Corporate borrowing costs see greater fall than home loans: RBI

With banks turning stingy in passing on RBI's rate cuts to consumers, rate of home loans has fallen by only 0.26 percentage point since 2015, but corporates have managed to bring down their borrowing cost by 1.44 percentage point by tapping bond markets, as per the central bank.

With banks turning stingy in passing on RBI's rate cuts to consumers, rate of home loans has fallen by only 0.26 percentage point since 2015, but corporates have managed to bring down their borrowing cost by 1.44 percentage point by tapping bond markets, as per the central bank. Between January 15, 2015 and April 5, 2016, Reserve Bank reduced the repo rate by 150 basis points, but in response to this, the banks have lowered their benchmark lending rates by only 60 basis points, according to Reserve Bank's annual report for 2015-16.

Between December 2014 and June 2016, home loans dropped by just 0.26 per cent to 10.76 per cent in June 2016 from 10.50 per cent in December 2014.

During the same period, corporates' borrowing became cheaper by 144 basis points.

Corporates' borrowing from shortest maturity commercial papers dipped to 6.54 per cent in June 2016 from 7.98 per cent during December 2014.

Corporates are borrowing at a cheaper rate through issuance of commercial papers, RBI said, while adding that there was a surge in public issuances of corporate bonds in the fiscal year 2015-16.

In the second half of the year, following the September reduction in the policy repo rate and again towards the close of the year, yields of top-rated AAA corporate bonds eased, following g-secs (government securities) yields.

The corporate bond yields also declined following easing of g-secs yields during 2016-17 so far (up to August 2016).

"Taking advantage of low yields vis-a-vis bank lending rates, corporates raised more resources from the bond market in recent period," RBI stated.

According to RBI, banks are not passing on the benefits of rate cuts to customers to protect their earnings.

So far in the financial year 2016-17, there has hardly been any transmission of a reduction in the policy rate to the actual lending rates charged to customers, stated the report.

RBI said banks might have been loading a higher credit risk premia on their new customers in order to attain their desired return on net worth in a rising NPA environment.

Lenders are also charging a higher strategic risk premia on their riskier loans as part of their business strategy to reorient their lending operations towards less risky activities, it said.

Increasing bad loans, fall in their recovery a problem for banks: RBI

The problem of bad loans for the Banking sector is significant when one looks at the increase in stressed assets and the falling recovery of bad loans, said a senior Reserve Bank Of India (RBI) official on Tuesday.

Any bank that does not have a strong risk management system will have a highly susceptible credit portfolio, said RBI Deputy Governor N.S.Vishwanathan at the inauguration of the national conference on 'Risk Management-Key to Asset Quality,' organised by The Associated Chambers of Commerce and Industry of India (Assocham).

"The total stressed assets of public sector banks have risen to 14.5 per cent as at the end March 2016. They still contain some element of restructured assets indicating potential for some more pain, albeit of lesser intensity.

"With the annual recovery in NPAs (non-performing assets) falling from 20 per cent in 2013-14 to nine per cent in 2015-16, the problem assumes greater significance," he added.

According to Vishwanathan, there may not be big addition to NPA in the coming period as it would moderate but the provisioning needs as the NPAs age will put pressure on a bank's profit and loss account.

Noting risk management is not static and evolves over a period of time, he said risk management sophistication grows with the growth in the complexities of a bank's functioning.

Vishwanathan said the government has notified the amendment to the Debt Recovery Tribunal Act and SARFAESI Act which will speed up the debt recovery process, while the RBI has issued guidelines to make large borrowers to go to capital market for part of their funding needs

Ujjivan Financial Services banks on housing, SME segments for coming years

MD and CEO Samit Ghosh explains the company’s road ahead in transforming into a small finance bank

SAMIT GHOSH

MD and CEO, Ujjivan Financial Services

Microfinance firm Ujjivan Financial Services has posted stellar Q1 numbers with profits doubling and income rising almost 50 per cent.

Speaking to BTVI, Ujjivan Financial Services Managing Director and CEO Samit Ghosh explains the company’s road ahead in transforming into a small finance bank. While group loans contribute about 87 per cent of the total business, individual loans, especially housing and SME, will contribute half of the loan book in the next five years, he said. Excerpts:

Your profits doubled in Q1, to ₹71 crore. The net income is up 77 per cent on a year-on-year basis. Can you take us through the key drivers in this quarter?

As far as the profits are concerned, the business is moving as per our plans and the momentum is there. We have had a reasonable growth in our business. However, on the cost side, there is a one-off impact — the funds we received from our IPO are still in this quarter, which helped us reduce the cost of funds. So that has very positively impacted our profit for this quarter.

Along with that, we have also been able to reduce our operating expenses. Our efficiency levels have also gone up. So those factors positively contributed to this quarter’s profit.

Your net interest margin has gone up almost 100 basis year-on-year. Do you see that tapering off going forward? Is it sustainable at 12.96 per cent? Will there be any moderations in the forthcoming quarter?

There will be slight moderation in a sense that it is also affected (has gone up) by the funds we received from the capital infusion. So there will be certain impact from that.

In terms of the asset quality, the gross NPAs are at 0.18 per cent and the net NPAs are at 0.08 per cent. Is this trend likely to continue or do you see some strain on asset quality going ahead?

No, in case of asset quality, we do not foresee a major problem at all. Whatever minor blips are there in some particular parts of the country, we are able to tackle it and resolve it. We do not see the asset quality as an issue. But what would impact our cost is that we are transforming into a small finance bank. A lot of cost — relating to the investments we are making in terms of technology, infrastructure and hiring additional people — will start impacting us the next quarter onwards.

So that will increase our cost, but that really relates not to the regular business, but to the transformation cost of becoming a small finance bank.

Is your operational expenditure likely to go up on the back of the transition?

Yes, it will.

Your provisions are quite moderate — ₹6 crore right now as against ₹8 crore in the previous quarter. Will more stringent provisions be required? How are you provisioning for NPAs right now? How will your provisioning requirements change as you align and transform towards a small finance bank?

In terms of credit provisioning, we already have a very conservative plan. So I do not see credit provision in itself having a major impact when we become a small finance bank because we are already aligned to the RBI requirements for a small finance bank.

Our operating expense ratio is down to about 7 per cent, which is extremely good. Our cost-to-income ratio during the transition period will definitely go up. And that’s what we plan when we start making investment in infrastructure.

What will be your average ticket-size for SME loans?

At present, group loans contribute about 87 per cent of our business while individual, education, housing and SME comprise the remaining 13 per cent. In five years, we expect almost an equal division between group and individual lendings. Largely, the growth will come from housing and micro SME business.

Ratan Tata, Nandan Nilekani and Vijay Kelkar team up for Avanti Finance to provide loans to poor

Ratan Tata, Vijay Kelkar and Nandan Nilekani have started a technology enabled financial inclusion vehicle, Avanti Finance, which will be focused on delivering affordable and timely credit to under-served and un-served segments in India. 

The aim is to leverage on the social sector presence of Tata Trusts and other like minded partners and the rapidly evolving India Stack (Jan Dhan - Aadhar - Mobile), UPI and payments bank ecosystem. Avanti would use this ecosystem and will innovate on product design in consonance with the indigenous needs, to deliver seamlessly for the end consumer, said the statement. 

According to the release, 'the promoters strongly believe that the institutional inequalities and information asymmetries are depriving the target customer segment of access to affordable credit'. The target customer segment over the last few years has displayed very low delinquency rates compared to any other customer segment, but still is charged the highest rate of interest. Avanti's primary objective is to make a difference in this sphere thereby enhancing the prosperity in these communities .. 

Ratan Tata, Chairman of Tata Trusts has been actively engaged in several initiatives of the Tata Trusts since his retirement. His endeavours in the last few years have been focussed on creating a sustainable model for interventions which have lasting impact on communities, especially the under-privileged and the deprived. 

Tata and Nilekani are bringing their investments from their respective philanthropic capital, and any gains will be reinvested in philanthropic causes. Avanti will apply for registration to the Reserve Bank of India in the coming days. 

The founding directors of Avanti are Ratan Tata, Dr. Vijay Kelkar, Nandan Nilekani and R Venkataramanan. A senior leadership team with experience Technology, Microfinance, Enterprise Risk Management, Credit Operations and Customer Service, Leadership and Strategy Consulting, Structured Finance and Investment Banking is in place. 

"Avanti will be a platform to impact the poor through credit at individual and community levels to create a lasting improvement in their livelihoods and standard of living, ushering prosperity. I am thankful to Dr. Kelkar and Nandan for agreeing to be part of this purpose driven initiative", said former chairman of Tata Trusts. 

Nandan Nilekani , co-founder of Infosys stated "I am humbled by Ratan's initiative and his inviting me to be a part of this venture. My participation in Avanti is more driven by social motivation rather than anything else - with a view to serve the underserved and unserved and make the Tata Trusts and other likeminded partners philanthropy more effective. Technology is an important differentiator and allows us to make a difference in many ways than one". 

Avanti will establish operations before the end of the financial year. 

Vijay Kelkar is currently the chairman of the National Institute of Public Finance and Policy (NIPFP), and India Development Foundation. R Venkataramanan is currently the Managing Trustee of Tata Trusts.

Finance ministry releases revised guidelines for public-funded projects

The government in the Union Budget 2016 had announced to do away with plan, non-plan distinction at the end of the 12th five-year plan

The finance ministry has come out with revised guidelines for public-funded projects under which schemes should be designed keeping in view economies of scale and the need to share implementation machinery.

The streamlining of the public-funded projects is aimed at expediting implementation and reducing time and cost overruns, an official said.

The government in the Union Budget 2016-17 had announced to do away with plan, non-plan distinction at the end of the 12th five-year plan.

After that announcement it was imperative that a plan, non-plan neutral appraisal and approval system is put into place, the official said.

The quality of scheme or project formulation is the key bottleneck which leads to poor execution at the implementation stage including time and cost overruns.

“While designing new schemes/sub-schemes, the core principles to be kept in mind are economies of scale, separability of outcomes and sharing of implementation machinery,” the officials said.

“Schemes which share outcomes and implementation machinery should not be posed as independent schemes, but within a unified umbrella programme with carefully designed convergence frameworks,” the official added.

Further, as per the revised guidelines, no new autonomous body, institution or other special purpose vehicle should be set up without the approval of the cabinet. The 12th five-year plan ends next year.

Why did banks ‘over-finance’ road projects, asks Parliamentary panel

SBI submitted before the committee that the projects may be approved only after ensuring 90 per cent of land acquisition is completed.

Observing that loan disbursed by banks in excess of an estimated project cost is “strange”, a parliamentary panel has expressed concern over a large chunk of about Rs 75,000 crore of loans extended to the road sector turning bad. In particular, the panel has raised questions about huge loans advanced to Jaypee Infratech turning into NPAs.

“Some of the banks have given information on total loan (Rs 74,088 crore) given to the road sector… for IDBI, the NPA percentage is as high as 52 per cent of loan disbursed for the road sector. The committee wants to know the reason why this huge amount has become NPA, that too to a single concessionaire, Jaypee Infratech Ltd,” the panel chaired by Kanwar Deep Singh said in its latest report.

Seeking full details of the project awarded to Jaypee, the 33-member standing committee on transport further observed that State Bank of India has lent Rs 19,502 crore out of which Rs 1,986 crore has slipped into NPAs. SBI submitted before the committee that the projects may be approved only after ensuring 90 per cent of land acquisition is completed.

The panel said, “The committee finds it strange as to how the concessionaire who has got a project for Rs 1,000 crore gets Rs 1,400 crore for the same project.” It also asked: “Why the concessionaire has been given a free hand to get the bank’s loan as per their wish?” It instructed NHAI to keep a watch on the excess loan amount obtained by the developer.

Incidentally, former road transport and highways secretary Vijay Chhibber has remarked that aggressive lending by banks which were “happily over-financing even non-serious highway players without assessing risks has virtually killed the sector”.

He told media, “The concessionaires and bankers are not realising that we are reaching a stage of impatience, and people who are users of these roads are not going to be waiting anymore.” Projecting that total NPAs of Rs 2.6 lakh crore may go up to Rs 4 lakh crore because of defaults, the panel recommended that banks be empowered more to make recovery of bad debt.

Asking the government to consider empowering the banks adequately to make recovery of bad debt easier, it said, “For example, in the case of a default, the banks may be allowed to take over the entire company.”

It also noted SBI’s contention that all approvals from statutory authorities and clearances from government agencies should be obtained before a particular project is sent for bidding. “Another area of discord is the project cost estimated by NHAI and the concessionaires, which results in lending delay by financial institutions,” the committee said.

$1 billion fund in the works for stressed assets, renewable projects: Piyush Goyal

Piyush Goyal

The power ministry plans to set up two funds of $1 billion each to enable alternative financing options for stressed power assets and renewable energy projects. The two funds have been proposed under the ambit of the National Investment and Infrastructure Fund (NIIF). 

"NIIF is the fund of funds within which we will set up a sub-fund which will focus on renewable energy projects and give investment support for faster ramp up of renewable energy. It is under our active consideration and we may launch it in the near future," power minister Piyush Goyal told ET in an interview. "We are also in dialogue with certain bankers to see if we could look at a stressed power asset fund. It may take us some more months to put its framework in place."

 
Asked about the size of the funds, Goyal said, "Each of these funds could easily be of the size of $1 billion." The government set up the Rs 40,000 crore NIIF in December as an investment vehicle to fund commercially viable greenfield, brownfield and stalled projects. The power ministry's renewable energy fund will be seeded with initial capital from a few state-run companies and will be driven largely by the private sector. 

"It will be run and managed by an investment manager who will be chosen through international bidding. We would like to keep the entire fund very professionally managed - something like a Temasek or a GIC model. We have the entire framework in place. We have also got investment commitments of REC, PFC and NTPCBSE 0.76 % already lined up. This fund can be launched quickly," Goyal said. Temasek and GIC are Singapore government-owned investment firms. 

Finance Minister Arun Jaitley had sought investment from Singapore in NIIF at a meeting on Friday with visiting Deputy Prime Minister Tharman Shanmugaratnam. 

Goyal said the Centre is working on a mega investment plan for the power sector that includes extending investment support to the tune of Rs 1.1 lakh crore to states under the Deen Dayal Upadhyay Gram Jyoti Yojana and the Integrated Power Development Scheme. Additional investments worth over Rs 1 lakh crore will materialise through the implementation of four planned ultra mega power projects of 4,000 MW capacity each. 

Goyal said the recent rationalisation of rail freight rates for coal transport and the cut in prices of higher-grade coal will help to ease costly imports of the fuel. "We have also regulated coal output in the past few months, resulting in some depletion of stocks at coal mines and power stations," he said. 

The minister said he hoped distribution utilities in Haryana would start reporting profits next year and Rajasthan discoms would turn profitable in 2019 with the implementation of the Ujjwal Discom Assurance Yojana scheme. 

The minister said he hoped distribution utilities in Haryana would start reporting profits next year and Rajasthan discoms would turn profitable in 2019 with the implementation of the Ujjwal Discom Assurance Yojana scheme. 
He said controversy over electrification of Nagla Fatela village in Hathras district of Uttar Pradesh was a "blatant attempt by the state government at misleading the centre."