One or two NBFCs may sink: Romesh Sobti, IndusInd Bank

IndusInd Bank CEO Romesh Sobti said the liquidity crisis that has gripped nonbanking finance companies (NBFC) is not a systemic issue, according to the regulators. He told Saloni Shukla and MC Govardhana Rangan in an interview that one or two of them may go under. “It’s a free market. Why should anybody come out to help them?” he said. He added that the liquidity squeeze has shown the key role NBFCs had been playing in driving consumption demand. “If they are not as active as they used to be, then who will fill the gap?” he said. Under Sobti, IndusInd Bank grew to become one of the country’s best-performing lenders. But the exposure to Infrastructure Leasing & Financial Services (IL&FS) and asset-quality issues have made investors nervous. He said IndusInd has been proactive in handling the fallout. Edited excerpts:IndusInd Bank rose from being a private-sector lender of little interest to one that was almost on par with HDFC Bank in the eyes of investors. But in the last few quarters there have been concerns over asset quality. What went wrong?It’s the overhang of just that one particular account (IL&FS). We were the only bank making provisions when no one else was talking about it. The expectation level was so high we were asked why didn’t we provide in one go? We accumulated and then provided for the entire exposure. Then rumours started surfacing over exposure to multiple troubled companies. The fact is every time one raises a question, you can’t go to the exchanges and start clarifying that we don’t have exposure, that’s not how you run a bank.‘Monitoring Realty Projects after Funding’We increased our disclosures, no one has opened their books like we have done. I am telling you my rating profile — SMA (Special Mention Account), I am giving you gross NPAs (nonperforming assets) product wise.There was also a rise in your real estate financing last quarter and there are concerns over that because of the meltdown in the sector right now?Real estate is not the dirty word... some companies in the sector may have problems. There are realtors who don’t borrow but I want to lend to them. It’s not shutters down in any sector. Our model of financing is very granular. We finance projects and not holding companies. Our total book is Rs 6,500 crore-7,000 crore, we have 80 projects. I monitor these projects, what is the construction stage and the money comes to my escrow.The NBFC crisis started last year — what’s the earliest all this will get resolved?The big shadow was cast by IL&FS and it spread across the industry, post which a realisation dawned that how were these guys funding themselves. When growth was good at 20-30%, these guys got good valuations, suddenly everybody woke to the ALM (asset-liability mismatch) issue, which brought in a risk aversion.But there is an obvious flaw in funding...When you start competing irrationally on price to get market share and show growth, you are sacrificing asset-liability mismatches. Look at loan against property — we used to grow at 20%, but our growth fell to 10%... We withdrew from that market. Not because we were seeing any delinquency but because the riskreward relationship was skewed. When valuations are linked to growth, you want growth at any cost. In the process, how do you make the margin — you borrow short and lend long... More than a bit of that happened in this crisis.We have seen a slowdown, even a sort of contagion.The regulators have indicated more than once that they don’t see a systemic issue. The fear was that the liquidity issue would turn into a solvency issue — that doesn’t seem to have happened. One or two companies will go belly up, it’s a free market. Why should anybody come out to help them? Help can only come in the form of good portfolio purchases. What do you do when you don’t have money? You stop lending, that has led to a slowdown in the sector. If you stop lending and the borrower is still paying, you become solvent... That is what NBFCs are doing to preserve liquidity.But will this add to the slowdown in the economy?The liquidity issue has brought to fore the role NBFCs play — that they have a larger role than we all thought and a lot of that goes towards consumption demand. For example, air conditioner sales have fallen — who is funding them? Not banks, they never did white goods financing, banks were never good at it. NBFCs play a very big role in fuelling growth and consumption, which is being recognised now. So, if they are not as active as they used to be, then who will fill the gap? Banks may pick up the slack but they can’t fill the whole funding gap. Some budget proposals will bring relief but perhaps more needs to be done.Are you seeing a shift of the NBFC market share toward banks?Yes, there is a clear shift. We grew vehicle financing by almost 24%. There were a few loyal customers who were wooed away by pricing. For example, a customer took his first truck and fifth truck from me. Some NBFC gave him a 75 basis point differential on pricing and he asked us to match the pricing... We can’t do that. He goes away but then he comes back. In the upturn, 35-40 players finance commercial vehicle but in the downturns only 8-10 remain.Do you see an asset-quality impact on retail loans due to job losses?We don’t have the maturity in our customer profile to be able to do those instant loans. If you do analytics of your customer who has been around for 15 years and you feel can be given a loan… we don’t have such a mature savings book. I don’t have a 20-year track record with anybody. All of them came in the last four-five years. Our unsecured book has been kept around the 3% (of the total loan book) mark, so we don’t worry about that. The first casualty will be the consumption loan. If it is an asset-linked loan, the casualty rates are smaller. A customer doesn’t want to lose his car or home, but a clean personal loan is fine… he can delay it.How do you see IndusInd -Bharat Financial Inclusion erger improving your coverage in rural India?The merger with Bharat Financial really moves the needle for us. For years, we struggled with the question what business model should we use for rural India. We could see the impact of Jan Dhan, Aadhaar and mobile, we could see the impact of electrification, roads, sanitation... We could see customers have the saving potential but accessing that was a problem for us. We now have access to 1.5 lakh villages — almost one-sixth of villages in India. We cover 350 districts, 1,800 branches with 9 million customers... Suddenly, we now have infrastructure to build a rural model. We want to capture the borrowers’ savings, we have a run rate of 50,000 savings bank accounts a day. At the rate we are going, we will cover all of them by September.

from Economic Times https://ift.tt/2ymuAvp

One or two NBFCs may sink, it's a free market: Romesh Sobti, CEO, IndusInd Bank

IndusInd Bank CEO Romesh Sobti said the liquidity crisis that has gripped nonbanking finance companies (NBFC) is not a systemic issue, according to the regulators. He told Saloni Shukla and MC Govardhana Rangan in an interview that one or two of them may go under. “It’s a free market. Why should anybody come out to help them?” he said. He added that the liquidity squeeze has shown the key role NBFCs had been playing in driving consumption demand. “If they are not as active as they used to be, then who will fill the gap?” he said. Under Sobti, IndusInd Bank grew to become one of the country’s best-performing lenders. But the exposure to Infrastructure Leasing & Financial Services (IL&FS) and asset-quality issues have made investors nervous. He said IndusInd has been proactive in handling the fallout. Edited excerpts:IndusInd Bank rose from being a private-sector lender of little interest to one that was almost on par with HDFC Bank in the eyes of investors. But in the last few quarters there have been concerns over asset quality. What went wrong?It’s the overhang of just that one particular account (IL&FS). We were the only bank making provisions when no one else was talking about it. The expectation level was so high we were asked why didn’t we provide in one go? We accumulated and then provided for the entire exposure. Then rumours started surfacing over exposure to multiple troubled companies. The fact is every time one raises a question, you can’t go to the exchanges and start clarifying that we don’t have exposure, that’s not how you run a bank.‘Monitoring Realty Projects after Funding’We increased our disclosures, no one has opened their books like we have done. I am telling you my rating profile — SMA (Special Mention Account), I am giving you gross NPAs (nonperforming assets) product wise.There was also a rise in your real estate financing last quarter and there are concerns over that because of the meltdown in the sector right now?Real estate is not the dirty word... some companies in the sector may have problems. There are realtors who don’t borrow but I want to lend to them. It’s not shutters down in any sector. Our model of financing is very granular. We finance projects and not holding companies. Our total book is Rs 6,500 crore-7,000 crore, we have 80 projects. I monitor these projects, what is the construction stage and the money comes to my escrow.The NBFC crisis started last year — what’s the earliest all this will get resolved?The big shadow was cast by IL&FS and it spread across the industry, post which a realisation dawned that how were these guys funding themselves. When growth was good at 20-30%, these guys got good valuations, suddenly everybody woke to the ALM (asset-liability mismatch) issue, which brought in a risk aversion.But there is an obvious flaw in funding...When you start competing irrationally on price to get market share and show growth, you are sacrificing asset-liability mismatches. Look at loan against property — we used to grow at 20%, but our growth fell to 10%... We withdrew from that market. Not because we were seeing any delinquency but because the riskreward relationship was skewed. When valuations are linked to growth, you want growth at any cost. In the process, how do you make the margin — you borrow short and lend long... More than a bit of that happened in this crisis.We have seen a slowdown, even a sort of contagion.The regulators have indicated more than once that they don’t see a systemic issue. The fear was that the liquidity issue would turn into a solvency issue — that doesn’t seem to have happened. One or two companies will go belly up, it’s a free market. Why should anybody come out to help them? Help can only come in the form of good portfolio purchases. What do you do when you don’t have money? You stop lending, that has led to a slowdown in the sector. If you stop lending and the borrower is still paying, you become solvent... That is what NBFCs are doing to preserve liquidity.But will this add to the slowdown in the economy?The liquidity issue has brought to fore the role NBFCs play — that they have a larger role than we all thought and a lot of that goes towards consumption demand. For example, air conditioner sales have fallen — who is funding them? Not banks, they never did white goods financing, banks were never good at it. NBFCs play a very big role in fuelling growth and consumption, which is being recognised now. So, if they are not as active as they used to be, then who will fill the gap? Banks may pick up the slack but they can’t fill the whole funding gap. Some budget proposals will bring relief but perhaps more needs to be done.Are you seeing a shift of the NBFC market share toward banks?Yes, there is a clear shift. We grew vehicle financing by almost 24%. There were a few loyal customers who were wooed away by pricing. For example, a customer took his first truck and fifth truck from me. Some NBFC gave him a 75 basis point differential on pricing and he asked us to match the pricing... We can’t do that. He goes away but then he comes back. In the upturn, 35-40 players finance commercial vehicle but in the downturns only 8-10 remain.Do you see an asset-quality impact on retail loans due to job losses?We don’t have the maturity in our customer profile to be able to do those instant loans. If you do analytics of your customer who has been around for 15 years and you feel can be given a loan… we don’t have such a mature savings book. I don’t have a 20-year track record with anybody. All of them came in the last four-five years. Our unsecured book has been kept around the 3% (of the total loan book) mark, so we don’t worry about that. The first casualty will be the consumption loan. If it is an asset-linked loan, the casualty rates are smaller. A customer doesn’t want to lose his car or home, but a clean personal loan is fine… he can delay it.How do you see IndusInd -Bharat Financial Inclusion erger improving your coverage in rural India?The merger with Bharat Financial really moves the needle for us. For years, we struggled with the question what business model should we use for rural India. We could see the impact of Jan Dhan, Aadhaar and mobile, we could see the impact of electrification, roads, sanitation... We could see customers have the saving potential but accessing that was a problem for us. We now have access to 1.5 lakh villages — almost one-sixth of villages in India. We cover 350 districts, 1,800 branches with 9 million customers... Suddenly, we now have infrastructure to build a rural model. We want to capture the borrowers’ savings, we have a run rate of 50,000 savings bank accounts a day. At the rate we are going, we will cover all of them by September.

from Economic Times https://ift.tt/2ymuAvp

Banks raising funds to grab NBFC share

MUMBAI: Top public and private sector banks are going on a fundraising spree as they seek to wrest market share from nonbanking finance companies (NBFCs) facing a credit crisis and smaller staterun banks weighed down by bad loans. At least three top public sector banks — State Bank of India, Bank of Baroda and Canara Bank — and two private lenders — Axis and RBL Bank — are planning to raise an aggregate of up to Rs 62,000 crore this year in a bid to accumulate growth capital.State Bank of India is looking to raise as much as Rs 17,000 crore through bonds, with Rs 7,000 crore of this shortly as additional tier one (AT1) capital.“We see consumption picking up around the festive season—second half is always the busy season and first half is the easy season,” said SBI chairman Rajnish Kumar. “We have recorded a 13% credit growth and hopefully if this trend continues then we have to be prepared.”Credit disbursals by NBFCs dropped 31% to Rs 1.96 lakh crore at the end of March from Rs 2.83 lakh crore in the year earlier.70442497 Bank Lending to NBFCs SlowsBank lending to NBFCs also slowed to Rs 6.2 lakh crore at the end of May against Rs 6.4 lakh crore in March. NBFCs were gripped by the liquidity squeeze that followed the unexpected default by Infrastructure Leasing & Financial Services (IL&FS) in September last year.“This is clearly growth capital as banks have frontloaded provisions with industry PCR (provision coverage ratio) average at 60% currently and the requirement will be much lower than FY19,” said Siddharth Purohit, banking analyst with SMC Institutional Equities. “With additional capital coming in from the government to state-owned banks, we can expect to see credit recovery and higher profits in FY20.”In her July 5 budget, finance minister Nirmala Sitharaman pledged additional capital of Rs 70,000 crore for state-run banks this financial year. This will help some to provide for bad loans, exit the Prompt Corrective Action framework and facilitate higher lending to small and medium enterprises.Bank of Baroda will raise as much as Rs 1,500 crore through the employee share purchase scheme (ESPS) and Rs 4,500 crore through AT1bonds. It plans to raise Rs 12,000 crore in the full financial year. Canara Bank plans to raise up to Rs 12,000 crore through a mix of equity and bonds during the current fiscal to fund its business growth. The state-run lender plans to raise Rs 6,000 crore through qualified institutional placements (QIPs) while the remaining is expected to come from bond placements.Axis Bank is also looking to raise Rs 18,000 crore through a combination of QIPs as well as American and global depository receipts (ADRs, GDRs) as it looks to boost capital to drive loan growth mostly among retail customers and select corporates. RBL Bank is planning a share sale to raise up to Rs 3,500 crore, shoring up its capital base to expand into newer lending areas and maintain its fast-paced growth in retail banking.“We will raise capital in the next few months—it will happen this fiscal,” said RBL Bank CEO Vishwavir Ahuja. “We have taken an enabling resolution for raising between Rs 3,000 crore and Rs 3,500 crore, which was confirmed in the AGM last week. That’s what we will start thinking and working on. It’s on our radar this year, depending on market conditions.”

from Economic Times https://ift.tt/2LKYXUU

TCS vigil mechanism is under Sebi watch

Phillippe Guionnet, a US-based client-facing executive at TCS, lodged the complaint in a letter to the regulator earlier this month.

from Tech-Economic Times https://ift.tt/2SMzdrS

Muted growth for online commerce: Net, net, India's net use slowing

NEW DELHI: India’s internet story is losing some of its lustre, with implications for internet commerce companies.Growth in internet user base is slated to come down for the second consecutive financial year — 2018-19 growth rate will be even less than the 8% witnessed in 2017-18, which was a sharp drop from 2016-17’s 12%.The final figure will be released by the Internet and Mobile Association of India (IAMAI) in mid-August. ET spoke to people familiar with the ongoing exercise. “I suspect new internet user growth will decelerate even further and will reach a plateau in the next four to five years,” said Subho Ray, president, IAMAI.70442429 Moreover, the proportion of internet users engaging in digital commerce is also not moving upwards. For example, only around 120 million people are using digital payments out of a user base of around 500 million internet users, as per IAMAI.By 2020, according to a Google-AT Kearney report, only 175 million Indians are expected to engage in online shopping. IAMAI’s Ray, however, puts the number of active online shoppers at just around 50 million.More than half of India’s population is not online and growth in new users and digital commerce should be brisk. But experts say slowing growth in user base is happening on account of a number of factors.First, for many millions going online is still an expensive proposition.‘Need to Educate Users’And feature phones to smartphone conversion in these segments is very low.Second, most new users are vernacular language proficient and they find English language-dominated internet both complex and lacking in vernacular content. Data from Nielsen shows average time spent online in India is more than 90 minutes a day. And watching videos is the most popular activity.A Google India spokesperson said, “Every new user coming online is an Indian language user and has very limited understanding of what internet can do for them…we also need products that serve the needs of these users.”Anand Kumar Bajaj, CEO, PayNearby said, “What we are seeing is wasteful consumption. People wasting their time watching videos. There’s a need to educate users on what they can do with mobile internet.”He also argued that even among transacting users, the magnet is cashbacks. Once cashbacks go, at least some users are likely to go back to free videos.Others also see data usage coming down. Chris Lane, managing director, Asia-Pacific Telecommunications at research firm Bernstein told ET recently, “As India already has one of the highest data consumption rates (for 4G users), the pace of growth going forward is likely to slow.”

from Economic Times https://ift.tt/2SNxEtT

Muted growth for online commerce: Net, net, India's net use slowing

NEW DELHI: India’s internet story is losing some of its lustre, with implications for internet commerce companies.Growth in internet user base is slated to come down for the second consecutive financial year — 2018-19 growth rate will be even less than the 8% witnessed in 2017-18, which was a sharp drop from 2016-17’s 12%.The final figure will be released by the Internet and Mobile Association of India (IAMAI) in mid-August. ET spoke to people familiar with the ongoing exercise. “I suspect new internet user growth will decelerate even further and will reach a plateau in the next four to five years,” said Subho Ray, president, IAMAI.70442429 Moreover, the proportion of internet users engaging in digital commerce is also not moving upwards. For example, only around 120 million people are using digital payments out of a user base of around 500 million internet users, as per IAMAI.By 2020, according to a Google-AT Kearney report, only 175 million Indians are expected to engage in online shopping. IAMAI’s Ray, however, puts the number of active online shoppers at just around 50 million.More than half of India’s population is not online and growth in new users and digital commerce should be brisk. But experts say slowing growth in user base is happening on account of a number of factors.First, for many millions going online is still an expensive proposition.‘Need to Educate Users’And feature phones to smartphone conversion in these segments is very low.Second, most new users are vernacular language proficient and they find English language-dominated internet both complex and lacking in vernacular content. Data from Nielsen shows average time spent online in India is more than 90 minutes a day. And watching videos is the most popular activity.A Google India spokesperson said, “Every new user coming online is an Indian language user and has very limited understanding of what internet can do for them…we also need products that serve the needs of these users.”Anand Kumar Bajaj, CEO, PayNearby said, “What we are seeing is wasteful consumption. People wasting their time watching videos. There’s a need to educate users on what they can do with mobile internet.”He also argued that even among transacting users, the magnet is cashbacks. Once cashbacks go, at least some users are likely to go back to free videos.Others also see data usage coming down. Chris Lane, managing director, Asia-Pacific Telecommunications at research firm Bernstein told ET recently, “As India already has one of the highest data consumption rates (for 4G users), the pace of growth going forward is likely to slow.”

from Economic Times https://ift.tt/2SNxEtT

Cafe Coffee Day founder VG Siddhartha missing

Former chief minister S M Krishna's son-in-law and Coffee Day founder V G Siddhartha is suspected to have jumped off a bridge at Ullal on Monday night. The news started doing the rounds after Mangaluru City Police started a frantic search for a person who jumped off the kilometre-long Ullal bridge, about 6 km from here, on Monday night.

from Times of India https://ift.tt/2OrzEJX