead with the deal as proposed. IDFC Group and Shriram Group have entered into an exclusivity agreement (for 90 days) to evaluate a merger of certain financial services businesses in the Shriram Group with the IDFC Group. Under the proposed structure, IDFC would remain the holding company, SCUF would be merged with IDFC Bank and Shriram Transport Finance Company (STFC) would be an unlisted fully-owned subsidiary of IDFC. In India, most listed holding companies are quoting at a 30-70% discount and IDFC being the holding company of its group suffers the same fate. Therefore, in a merger deal the dilution of IDFC shareholders will be more.
ICICI Lombard net profit up 19% in Q2 (BL 18.10.17)
ICICI Lombard General Insurance reported a 19% increase in second quarter net profit at Rs. 204 Cr against Rs. 171 Cr in the year-ago period. The board of directors of the company has approved payment of the second interim dividend of Rs. 0.75 an equity share of face value Rs. 10 each for the second quarter. The private sector general insurer said that henceforth the board would consider dividend on half-yearly basis. Gross written premiums were up 17% year-on-year (y-o-y) to Rs. 3,234 Cr. Premium earned (net) increased 11% y-o-y to Rs. 1,811 Cr. Income from investments in the reporting quarter was a shade lower at Rs. 279 Cr ( Rs. 295 Cr in the year-ago quarter). Commissions andbrokerage (net) paid increased 13.6% to Rs. 117 Cr. Expenses relating to business support services rose 27% to Rs. 218 Cr. Sales promotion expenses jumped 57% to Rs. 116 Cr.
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MCX launches India’s first gold commodity options (BL 18.10.17)
The Multi-Commodity Exchange of India Ltd (MCX) launched India’s first commodity options in gold, giving stakeholders a new set of financial instruments to hedge their price risks. Launched by Union Finance Minister Arun Jaitley in New Delhi on the auspicious day of Dhanteras, the gold options received an encouraging response on Day 1. The total traded notional value for gold options stood at Rs. 1,259 Cr, while the total traded volume totalled 4,220 lots (1 kg each). MCX has currently launched a Gold Option contract, keeping gold (1 Kg) futures as the underlying asset, with expiry on November 28, 2017 and January 29, 2018.
NCLT puts Nagarjuna Oil’s jinxed TN refinery project on the block (BL 18.10.17)
Nagarjuna Oil Corporation’s 6-million-tonnes-a-year refinery is on the block, with the National Company Law Tribunal-appointed Resolution Professional calling for Expressions of Interest from prospective investors. The refinery at Cuddalore, about 200 km from Chennai, was scheduled to be commissioned in 2002 at an investment of around Rs. 3,500 Cr. But owing to delays and cost overruns, the estimates mounted to Rs. 12,500-18,000 Cr, and the commissioning was pushed to 2017. But a storm in December 2011 hit the project hard and it was stalled. A debt recast was attempted, with a consortium 17 public sector banks cutting their losses. They were, however, to bring in an additional Rs. 7,000 Cr debt as part of the restructuring. However, the plan too fell through.
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