'One way of doing this could be offering credit guarantee to the banks, say 10 per cent, for fresh loans given to micro, small and medium enterprises,' observes Tamal Bandyopadhyay.
'The approach today is, instead of giving loans to 100 MSMEs, let us give one loan to a big-ticket corporate.' 'And so many of these big fish deceived the banks and the banks are in the doldrums now with high NPAs.'
Benefitting from the economic rebound, banks are expected to report a healthy bottom-line and asset quality profile in the quarter ended March 2023 (Q4FY23). The net profit of listed commercial banks is projected to grow by an average 43.6 per cent year-on-year (YoY) in Q4FY23 amid better net interest margins (NIMs) and declining credit costs. This is based on a combined assessment of analyst estimates for 17 banks on Bloomberg database.
According to Fitch, the scheme could open a window for banks to build capital buffers while putting off full recognition of COVID-19 pandemic's impact on loan portfolios, but is reminiscent of a strategy adopted over 2010-2016 that delayed and exacerbated problems for banks.
RBI may also be open to injecting liquidity through open market purchases of bonds but is resisting relaxing capital buffers for banks.
Reserve Bank Governor Shaktikanta Das will hold a meeting with CEOs of public sector banks on Wednesday to discuss issues concerning slow deposit growth and sustainability of high credit demand. As per the Reserve Bank of India (RBI) data, deposits rose by 9.6 per cent as compared to 10.2 per cent on a year-on-year basis, while credit offtake witnessed a jump of 17.9 per cent as against 6.5 per cent a year ago. According to an agenda circulated for the meeting, sources said, sustainability, including pricing and slow growth of deposits, would be discussed.
The Adani group has exited the financial services business by selling its entire 90 per cent stake in Adani Capital and Adani Housing to private equity (PE) firm Bain Capital for Rs 1,440 crore. The total valuation of the Adani financial services business stands at Rs 1,600 crore. Gaurav Gupta, managing director (MD) and chief executive officer (CEO) of the Adani firms will hold the rest of the stake.
Gold loan companies offer loans to financially-excluded customers and MSMEs by enabling them to monetise their gold without the need for documentary proof of income
Shifting to floating rate deposits can work as an anaesthetic gel for some customers, points out Tamal Bandyopadhyay.
In order to make it hassle-free, various start-up support groups such as TiE (The Indus Entrepreneur) and India Angel Network (IAN) are partnering with the digital NBFCs to extend debt finance to their member companies.
Banks have started refunding borrowers the compound interest charged on specified loan accounts during the moratorium period. Last week, the Reserve Bank of India (RBI) had asked all lending institutions, including non-banking financial companies, to ensure that the scheme of waiver of interest on interest for loans up to Rs 2 crore for the six-month moratorium period is implemented by November 5.
Indian Bank expects recoveries to be more than slippages in this financial year, which will result in improved asset quality.
The sector seems set for a rally that may be somewhat temporary.
In a mixed bag for HDFC Bank ahead of the parent HDFC's merger with itself, the Reserve Bank of India has declined to make exceptions on certain aspects, and has offered some leeway on others. The country's largest private sector lender, which is aiming to conclude the merger with the home finance major by July, had written to the central bank seeking certain forbearances after announcing the $40-billion merger in April last year. In an exchange filing this evening, HDFC Bank said it received a response from RBI on Thursday and also said that there are a few pending issues.
Five Star Business Finance is in the business of providing loans to MSME entrepreneurs. Gireesh Babu finds out more about the company that plans to grow to 3,000 crore by 2020.
RBI Governor Shaktikanta Das on Tuesday asked private sector banks to ensure continuity in the provision of various financial services, including credit facilities to individuals and businesses, in the face of challenges brought on by the pandemic. Earlier this month, the governor had held a similar meeting with MD and CEOs of public sector banks. During the meeting with the MD and CEOs of select private sector banks, Das also impressed upon the banks to quickly and swiftly implement the measures announced by the RBI on May 5, 2021, in right earnest.
The Union Cabinet on Wednesday approved additional funding of up to Rs 3 lakh crore at a concessional rate of 9.25 per cent through the Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector hit hard by the coronavirus crisis. The ECLGS was the second-biggest component of Rs 21 lakh crore comprehensive package announced by Finance Minister Nirmala Sitharaman last week.
Banks such as IndusInd Bank, Federal Bank, DCB Bank and Axis Bank which have renewed their focus on secured loans may be, hence, walking on a tightrope.
According to highly placed sources, the finance ministry is likely to extend ECLGS and other loan guarantee schemes for micro, small and medium enterprises (MSMEs), hospitality and tourism sector, and the health infrastructure beyond March 31, Business Standard has learnt. This is likely to be announced by Finance Minister Nirmala Sitharaman as part of her Budget speech on February 1.
Finance Minister Nirmala Sitharaman on Tuesday held a review meeting on credit guarantee scheme with heads of public sector banks, and asked them to expedite loan disbursement under the Rs 3-lakh crore ECLGS for MSME sector, hit hard by coronavirus-induced lockdown. The meeting on Emergency Credit Line Guarantee Scheme (ECLGS) was held through video conference, and the minister appreciated the efforts of banks in execution of the scheme.
The scheme is the biggest fiscal component of the Rs 20-lakh crore Aatmanirbhar Bharat Abhiyan package announced by Finance Minister Nirmala Sitharaman last month.
'You peel one layer, then another layer, then another, but in the end, you will see that there is no onion inside.' 'This package has been packaged well, but there is nothing much inside the package!'
Punjab National Bank on Monday allayed concerns about its exposure to Adani companies and noted that its loans to the group are diversified into 8-9 companies, which are generating sufficient cash. Atul Kumar Goel, the bank's MD & CEO, in a post-earnings call said total exposure to Adani group, so far, stands at Rs 7,000 crore, of which Rs 2,500 crore is in the airport sector. He further said there is "no worry as the exposure is not very big" and that the bank is keeping an eye on the development that is taking place.
The finance minister chaired a meeting through video conference with major private banks and NBFCs to ensure effective rollout of ECLGS and uninterrupted liquidity to Indian MSMEs in this difficult time.
Agriculture and allied activity loans are not eligible for the interest on interest waiver announced by the government last week, the finance ministry has clarified.
India's economy is projected to slow to 6.5 per cent in the fiscal year starting April but will remain the fastest growing major economy in the world as it fared better in dealing with the extraordinary set of challenges the globe has faced, the Economic Survey 2022-23 said on Tuesday. India's gross domestic product (GDP) growth of 6.5 per cent in 2023-24 compares with an estimated 7 per cent expansion in current fiscal year (April 2022 to March 2023) and 8.7 per cent in the previous year. Like the rest of the world, India too faced an extraordinary set of challenges in tightening financial conditions and supply chain disruptions from a prolonged war in Europe but "withstood them better than most economies", the annual document detailing the state of the economy said.
An immediate RBI rate cut will lower lending rates for banks' MSME/retail/mortgage loans before the 'busy' industrial season ends in March.
On November 12, 2021, the Reserve Bank of India (RBI) decided to ring in uniformity in asset classification and income recognition across all lending institutions. Shadow banks, or non-banking financial companies (NBFCs), like commercial banks, are to test non-performing assets (NPAs) on a daily basis and upgrade them to "standard assets" only when interest and principal arrears are settled by borrowers. This is going to create all manner of headaches for shadow banks and their clientele. Says Y S Chakravarti, managing director and chief executive officer (CEO), Shriram City Union Finance: "NPA levels will go up, especially of small borrowers.
Banks will also consider requests from MSMEs for restructuring their stressed standard assets. So far, only 25 per cent of the around 1 million eligible MSMEs have taken benefit of the RBI's special dispensation.
Exporters on Thursday demanded fiscal incentives, tweaking in customs duties on certain products and credit at affordable rates in the forthcoming Budget to boost exports and create jobs. In a pre-budget virtual meeting with Finance Minister Nirmala Sitharaman, the Federation of Indian Export Organisations (FIEO) said the depreciation of the rupee against the US dollar is affecting exports' competitiveness and the sector requires more support. "Creation of employment is the biggest challenge faced by the country...We would urge the government to provide fiscal support to units which provide additional employment in the export sector," the exporter's body said.
Small and medium enterprises have been struggling to raise bank credit even as they have been powering India's manufacturing growth in recent years.
Finance Minister Nirmala Sitharaman on Friday announced a slew of measures to boost economic growth and address distress in various sectors
Not only has the Mudra loan mela generated no jobs, it has frittered away trillions of taxpayers' money and it's time to bury the scheme, argues Debashis Basu.
In a festival gift to borrowers, the finance ministry on Wednesday approved guidelines for a scheme for grant of ex-gratia payment of the difference between compound interest and simple interest for six months of loans up to Rs 2 crore.
Currently, banks follow system of internal benchmarks, including Prime Lending Rate, Benchmark Prime Lending Rate, Base rate and Marginal Cost of Funds based Lending Rate.
Rs 5,000 crore additional liquidity facility to be provided by the National Housing Bank to boost liquidity in housing sector, the RBI said.
After the finance minister directed public sector banks to join the account aggregator (AA) ecosystem, 5-6 major ones, including State Bank of India (SBI) and Bank of Baroda are expected to go live by July-end. Sahmati, an industry alliance for the AA ecosystem, has been working with PSU banks to get them onboarded for quite some time now. So far, Union Bank of India and Punjab National Bank (PNB) have gone live on the AA ecosystem. While Union Bank has been live for a while, PNB went live earlier this month.
Krishnamurthy Subramanian listed land, labour, law, and liquidity as the key areas of big reforms.
The protocol aims to "democratise" lending, reduce costs of credit, and ensure accessibility of credit to small companies and street vendors, according to Nandan Nilekani.
Bank credit growth declined to 8.5 per cent in January from 13.5 per cent in the year-ago period.
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