Banks now have room to raise funds via tier 2 bonds: RBI

With the Reserve Bank of India (RBI) tweaking of banks’ core capital to include a part of real estate assets and foreign exchange, lenders will now have additional headroom to raise funds through tier 2 bonds, RBI deputy governor R Gandhi said on Thursday.

He told reporters on the sidelines of Gyan Sangam, a brainstorming session with financial sector players convened by the finance ministry, that Rs 25,000 crore of capital allocated for public sector banks in FY17 should be enough. “Banks can also go to the markets next year, so we believe it will be enough,” he said

On asset quality review, Gandhi said it is unlikely bad loans will spill over from FY16 to the next fiscal. “Spillover of bad loans unlikely in FY17 after the asset quality review,” he said. State-owned banks have been under severe stress arising out of delinquency in loans mostly belonging to infrastructure, power and steel sectors. As of September 2015, the stressed asset ratio — a combination of bad loans and recast assets — of public sector banks stood at 14.1%, versus 4.6% in private sector banks.

As per the RBI’s latest move, which is in sync with the Basel III capital norms, banks can account for 45% of their revalued real estate assets as tier 1 capital subject to riders.

The revised regulations on tier 1 capital include treating revaluation reserves, subject to conditions, as Common Equity Tier 1 (CET1) capital at a discount of 55%, instead of as tier 2 capital; treating foreign currency translation reserves, subject to conditions, as CET1 capital at a discount of 25%; and several directives on how to treat deferred tax assets vis-à-vis CET1 capital. These changes could improve the capital adequacy ratio of major PSBs by up to 100 basis points.

According to estimates, these relaxations, particularly that of treating revaluation reserves as CET1 capital, given the huge amounts of physical assets PSBs are sitting on, will free up capital upwards of Rs 30,000 crore-35,000 crore for them and upwards of Rs 5,000 crore for private sector banks.

Hinting that the RBI is looking at all such possible measures to augment the existing capital of banks, which would reduce the burden on them to raise fresh capital to a certain extent, governor Raghuram Rajan had hinted that the RBI is trying to identify non-recognisable capital, such as undervalued assets, already on bank balance sheets and could allow some of these to count as capital under Basel norms, provided a bank meets minimum common equity standards.

Sun Capital

Raghuram Rajan to wait until April to cut rates again

The Reserve Bank of India will wait a month to cut interest rates again, according to economists in a Reuters poll who mostly said New Delhi's latest fiscal deficit target looked optimistic.

Finance Minister Arun Jaitley committed to fiscal discipline in his Feb 29 budget, lowering the deficit target further for the fiscal year that starts next month, but offered little in the way of reforms investors have been waiting for.

Investors and traders in financial markets have been hoping RBI Governor Raghuram Rajan will follow soon with a rate cut, like he did last year.

But the majority of economists polled said he would not repeat the surprise cut of 25 basis points he delivered just a few days after last year's budget, with 20 of 28 saying a cut was unlikely before next month's policy review on April 5.

"Although we doubt the fiscal math, the fact that the government has been sticking to the stated math, in whatever way they are doing it, creates room for Rajan to cut rates soon," said Kunal Kundu, India economist at Societe Generale.

"They will probably bring the fiscal deficit down in a way that is not desirable, by cutting public capex, but Rajan has indicated that even if fiscal consolidation leads to lower growth he would still be OK with it," he said.

Asked what they thought about the fiscal deficit target for the next fiscal year, nearly two-thirds of the economists said Jaitley was being optimistic. The rest felt it was about right.

About two-thirds, 17 of 25, also predict the RBI will cut its benchmark repo rate by 25 basis points to 6.50 percent next month. Two predicted a deeper 50 basis point cut to 6.25 percent, while six saw no change.

After an April cut, the RBI is set to ease policy again in the last quarter of the year, according to the consensus view.

That is a very different outlook from what happened last year, when the RBI sliced 125 basis points off rates, twice unexpectedly and in-between meetings.

Last year's rate cuts came as inflation cooled rapidly around the world, triggering a wave of similar easier policy from major central banks. Consumer price inflation in India was 5.7 percent in January.

That exceeds Rajan's inflation target of 5 percent set for March 2017. Coupled with a weakening rupee, predicted to fall to record lows in the coming 12 months, rising inflation could stall the RBI's easing cycle.

There is a roughly one-in-three chance of the rupee falling to 70 per dollar, a Reuters poll of currency strategists showed on Thursday.

India is set to raise wages by almost 25 percent for its millions of public sector employees, a once-in-a-decade bonanza that will cost roughly $16.6 billion dollars, something that economists widely agree is inflationary.

Despite that extra expenditure, as well as planned outlays on farming and schemes to guarantee minimum employment for people in rural areas, Jaitley surprised investors by pledging to cut the fiscal deficit to 3.5 percent of gross domestic product in the 2016-17 fiscal year.

The RBI, however, is not yet convinced.

A possible source of revenue next fiscal year is sales of government stakes in public sector companies, the budget says.

But successive governments have had a poor track record selling off companies and it could be especially hard amid global stock market turmoil.

Three policymakers aware of the RBI's budget deliberations said they were combing the numbers to test how Jaitley struck a balance and whether the impact of the public pay rise had been fully accounted for.

Sun Capital

The World’s Top 8 Investment Banks

The easiest way to rank investment banks is through figures such as revenue numbers and employee headcount.

1. Founded in 1869, Goldman Sachs’ services include investment banking, institutional client services and lending. It reported net revenues of $34.2 billion in 2013 -- $6 billion from the investment banking division.

2. JP Morgan Chase reports net revenues of $2.2 billion, including $1.7 billion from investment banking. It operates in 60 countries and employs 260,000 while offering a diverse set of services.

3. Barclays reported a total income of £28.4 billion, with £10.7 billion from investment banking. Founded in 1896, the London-based bank has a strong presence in retail and commercial banking, as well as the card-processing business.

4. Bank of America Merrill Lynch operates in 40 countries, and in 2013 had global revenue of $6 billion. $1.3 billion came from investment banking. The company was formed when Bank of America took over Merrill Lynch after the 2008 financial crisis.

5. Morgan Stanley reported net revenues of $5.4 billion, with $1.2 billion from investment banking. It offers prime brokerage, custodian, settlement and clearing services in addition to the usual banking functions.

6. Germany’s Deutsche Bank reported net revenues of €31.9 billion. It’s one of Europe’s largest financial services firms, and it specializes in cross-border payments and international trade financing.

7. Citigroup traces its roots back to Citibank in 1812. It employs 251,000 people, operates in 160 countries, and had investment banking revenues of $1.4 billion in 2013.

8. Credit Suisse had a net income of 2.1 billion Swiss francs in 2013. It dates back to 1856 and now employs 46,000 people over 50 countries.

Sun Capital

Piramal Realty plans to invest Rs 16,000 cr in 4 years

Piramal said that the company is looking to increase its commerical portfolio as well in the coming years.

Piramal Realty, the real estate arm of Ajay Piramal-owned Piramal Group, plans to invest Rs 16,000 crore in development of real estate projects and acquisition of land, over the next 4 years.

Anand Piramal, executive director, Piramal Group told FE that while the company already has a roughly 9 million square feet of residential projects pipeline to be executed till 2020, the company is open to acquiring fresh parcels of land and distressed assets.

The company is also in the midst of developing an office project in Kurla, near Bandra Kurla Complex (BKC) ad-measuring 2.5 million square feet.

The company launched a luxury project at Byculla called Piramal Aranya, which will entail an investment of R4,300 crore over the lifecycle of the project.

The sea-facing 70-storey high rise residential project will be spread across 7 acres and is in close proximity to the 60 acre botanical gardens on the west.

In 2015, Goldman Sachs and Waurburg Pincus had invested a total of $434 million in Piramal Realty, giving the company a strong bandwidth to invest in real estate projects.

Piramal said that the company is looking to increase its commerical portfolio as well in the coming years. “As of now we just have one project, but going forward we would like to have a combination of both residential and commercial real estate.

With the expectation of 7%-8% growth in the Indian economy, the focus on commercial real estate will come back and we would like to have a healthy mix of both segments”.

Sun Capital

Large-value accounts responsible for rising NPAs: CBI chief

A group of "large-value" corporate accounts has pushed up non-performing assets (NPAs) and associated financial frauds in the country since 2008, CBI chief Anil Sinha said this week, at a time when dozens of Indian banks are swamped with bad loans.

The crisis runs deep, Sinha said at a financial conference in Mumbai on Wednesday, weeks after the Supreme Court asked the Reserve Bank of India (RBI) to provide details of companies that have each defaulted on loans of more than Rs500 crore.

However, the Central Bureau of Investigation (CBI) director did not give details of the accounts that are being examined by the agency.

India's banking sector, dominated by about two-dozen state-run lenders, has been bruised by its highest bad-loan ratio in years as lagging economic growth hit companies' abilities to service debt.

In August 2013, then CBI director Ranjit Sinha told a gathering of government officials that the "bulk of the NPAs is from the top 30 accounts, which is learnt to be running into thousands of crores."

A loan is recognised as a non-performing asset when the repayment is delayed beyond 90 days. This forces the bank to make provisions by setting aside funds, further restricting its lending capacity.

At the Mumbai meet, Anil Sinha said defaulters are not getting deterred because of "weak and diffused" accountability mechanisms in banks and financial institutions.

"Added to this is the unduly slow and long process by which such loans and advances are red-flagged, declared NPAs, then wilful defaulters and finally fraudulent," he said. It "allows large borrowers ample time to walk with the funds.to tax havens."

According to government figures, gross NPAs of 39 listed banks stood at Rs 4.43 lakh crore in December 2015, nearly ten times the 2009 level.

"The CBI has recently registered a case of cheating and fraud against Kingfisher and its erstwhile management involving allegations of defrauding banks to the tune of Rs 7,000 crore," Sinha said.

"This case was registered in July 2015, but the loans or advances were taken during 2004-2012. However, despite our repeated requests, the banks did not file a complaint with the CBI. We had to register the case on our own initiative."

RBI governor Raghuram Rajan has set banks a March 2017 deadline to clean up their balance sheets and treat some troubled loan accounts as bad and make provisions for them by the end of this March.

Sinha also underscored the need for pre-emptive action to thwart deposit scams that thrive in India's vast informal financial sector.

"The second case relates to PACL -Pearls Agrotech Corporation Ltd-which has reportedly collected over Rs 51,000 crore of illegal deposits from nearly 5.5 crore investors," he said, referring to the scandal that illustrated the risks faced by millions of low-income Indians who live outside the banking system.

"It needed the Supreme Court to step in to order investigations. Should not the regulator have suo moto (on its own) stepped in?"

Sun Capital

RBI releases draft norms for account aggregators

Such NBFCs should have minimum net-owned funds of Rs2 crore and cannot provide any services other than account aggregation

The Reserve Bank of India (RBI) on Thursday released draft guidelines for setting up of non-banking finance companies (NBFC) that would act as account aggregators and provide customers with a single platform view of all their financial holdings across banking, insurance, mutual funds, provident funds and shares.

“At present, persons holding financial assets such as, savings bank deposits, fixed deposits, mutual funds and insurance policies do not get a consolidated view of their financial asset holdings, especially when the entities fall under the purview of different financial sector regulators. Account aggregators would fill this gap by collecting and providing information of customers’ financial assets in a consolidated, organized and retrievable manner to the customer or any other person as per the instructions of the customer,” RBI said in its release.

Such NBFCs should have minimum net-owned funds of Rs.2 crore and cannot provide any services other than account aggregation, the central bank said, adding that the account aggregator cannot support transactions in financial assets. Only NBFCs that have registered with the RBI will be allowed to undertake account aggregation. However, companies that aggregate accounts of only a particular financial sector governed by other regulators can be exempt from seeking RBI approval, the central bank said.

Initially, only financial assets whose records are stored electronically and are under the regulation of the financial sector regulators, namely RBI, Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA) and Pension Fund Regulatory and Development Authority (PFRDA) shall be considered for aggregation, the draft norms said.

The NBFCs would provide account aggregation services in response to a specific application by the customer for availing such services and would be backed by appropriate agreements and authorisations, the draft norms said.

“No financial asset-related customer information pulled out by the account aggregator from the financial service providers should reside with the account aggregator,” the central bank said.

Pricing of services would be as per the account aggregator’s board-approved policy, RBI added.

In July 2015, RBI governor Raghuram Rajan had announced the intention of setting up such NBFCs for account aggregation.

The central bank has sought comment and feedback on the draft norms by 18 March.

Sun Capital

Sebi set to get tougher with wilful defaulters

Regulator will make it hard for wilful defaulters to raise funds from public; they can opt for rights issues or share sales to institutional investors

Mumbai: The Securities and Exchange Board of India (Sebi) will make it difficult for so-called wilful defaulters from raising fresh equity or debt from the public, according to two people familiar with the agenda of the regulator’s next board meeting.

The move will mark yet another effort by the Indian government, the Reserve Bank of India (RBI) and now Sebi to crack down on the problem of bad loans.

A wilful defaulter is a company or individual who borrowed money and has no intention of paying it back, has diverted the money to some other purpose than the one for which it was borrowed, or has sold the asset acquired or developed with the money without the lender’s knowledge.

Sebi will, however, allow such entities to raise funds through rights issues or share sales to institutional investors, said one of the two persons, asking not to be identified.

The entity will need to disclose itself as a wilful defaulter in the offer document if it chooses to go in for a rights issue (sale of shares to existing shareholders), or a qualified institutional placement, added this person

Sebi’s board meeting is scheduled for 12 March. A Sebi spokesperson did not respond to an email seeking comment.

In January 2015, Sebi issued a draft paper proposing that wilful defaulters would not be allowed to sell shares, debt securities and non-convertible preference redeemable shares to the public.

The paper suggested that wilful defaulters be barred from taking control of another listed entity, but that they be allowed to participate in counter offers to deal with hostile takeover bids.

Each of these restrictions would be applicable if the issuer, its promoter, group company or director of the issuer of such securities were in the list of wilful defaulters published by RBI, the stock market regulator said.

“The final regulations will be based on the discussion paper that dealt with the wilful defaulters,” said the second person, who too asked not to be identified.

In addition to restrictions to fund raising, such entities and persons will be ineligible to serve as market intermediaries or run mutual funds or alternative investment funds, added the second person.

Bankers said such restrictions would help.

RBI has been asking banks to get tough on wilful defaulters and has a tough set of rules in place which say that anyone tagged a wilful defaulter cannot raise fresh funds from the banking system.

The banking regulator, however, has been of the view that such defaulters also need to have their access to capital markets restricted. “If someone has knowingly stopped repaying banks, then why should he be allowed to access the capital markets? Any such limitation on the borrower would definitely be a power for the banks since they can squeeze these wilful defaulters better,” said Ashwani Kumar, chairman and managing director of Dena Bank and chairman of the Indian Banks’ Association.

While RBI has not disclosed the quantum of loans that fall under the wilful default category, data has emerged from some large public sector banks.

Loans worth Rs.11,700 crore given by State Bank of India have been locked up as non-performing assets as nearly 1,160 defaulters have wilfully decided not to repay, PTI reported on 24 February.

Another state-owned lender, Punjab National Bank (PNB), declared 904 borrowers who owed it a combined Rs.10,869.71 crore as of December-end as wilful defaulters. PNB added 140 companies to the list of wilful defaulters in the December quarter alone.

While banks believe that banning wilful defaulters helps their cause, corporate lawyers caution against a sledgehammer approach.

“Wilful defaulters should be restricted from raising funds from public because there is no accountability to return funds to shareholders. However, Sebi should steer clear of a blanket restriction on fund-raising by defaulters as this would potentially limit the chances of a revival of the company and the existing shareholders would end up paying the price,” said Tejesh Chitlangi, a partner at IC Legal.

Parag Bhide, senior associate at Advaya Legal, said Sebi should approach the issue on a case-by-case basis.

“A complete ban on wilful defaulters may not be good for existing shareholders, including retail investors. Further, such a lifetime exile from financial markets may not be constitutional. Ideally, there should be some time limit (three-five years) for such a ban.”

Sun Capital

Jewellery sector contributes to black money: CBEC chief

Despite the ongoing jewellers' strike to protest against reimposition of 1 percent excise duty on gold and diamond jewellery, CBEC today said the sector contributes to generation of black money and needs to be brought under the tax ambit.

"We have brought jewellery (sector) into the tax net. This is the levy which we had attempted two years ago and withdrawn... This is the sector which you will agree with me needs to be brought into tax needs," Chairman of the Central Board of Excise and Customs (CBEC), Najib Shah today said at an event organised by industry body Assocham.

"This is a sector which lends itself to generation of unaccounted wealth." Finance Minister Arun Jaitley in the Budget for 2016-17 had proposed 1 percent excise duty on jewellery without input credit or 12.5 percent with input tax credit on jewellery excluding silver other than studded with diamonds and some other precious stones.

Jewellers are on a three-day pan-India strike to protest against the proposed re-introduction of 1 percent excise duty on gold and diamond jewellery and mandatory quoting of PAN by consumers for transaction of Rs 2 lakh and above.

Shah noted: "... manufacturing sector contributes 17 percent of GDP. We have a huge chunk of industry which is out of the tax net." The CBEC chairman said the revenue department will take a hit of Rs 1,000 crore due to the change in CENVAT credit rules.

"But we thought it is essential because the cost of litigation for you and me are much more than revenue which otherwise we have got," he said.

Noting that the government has increased some duties, Shah said it's done so to create a level-playing field for Indian industries as was the case in defence.

He urged industries to stop demanding exemptions to avail of goods and services tax (GST).

"If you want GST, you should not demand exemptions because two don't go together," Shah said.

 

Sun Capital

Banks delayed in declaring Kingfisher as defaulters: CBI

Banks delayed in declaring Kingfisher as defaulters: CBI

The Central Bureau of Investigation (CBI) on Wednesday blamed commercial banks for the delay in declaring Kingfisher Airlines (KFA) and its promoter Vijay Mallya as defaulters.

"The CBI registered a case of cheating and fraud against Kingfisher and its erstwhile management involving allegations of defrauding banks to the tune of Rs 7,000 crore. This case was registered in July 2015, but loans were taken during 2004 to 2012. However, despite our repeated requests, banks did not file a complaint with the CBI. We had to register the case on our own initiative," CBI director Anil Sinha while addressing a conference jointly organised by the Indian Banks Association and the investigating agency.

HT had reported on February 29, 2016 that the RBI was questioning banks for lending Rs 5,253 cr to Kolkata-based REI Agro Ltd after the CBI uncovered fraud.

Sinha cited the example of how the agency's suo moto action against Pearls Agro eventually led to the arrest of the company's chairman.

SBI chairman Arundhati Bhattacharya, who was also present on the occasion, didn't comment on the issue.

SBI, along with other banks, had lent close to Rs 7,000 crore to the UB Group, the parent company of KFA. It was only last month that PNB declared the airline and Mallya wilful defaulters, a claim currently being contested by Mallya.

"While I fully understand that loan defaults can happen due to business risk and reasons beyond control of banks, borrowers and regulators, yet a significant part of the defaults are wilful and fraudulent," Sinha said. "What causes greater concern is that a major part of the NPAs and frauds are in large-value accounts," he said, adding that a large part of such funds moves outside the country to tax havens through unofficial channels.

Gross non-performing assets (NPAs) of banks have gone up from Rs 44,957 crore in 2009 to Rs 3 lakh crore in 2015.

The CBI investigated 171 cases of bank frauds involving Rs 20,646 crore of funds in 2015.

Sun Capital

DCB Bank buys 5.81% stake in Annapurna Microfinance

Deal values the micro lender at Rs 172 crore. 

DCB Bank Ltd has acquired a 5.81 per cent stake in Odisha­based Annapurna Microfinance Pvt Ltd for Rs 9.99 crore (about $1.5 million). 

The move strengthens the business partnership between the two companies, Murli M Natrajan, managing director and CEO at DCB Bank, said in a statement filed to stock exchanges. DCB’s microfinance initiatives help it achieve its financial inclusion goals, he added. 

DCB, formally known as Development Credit Bank, was founded in 1995. It has 176 branches in 17 states and two union territories in India. 

Gobinda Pattnaik, managing director at Annapurna Microfinance, said the transaction will help it strive forward to achieve its goal of serving the financially underserved. “This capital infusion is a mandate for growth,” he said. 

Annapurna focuses on rural locations of Odisha, Chhattisgarh and Madhya Pradesh. It has 14 branches each in Odisha and Madhya Pradesh and six in Chhattisgarh. It has half a million members and assets under management of Rs 720 crore

The latest transaction values Annapurna at Rs 172 crore. The firm had earlier also raised funding. In April last year, it secured Rs 25 crore in a Series C round of funding from Samridhi Fund, which is managed by SIDBI Venture Capital Ltd, a wholly owned subsidiary of state-run SIDBI and an existing investor in the firm. 

In 2014, the microlender raised Rs 30 crore in a Series B round of funding led by Belgian Investment Company for Developing Countries, with participation from the existing investor Incofin Investment Management's Rural Impulse Fund II.

The firm posted total income of Rs 61.61 crore for the six-month period ended September 20, 2015, up from Rs 22.69 crore a year earlier, according to its half-yearly audit report. Net profit jumped to Rs 6.85 crore from Rs 58 lakh.

Sun Capital Services

Sumitomo Mitsui Banking Corp to sell stake in Kotak Mahindra Bank

Sumitomo Mitsui is looking to sell almost half of its stake in Kotak Mahindra Bank for around $300 million

Shares of Kotak Mahindra Bank closed at Rs.630.25 on the BSE, up by 2.35%, while the benchmark Sensex closed at 23,002 points, down by 0.66%, on a day the stock markets witnessed volatile trading on account of the announcement of the union budget.

Mumbai: Japan’s Sumitomo Mitsui Banking Corp. is looking to sell almost half of its stake in private sector lender Kotak Mahindra Bank Ltd, for around $300 million (approximately Rs.2,050 crore), according to two people aware of the development.

As of 31 December, Sumitomo held a 3.58% stake in the private-sector lender, data from stock exchanges show.

“The book has been launched and the sale is expected to close overnight,” said one of the two people mentioned above, requesting anonymity as he is not authorized to speak to the media.

Large domestic and foreign institutions have shown interest in buying the stake in block trade, he added.

Shares are being offered to buyers in a price range of Rs.611.34 to Rs.636.55 per share, according to Bloomberg. Citigroup Inc. is managing the share sale program, the report added. After the transaction, Sumitomo’s stake in the bank will fall to around 1.79%.

The Japanese bank firm had picked up a 4.5% stake in Kotak Mahindra Bank in 2010 through a preferential allotment for Rs.1,366 crore.

Shares of Kotak Mahindra Bank closed at Rs.630.25 on the BSE, up by 2.35%, while the benchmark Sensex closed at 23,002 points, down by 0.66%, on a day the stock markets witnessed volatile trading on account of the announcement of the Union budget.

Also, on Monday, California Public Employees’ Retirement System (CalPERS), the largest pension fund in the US, sold a stake worth around Rs.870 crore (approximately $127 million) in Axis Bank Ltd, according to data at stock exchanges.

Foreign institutional investor (FII) Genesis Indian Investment Co. Ltd bought the stake (around 0.94%) at a price of Rs.387.5 per share.

Last month Genesis bought a stake worth Rs.318 crore in Dabur India Ltd through an open market transaction, according to information on stock exchanges. The FII bought about 12.7 million shares, or a 0.72% stake, in Dabur.

In 2015, California Public Employees’ Retirement System, had assets under management of $298 billion, according to Preqin, a private equity database.

Shares of Axis Bank closed at Rs.375.25 on the BSE, down by 2.75%.

Sun Capital

New RBI norms to help banks unlock Rs. 40,000 cr

Central bank eases norms governing treatment of certain balance sheet items

The Reserve Bank of India on Tuesday relaxed norms relating to the treatment of certain balance-sheet items, including property, which will help banks unlock capital aggregating about Rs.40,000 crore.

This capital relief comes at a time when the banks, especially those in the public sector, are struggling with bad loans, provisioning requirements and falling equity market valuations.

The revised norms will give PSBs access to additional capital of Rs. 35,000 crore, while it could be about Rs.5,000 crore for private sector banks.

The unlocking of capital follows a review carried by the RBI with the aim of further aligning the definition of regulatory capital with the globally adopted Basel III norms.

These standards aim to improve the banking sector’s ability to absorb shocks arising from financial stress and improve risk management and governance.

Banks have now been allowed to include some items, such as property value and foreign exchange, for calculation of Tier 1 capital (CET1), instead of Tier 2 capital.

Analysts say State Bank of India may benefit a great deal from the change in the carrying amount of a bank’s property as it has huge property holdings across the country.

As per RBI norms, CET1 capital, comprising paid-up equity capital, statutory reserves, capital reserves, other disclosed free reserves (if any), and balance in P&L Account at the end of the previous fiscal year, must be at least 5.5 per cent of risk-weighted assets.

By Sun Capital

IDBI Bank looking to double business by FY19

Will catch up with the industry average of 12-15% growth, says MD & CEO

Mr. Kishor Karat, MD & CEO 

As part of its three year medium term strategic business plan, IDBI Bank on Tuesday said it is planning to double its business, rebalance loan portfolio towards micro, small and medium enterprises, agriculture and retail credit, augment low-cost deposits and purge the balance sheet of bad loans.

The public sector lender has unveiled the plan in the backdrop of it posting a huge loss of Rs. 2,184 crore in the October-December 2016 quarter and the government announcing in the Budget that it will consider the option of reducing its stake in the bank to below 50 per cent.

Under the plan, IDBI Bank expects to double its business (deposits plus advances) to Rs. 10-lakh crore (deposits of Rs. 5.50 lakh crore and advances of Rs. 4.50 lakh crore) by FY19 from the estimated Rs.5 lakh crore (deposits: Rs. 2.85 lakh crore and advances: Rs. 2.35 lakh crore) in FY16.

IDBI Bank will rebalance its portfolio so that the share of loans to retail, micro, small and medium enterprises and agriculture segments increases to 41 per cent of total loans in three years from 33 per cent now.

Consequently, the share of corporate and infrastructure loans in the total loans will come down to 37 per cent (43 per cent now) and 2 per cent (24 per cent), respectively.

Kishor Kharat, MD and CEO, said his bank has overcome the limitations on balance sheet growth arising from it not being able to meet the priority sector lending targets and is now at an inflection point.

Observing that the bank has grown at 5-6 per cent over the last few years due to the limitations, he said it will catch up with the banking industry’s average business growth of 12-15 per cent.

To bring down the cost of deposits, the bank plans to augment low-cost current account and savings account deposits from 25 per cent to 35 per cent of total deposits and reduce dependence on bulk deposits from 44.6 per cent to 32.6 per cent during the three-year period. This will bring down the cost of deposits to 5.9 per cent from 7.4 per cent as at December-end 2015.

The bank will contain the gross non-performing assets to below 3 per cent from 8.94 per cent as at December-end 2015 by stepping up efforts for recovery/resolution of bad loans. It will bring down the net NPAs to near zero from 4.60 per cent through intensive recovery and upgradation of accounts.

Branch expansion

To support business expansion, IDBI Bank will add 2,000 branches over the next three years, including 500 branches and 1,500 low cost banking points, and add 6,000 employees to its present count of 15,500.

When asked about his opinion on consolidation among public sector banks, Kharat said the strengthening of his bank’s balance sheet could help it takeover a bank.

---

IDBI Bank will rebalance its portfolio so that the share of loans to retail, MSMEs and agriculture segments increases to 41 per cent of total loans in three years from 33 per cent now

By Sun Capital

IDBI Bank unveils Rs 20,000-crore investment plan over three years

To raise Rs. 20,000-crore capital via equity route

MUMBAI: A day after Finance Minister Arun Jaitley said the government may consider bringing down its stake in state-run IDBI Bank to below 50 per cent, the lender today announced a "transformational" plan entailing an investment of about Rs 20,000 crore over a three-year period. 

The plan includes doubling the bank's business volumes and reducing gross NPA level below 3 per cent. 

"The plan rests on business growth and our approach will be to catch up with the industry. We will double our business from around Rs 5 lakh crore in FY16 to Rs 10 lakh crore in FY19, representing CAGR of over 20 per cent per annum," Managing Director and Chief Executive Kishor Kharat told reporters here. 

However, he was quick to add the "transformational plan" has nothing to do with the Government's move to reduce stake in the bank. 

"The plan has nothing to do with whether we remain a public sector or a private sector bank because it does not talk abut composition of ownership or holding. On a standalone basis we have made this plan for transforming the bank and therefore the thrust is more on business transformation." 

Kharat said bad loan will remain an issue for some more time but expressed confidence the bank will be entering the next fiscal with a lighter stress. "Our endeavour will be to bring down gross NPA to 3 per cent and net NPA to near 0 per cent." 

For the quarter ended December, the bank's gross NPAs jumped to 8.94 per cent from 5.94 per cent in the same period last year, while net NPA rose to 4.60 per cent. 

To meet the plan, the bank is looking at raising around Rs 19,000-20,000 crore over the next three years, he said. Besides, it will be raising Rs 4,000 crore from Tier I bonds and Rs 8,000-9,000 crore through Tier II bonds. 

The city-based lender has lined up around Rs 3,000 crore of assets for monetisation, of which it is expecting nearly Rs 1,200-1,500 crore to accrue this month. 

Kharat said he would like to list the bank's subsidiaries - IDBI Capital, IDBI AMC, IDBI Federal - but no final decision has been taken so far. "Right now, we will monetise to the extent of our need only." 

The bank has also put on hold its plan to raise Rs 3,771 crore through qualified institutional placement (QIP) route due to volatile market conditions. 

"We have put the QIP plans on hold for now because the price is not right at this point in time. The investor interest during our roadshow was very good but they wanted more clarity around the impact of AQR (asset quality review). Now that things are clearer, we will wait for the price to come back up," Kharat said.

RBI allows banks to expand capital base to meet Basel III norms

Sun Capital: RBI allows banks to expand capital base to meet Basel III norms

At a time when public sector banks (PSBs) have been struggling with a low capital base, the Reserve Bank of India (RBI) has allowed banks to beef up its capital adequacy by including certain items such as property value, foreign exchange for calculation of its Tier-I capital.

The new norms revealed by the regulator suggest that banks can now include the value of the property while calculating its Tier-I or core capital base. But not the entire value of the property would be included; instead only 45 per cent of the property value would be counted.

However, this comes with caveats. For instance, the regulator has stated that the property value would be counted only if the bank is able to sell the property readily at its own will and there is no legal impediment in selling the property. Apart from this it also mandates that the valuation should be obtained from two independent valuers, at least once in every three years.

Analysts with a credit rating agency said considering revalued assets (real estate) as part of common equity may only serve the purpose of regulatory capital requirement. That hardly improves the credit profile of banks. The asset has to be ready (available) to absorb loss in times of need.

Foreign exchange, another item that was not included while calculating the capital base, can also be included. “Foreign currency translation reserves arising due to translation of financial statements of a bank’s foreign operations to the reporting currency may be considered as CET1 (common equity tier-1) capital. These will be reckoned at a discount of 25 per cent,” said the regulator.

Apart from these two, gains arising out of setting off the losses at a later date can also be counted as Tier-1 capital, up to 10 per cent. This will be a breather for the lenders, especially PSBs, which have been grappling with the issue of mounting bad loans and depleting capital base.

According to RBI sources, this move would help in unlocking Rs 30,000-35,000 crore of capital for PSBs and up to Rs 5,000 crore for private banks.  

The government estimates that state-run lenders would require Rs 1.8 lakh crore over the next four years. Banks would have the onus to raise the balance Rs 1.1 lakh crore from the market. This is because the finance ministry has promised to pump into PSBs Rs 25,000 crore each in FY16 and FY17 and Rs 10,000 crore each in FY18 and FY19. RBI’s move on Tuesday will serve in meeting the capital requirements.

A PhillipCapital report believes this would be a big positive for PSBs as it would evade the risk of huge dilution of equity. “SBI can gain Rs 20,000 crore from revaluation of property, which can add 50 basis points to Tier-1 on account of revaluation reserves only,” it said.

According to new Basel-III norms, which kick in from March 2019, Indian banks need to maintain a minimum capital adequacy ratio (CAR) of nine per cent, in addition to a capital conservation buffer, which would be in the form of common equity at 2.5 per cent of the risk weighted assets. In other words, banks’ minimum CAR must be 11.5 per cent, which is higher than the 9.62 per cent banks are required to currently maintain.

Sun Capital Advisory Services