High margins and volumes are two reasons why banks are exploring the market in thrift credit
From being passive lenders to microfinance institutions (MFIs) till about five years earlier, banks have turned out to be active players in the business of small loans.
As on end-December 2016, banks accounted for 37 per cent (Rs 36,683 crore) of microfinance portfolio of Rs 98,625 crore; five years earlier, a handful of MFIs accounted for more than half.
High margins and volumes are two reasons why banks are exploring the market in thrift credit.
Most of them in MFI lending are private sector ones. A majority of this portfolio is with 11 banks — Axis, Bandhan, DCB, Equitas, HDFC, ICICI, IDFC, Kotak Mahindra, RBL and YES.
This apart, several public sector banks have increased their MFI exposure, through business correspondents (BCs).
“We see a lot of synergies with the microfinance sector. More, it is quite well-regulated and growing at a fast rate, providing a lot of business opportunities,” said an official in charge of a bank’s microfinance operations.
Also, over the past 18 months, banks have also been aggressive in taking equity stakes in MFIs. Last year, Kotak Mahindra Bank acquired Bengaluru-based BSS Microfinance.
RBL acquired 10 per cent in Utkarsh Micro Finance, which recently graduated into a small finance bank (SFB).
In July last year, IDFC Bank acquired Trichy-based Grama Vidiyal Microfinance, its second deal in the MFI space. Earlier, IDFC had taken 10 per cent in east-based ASA International India Microfinance.
In March last year, DCB Bank had acquired a 5.81 per cent stake in Odisha-based Annapurna Microfinance. Earlier, RBL had acquired 30 per cent in Swadhaar FinServe, a company acting as a BC.
Non-banking financial companies (NBFCs) have also shown interest. In 2015, Manappuram Finance had acquired Asirvad Micro Finance, a Chennai-based NBFC-MFI.
With a number of MFIs graduating to SFBs, the number in the MFI space is likely to further increase. And, even after graduating into a bank, they are likely to keep much of their lending to microfinance. Bandhan Bank, earlier an MFI, has even after close to two years into operation as a bank still got over 80 per cent of its lending portfolio concentrated in microfinance.
“Over the past three years, banks have shown a high level of interest in microfinance, part of a diversification strategy. Also, at least for two to three years, the new SFBs are likely to focus on microfinance as they build their deposit base,” says Ratna Vishwanathan, chief executive officer, Microfinance Institutions Network.
Seven of the proposed SFBs, some of which have transformed to a bank, together account for 46 per cent of the MFI portfolio, amounting to Rs 26,228 crore.
Gujarat government has entered into B2B ecommerce space as it allowed UK-based cloudbuy.com to develop B2B marketplace for accelerating its growth in state business by supporting SMEs and larger organisations via digitalisation.
According to a top official from the industry department, the state plans to give a digital push to the SMEs and large organisations from Gujarat via Business to Business (B2B) ecommerce.
However, Dhananjay Dwivedi, secretary, department of science and technology, Government of Gujarat, said the company had entered into a MoU with the state government.
“Any other ecommerce company that can support business in Gujarat can also come” he added.”With B2B trading opportunities being much bigger and faster now, the businesses of Gujarat will immensely benefit both in terms of revenue growth and reaching out to a far wider audience here in India and globally,” said Nilesh Gopali, cloudBuy, Country Head – India.
He also confirmed that cloudBuy.com has not received any exclusivity from the state government for developing state-focused B2B ecommerce platform.
According to the company, the creation of this new emarketplace will create many jobs within Gujarat through the creation of technical centres to help businesses upload and optimise their content.
Each company that registers for the marketplace will be given the opportunity to list their company details along with products and services online, promoting their business to a much wider audience. cloudBuy.com would also provide full access to support system and reporting to maximise their growth through ecommerce sales.
It would also provide fulfillment services like logistics providers and financial institutions through partners on the platform making it easier for businesses to transact. Accessibility for all users through cell phones on a secure platform will enhance the user experience ensuring trades online.
In the past six months, several venture capital (VCs) funds have raised money or are in the process of raising money. These include funds from IDG Ventures, DSG Consumer Partners, Orios Venture Partners, Kae Capital, Blume Ventures, Saama Capital, Fireside Ventures, Stellaris Venture Partners, Endiya Partners and Pravega Ventures.
What’s common between them is Sidbi, the lending institution managing several start-up funds, including the government’s, which plays an anchor investor to many of these funds with a 15-20 per cent stake. This is helping these funds raise money from other domestic investors — family offices and high networth individuals (HNIs).
‘‘Fundraising is not easy, especially for smaller VC firms. They don’t get large institutional investors; they get family offices and HNIs,” says a VC. Having an institution like Sidbi comforts other local investors.
‘‘Sidbi does extensive amount of due-diligence, reporting, appoints board members. They have a proper investment committee. So, you have comfort that there’s institutional due-diligence on the fund,” says Rehan Yar Khan, managing partner, Orios Venture Partners.
In February, Sidbi said its fund of funds operations has sanctioned Rs 1,112 crore to 30 funds in FY17, double of Rs 607 crore for 16 funds it did in FY16. Sidbi manages many fund of funds, including the government’s Rs 10,000-crore fund of funds for start-ups.
The funds, which have received Sidbi’s commitment under this programme, are Orios Venture Partners Fund II (Rs 50 crore), Kae Capital (Rs 45 crore), and two little known funds, Saha Trust (Rs 10 crore) and Kitven Fund III (Rs 5 crore), Sidbi disclosed in response to an RTI query from Business Standard. There are others like Blume Ventures, IDG Ventures, India Quotient, which have received Sidbi’s funding.
Interestingly, several funds — maiden funds and second funds — have hit the market in the past one year, all targeting domestic investors. Yet, all of them are able to raise money and announced their first or final close, which shows the increasing depth of domestic investors.
These include professionals in large firms, like Infosys founders, who have made money through ESOPs, family offices of traditional business families and others which are starting to get organised.
Many wealth management and advisory firms have come up, who are able to reach these family offices in a more effective way. But are we seeing too many funds raising too much capital?
‘‘There’s a big need for early stage capital. In the US, the size of the VC market is $25-26 billion and the seed capital of $22 billion. As opposed to that, we are at a pittance. The game has not even started here,” says another VC. Besides, bigger VC firms like Accel, Sequoia also do seed-stage deals, but mostly do VC.
Government employees can also withdraw the fund for select purposes after completing 10 years of service, as against 15 years of service earlier.
In good news for about 50 lakh central government employees, the norms for withdrawal of General Provident Fund (GPF) have been relaxed which will enable them to receive payments within 15 days.
Employees can also withdraw the fund for select purposes after completing 10 years of service, as against 15 years of service earlier.
The GPF can be taken for education — including primary, secondary and higher education, covering all streams and institutions. Earlier, a subscriber could withdraw GPF for beyond the high school stage.
“Some amendments have been made (in rules) from time to time to address the concerns raised by the subscribers. However, the provisions, largely remain restrictive. There is a felt need to liberalize provisions, raise limits and simplify the procedure,” the ministry said.
The provisions in the rules have been reviewed and it has now been decided to permit withdrawals from the fund by the subscriber for obligatory expenses viz. betrothal (engagement), marriage, funerals, or other ceremonies of self or family members and dependants, besides illness of self, family members or dependants, it said.
“It has been decided to permit withdrawal of up to 12 months pay or three-fourth of the amount standing at credit, whichever is less. For illness, the withdrawal may be allowed up to 90% of the amount standing at credit of the subscriber. A subscriber may seek withdrawal after completion of ten years of service,” the ministry said in an order to all central government departments.
The GPF can be withdrawn for purchase of consumer durables also. Existing rules do not give any time limit or sanction and payment of withdrawal amount.
“Therefore, it has been decided to prescribe a maximum time limit of fifteen days for sanction and payment of withdrawal from the fund. In case of emergencies like illness etc., the time limit maybe restricted to seven days,” the order said.
World Bank CEO Kristalina Georgieva pegs India’s GDP growth rate at 7% for 2016-17, says ongoing reforms, GST implementation augur well for the economy
The government’s decision to ban high-value banknotes as part of efforts to stamp out corruption will have a profound and positive impact on India’s economy, World Bank chief executive Kristalina Georgieva said.
Demonetisation may have caused some hardship to people living in the cash economy but in the long run the move will help foster a clean and digitized economy, Georgieva said.
“What India has done will be studied (by other countries). There hasn’t been such demonetisation in a country so big,” Georgieva told Hindustan Times in an interview late on Wednesday.
The World Bank CEO’s appreciation for the 8 November move which banned Rs500 and Rs1,000 bills, comes after the International Monetary Fund said in November that it supported India’s efforts to fight corruption through currency control measures.
Georgieva compared the move to that of the European Union, which is also phasing out high denomination bills but over a longer period of time.
“While demonetisation has, in the short term, created some impact on businesses dependent on cash, in the long term the impact will be positive… The reforms India is targeting are profound,” she said.
She also said the government’s financial inclusion programme along with the move towards digital payments and direct transfer of subsidies will help the poor.
Georgieva, who was in India for two days, travelled on a local train in Mumbai and visited the world’s biggest slum in Dharavi. She said she found that people were eager to get a better life and were willing to pay more for improved services. Georgieva also appreciated the competition among states to improve ease of doing business. “India is the bright spot in today’s global economy and it is visible in the country’s performance and more so in the aspirations of the people here,” she said.
“Our growth projection for India for this year is 7%. The signs are positive with the reform process underway and GST (goods and services tax) expected to be implemented soon.”
The commerce and industry ministry is considering relaxing FDI norms in certain sectors including retail to further boost inflows.
Foreign investments in the services sector increased 77.6% to $7.55 billion in the first nine months of the current fiscal, helped by government steps to improve ease of doing business.
The sector, which includes banking, insurance, research and development (R&D), outsourcing, courier and technology testing, had received foreign direct investment (FDI) worth $4.25 billion during the April-December period of last fiscal, 2015-16, according to the Department of Industrial Policy and Promotion (DIPP).
The sector contributes over 60% to India’s gross domestic product (GDP) and accounts for 17% of the total foreign investment inflows.
The other sectors where inflows have recorded growth during the nine-month period of 2016-17 are telecom ($5.54 billion), trading ($2 billion), computer software and hardware ($1.81 billion) and automobile ($1.45 billion).
In step FDI growth in important sectors like services, overall foreign inflows in the country increased 22% to $35.84 billion during April-December 2016-17.
The commerce and industry ministry is also considering relaxing FDI norms in certain sectors including retail to further boost inflows. Foreign investment is considered crucial for India, which needs around $1 trillion for overhauling its infrastructure sector such as ports, airports and highways to boost growth.
A strong inflow of foreign investments will help improve the country’s balance of payments situation and strengthen the rupee against other global currencies, especially the US dollar.
The Organisation of Economic Cooperation and Development (OECD) has supported India’s demonetisation drive, asserting that immediate impact of the move on Indian economy will be transient.
The Organisation of Economic Cooperation and Development (OECD) has supported India’s demonetisation drive, asserting that immediate impact of the move on Indian economy will be transient.
“Implementing the demonetisation has had transitory and short- term costs but should have long-term benefits,” OECD said on Tuesday in its report, Economic Survey of India. OECD Secretary-General Angel Gurria said the impact of demonetisation on consumption pattern may just have been limited to the quarter ended December 31, 2016.
The Paris-based global policy forum projected a GDP growth rate of 7 percent in the current financial year, while estimating it to grow to 7.3 percent in FY18 and 7.7 percent in FY19.
The OECD comments come a few hours before the Central Statistics Office (CSO) releases Gross Domestic Product (GDP) growth estimates for Q3FY17 and the second full year advance estimates for 2016-17. The GDP estimates released in January projected that India would grow 7.1 percent in 2016-17 from 7.9 percent in the previous year.
Amid signs of slide in consumer goods sales and muted investment activity because of the cash crunch, it is highly likely that the CSO will sharply revise downwards India’s GDP growth in its second advance estimates. Economic Affairs Secretary Shaktikanta Das, who was also present at the launch of the report, said that the benefits and outcomes of demonetisation would be positive from next quarter. “The process of remonetisation is nearly complete. Any adverse impact of consumption in that quarter is not likely to spill over next year. So that is over and behind us,” Das said.
“The shift towards a less cash economy and formalisation should, however, improve the financing of the economy and availability of loans (as a result of the shift from cash to bank deposits) and should promote tax compliance,” the report said.
On November 8, Prime Minister Narendra Modi announced that existing 500 and 1000 rupee notes would cease to be legal tender, thereby sucking out 86 percent of the currency in circulation from the economy. The survey, however, said that the temporary cash shortage and wealth destruction, as fake currency and illegal cash will not be redeemed. T
he report further said that the implementation of the goods and services tax (GST) reform will contribute to making India more integrated market. “By reducing tax cascading, it will boost competitiveness, investment and job creation.
The GST reform — designed to be initially revenue-central — should be complemented by a reform of income and property taxes,” the OECD survey said.
The survey pointed out that investment is still held back by relatively high corporate income tax rates, slow land acquisition process, weak corporate balance sheets and high non-performing loans which weigh on banks’ lending and infrastructure bottlenecks.
Key recommendations of OECD included raising revenue, especially from property and personal income taxes, ensuring that government debt to GDP ratio returns to a declining path, as well as strengthening of public bank balance sheets by recapitalising them and promoting bank consolidation.
It also suggested simpler and flexible labour laws and a gradual reduction in corporate income tax from 30% to 25%, while broadening the tax base.