India to attract $15-$20 billion FII inflows in 2018: ICRA

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India is expected to attract moderate FII inflows of $15-$20 billion in 2018, with headwinds such as the muted outlook for corporate earnings and continued compression in debt spreads relative to advanced economies, rating agency ICRA said in a report on Tuesday.

“With the muted outlook for corporate earnings and emerging sectoral concerns regarding Indian software and pharmaceuticals exports to the US, the net FII equity inflows are likely to be restricted below $5 and $10 billion respectively in FY17 (2016-17) and FY18 (2017-18), in our view,” said ICRA Senior Vice President and Group Head-Financial Sector Ratings, Karthik Srinivasan.

The agency expects aggregate FII debt outflows in FY17 of $6-$8 billion, followed by aggregate inflows of $5-$10 billion during FY18.

“Indian bond yields are unlikely to ease significantly below current levels, given the limited further monetary easing expected from the Reserve Bank of India.

“Moreover, the supply of net long term borrowings of the government is likely to increase in FY2018 from Rs 4.1 trillion in FY2017, as the central government is likely to budget a fiscal deficit range between 3 and 3.5 per cent of the GDP,” he said.

The Indian markets had witnessed record FII outflows of $11.3 billion during Q3 (third quarter) FY17 on the back of a combination of international and domestic factors, including the risk-off sentiment triggered by the outcome of the US presidential election in November 2016 and the tightening of monetary policy by the US Federal Reserve in December 2016.

Source: http://www.business-standard.com/article/news-ians/india-to-attract-15-20-billion-fii-inflows-in-2018-icra-117013101128_1.html

Tamil Nadu joins UDAY scheme

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The southern state, which became the 21st state to join Ujwal Discom Assurance Yojana (UDAY), is also one of four states with largest accumulated debt of over Rs 40,000 crore.

After having dithered for over a year, Tamil Nadu on Monday signed up for the center’s scheme for revival of financially stressed state-owned power distribution companies. The southern state, which became the 21st state to join Ujwal Discom Assurance Yojana (UDAY), is also one of four states with largest accumulated debt of over Rs 40,000 crore.

With Tamil Nadu on board, UDAY has now covered 92% of country’s discom debt. “Tamil Nadu would derive an overall net benefit of approximately Rs 11,000 crores through UDAY, by way of savings in interest cost, reduction in AT&C and transmission losses, interventions in energy efficiency, coal reforms etc,” the government said in a statement. Other states with huge debt burden include Haryana, Rajasthan and Uttar Pradesh, all of which are part of the scheme.

According to the scheme, the state government will take over 75%of debt amounting to Rs 30,420 crore from the discom. The scheme also provides for the balance debt to be re-priced or issued as state guaranteed discom bonds, at coupon rates around 3-4% less than the average existing interest rate.

“The state would have savings of about Rs 950 crore in annual interest cost through reduction of debt and through reduced interest rates on the balance debt,” the government said. It added that reduction in aggregate technical and commercial (AT&C) losses and transmission losses to 13.5% and 3.7% respectively is likely to bring additional revenue of around Rs 1,601 crores to the state distribution company.

UDAY was launched by the power ministry on November 20, 2015 with an aim to reduce financial distress among state discoms as it has been preventing them from buying power.

Source: http://www.financialexpress.com/economy/tamil-nadu-joins-uday-scheme/502490/

Bankruptcy and Insolvency Code will drive creation of a new debt market

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The Bankruptcy and Insolvency Code will drive growth of debt market in India, which hardly exists in corporate and business financing, Dr. MS Sahoo, Chairman, Bankruptcy Board of India

The Bankruptcy and Insolvency Code will drive growth of debt market in India, which hardly exists in corporate and business financing, Dr. MS Sahoo, Chairman, Bankruptcy Board of India told Fe. While the country has a matured and bullish equity market, the debt market in India was yet to develop. The board was not concerned with default in bank credits or about the rising NPAs. It would mainly look into private creditors interest if their money got locked.

“Banks have some protection in the areas of corporate financing but non banking debt is non existent. Bankruptcy and Insolvency Code would be instrumental in the growth of non bank debt financing, which would lead to reduce dominance of banks in areas of credit.

With a debt market created, debt supplies would ease out and lending rates both for the non banking creditors as well as for the banks would be market driven. “At present demand is chasing supplies but it will be other way round with supplies chasing demand,” Mamata Binani, chairperson, Institute of Company Secretaries of India (ICSI) said at an interactive session organised by the MCC Chamber of Commerce.

She said the code will enable to solve problems of many assets lying dead for years in dispute. Such assets could be quickly liquidated without the judiciary’s intervention and unsecured creditors will always have the first chance to realize its money from the business. The board has estimated that Rs 25,000 crore, which is locked in dead assets, is going to get unlocked in next five years.

While Sahoo made clear that the Bankruptcy and Insolvency Board would not deal with corporate frauds and inter managerial disputes, a creditor who has given unsecured loans should trigger the first available opportunity if he sees his credit at risk.

It will be a creditors committee, which will work on a strict time line, to resolve insolvency. The creditors will not be bound by any set rules to resolve insolvency or debtors problem. They will have flexibility to take their own decision and find a way out and that might come in the form debt restructuring or liquidation. However, if liquidation is unable to recover a debt, it may be a loss for both the creditor and the debtor, Alok Dhir, founder and and managing partner of Dhir & Dhir Associates said.

“But working with this code will gradually prove what is the right approach and there may be changes brought in the law,” Sahoo said adding that the board was also working on a framework for direct liquidation by passing insolvency resolution and the framework would be ready by February- March. But to begin the process on code a company has to address to the National Company Law Tribunal (NCLT), while for personal insolvency, a claimant will have to go to the Debt Recovery Tribunal (DRT). But the framework for personal insolvency was not yet ready and it would take some time before a party could move the DRT, Sahoo said.

However, the NCLT with 11 benches across the country was already functional with the code and there were chances that 93,000 pending BIFR cases could be referred to the board, many of which might not have to begin the process on code but through pre- pack solutions, Sahoo felt. He said the board has selected 974 insolvency professionals on a temporary basis and would begin certification through tests for inducting regular professionals.

Source: http://www.financialexpress.com/market/bankruptcy-and-insolvency-code-will-drive-creation-of-a-new-debt-market/506028/

NPA woes to spill over into next fiscal, says Moody’s

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Weak asset quality will continue to plague credit profile of banks, with their profitability remaining under pressure till the next fiscal, says a report.

“Asset quality will remain a negative driver of the credit profiles of most rated banks in the country and the stock of impaired loans. Non-performing loans and standard restructured loans will still rise during the horizon of our outlook that lasts till the next financial year,” Alka Anbarasu, a vice-president and senior analyst at Moody’s, said in a report today.

The report is jointly penned by Moody’s and its domestic arm ICRA Ratings.

The report said the pressure on asset quality largely reflects the system’s legacy problems, as relating to the strong credit growth seen in 2009-12, when corporate investments rose significantly.

It, however, said aside from the legacy issues, the underlying asset trend for banks will be stable because of a generally supportive operating environment.

“While corporate balance sheets stay weak, a further deterioration in key credit metrics such as debt/equity and interest coverage ratios has been arrested,” the report said.

As per Karthik Srinivasan, a senior vice-president at ICRA, “while bank profitability is not expected to be as weak as the levels seen in the financial year 2015-16, the weakness in asset quality will continue to drag on profitability indicators, with return on equity remaining in the single digits for the financial years 2016-17 and 2017-18.”

Anbarasu said the pace of asset quality deterioration over the next 12-18 months should be lower than what was seen over the last five years, and especially compared to the financial year 2015-16.

She considers the Reserve Bank’s asset quality review in December 2015 as an important catalyst in pushing banks to recognise some large accounts as being impaired.

“We now estimate the ‘true’ level of impaired loans for Indian banks to be around 1-1.5 percentage points higher than the latest reported numbers,” Anbarasu said.

The latest Financial Stability Report by the RBI had said the gross non-performing advances ratio increased to 9.1 per cent from 7.8 per cent between March and September 2016, pushing the overall stressed advances ratio to 12.3 per cent from 11.5 per cent.
Moody’s said given the magnitude of stressed assets in the system, it expects the banks to increase their focus on resolving some of the large problem accounts.

“We expect an increased pace of debt restructuring under various schemes offered by RBI, including the scheme for sustainable structuring of stressed assets (S4A), strategic debt restructuring (SDR) and the 5:25 scheme,” the report said.

“Nevertheless, weak reserving levels and continued pressure on profitability will limit the ability of the banks to proactively resolve problem assets under these schemes,” Anbarasu said.

Icra said a muted level of credit off-take — on the back of weak demand, increasing competition and greater disintermediation — will continue to exert downward pressure on lending rates.

It said the overall capitalisation levels of most of the public sector banks remain moderate to weak, given that they need to attain the regulatory minimum tier-I requirement of 9.5 per cent by March 2019.

The current plan of infusing Rs 45,000 crore during 2016-17 and 2018-19, of which Rs 16,414 crore have already been infused in the current year, is below ICRA’s estimate of capital requirements of Rs 1,50,000-1,80,000 crore.

Source: http://www.business-standard.com/article/finance/npa-woes-to-spill-over-into-next-fiscal-says-moody-s-117010900510_1.html

Over 8,100 wilful defaulters owe Rs 76,685 crore to banks

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Public sector banks (PSBs) have reported 16 per cent rise in number of wilful defaulters at 8,167 who collectively owe them Rs 76,685 crore at the end of March 2016.

Public sector banks (PSBs) have reported 16 per cent rise in number of wilful defaulters at 8,167 who collectively owe them Rs 76,685 crore at the end of March 2016.

As against the previous year, there is 16 per cent rise in wilful defaulters owing over Rs 25 lakh each to 8,167 from 7,031 at the end of March 2015. However, dues to the bank have increased to 28.5 per cent to Rs 76,685 crore in 2015-16 from the earlier Rs 59,656 crore.

To recover loans from such defaulters, banks have filed 1,724 FIRs with a total outstanding of Rs 21,509 crore in 2015-16. The conviction rate in all these cases was only 1.14 per cent.

Last fiscal, banks recovery efforts in such cases yielded Rs 3,498 crore.

There were 129 wilful defaulters who borrowed loans in excess of Rs 100 crore amounting to Rs 28,525 crore from PSBs as on June 30, 2016, Minister of State for Finance Santosh Kumar Gangwar told the Lok Sabha in a written reply.

To bring down NPAs, he said, RBI has formulated guidelines for early recognition of financial distress for recovery from borrowers.

“Before a loan account turns NPA, banks are required to identify stress in the account under three sub-categories of Special Mention Account (SMA),” he said.

Banks are required to report credit information on borrowers having aggregate exposure of more than Rs 5 crore to Central Repository of Information of Large Credits (CRILC), he said.

“As soon as an account is reported by any of the lenders to CRILC as SMA-2, Joint Lenders’ Forum (JLF) is to be mandatorily formed if the aggregate exposure of lenders is more than 100 crore,” he said.

In a separate reply, Gangwar said banks have seized property worth Rs 64,519 crore during 2015-16 as against Rs 54,060 crore in the previous fiscal.

These properties were seized by invoking the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act.

Source: http://www.financialexpress.com/industry/banking-finance/over-8100-wilful-defaulters-owe-rs-76685-crore-to-banks/449342/

RBI spells out rules for start-ups to raise ECBs

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To support financing for start-ups, the Reserve Bank of India (RBI) on Thursday issued rules permitting these to raise external commercial borrowings (ECBs).

 

In a statement, RBI said the borrowing per start-up was capped at $3 million per financial year. It could be either in rupees or a convertible foreign currency or a combination of both.

 

The money could be used for any expenditure of the borrower’s business.

 

The statement also said the funds so raised would have a three-year maturity and could be raised through loans as well as convertible and non-convertible debentures.

 

RBI said, “Startups can tap lenders and investors only from countries that are members of the Financial Action Task Force.”

 

If the funds were in rupees, the non-resident lender would provide it through swaps or outright sale through domestic banks.

 

RBI also advised start-ups raising money through ECB to have a risk-management policy as these would be exposed to currency risks because of exchange-rate movements.

 

Source: http://www.business-standard.com/article/companies/rbi-spells-out-rules-for-start-ups-to-raise-ecbs-116102701777_1.html

 

Microfinance lending hits $10 billion

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India’s microfinance industry is close to touching the $10-billion mark with the total loan portfolio of microfinance institutions (MFIs) at an all-time high of Rs. 63,853 crore as of March 31, 2016.

This represents a 31 per cent increase over the Rs. 48,882 crore loan portfolio as of end-March 2015, the Bharat Microfinance Report 2016 showed. The share of NBFC-MFIs stood over 88 per cent, followed by Societies and Trusts at 9 per cent. Nearly 88 per cent of the portfolio is held by MFIs with a portfolio size above Rs. 500 crore. The Bharat Microfinance Report 2016 — published by self-regulatory organisation Sa-Dhan — was released by Reserve Bank of India Executive Director US Paliwal and SIDBI Chairman and Managing Director Kshatrapati Shivaji in the Capital on Wednesday. The sector witnessed a healthy growth in client base with over 28 lakh new members taking the total number of clients to over 399 lakh. But the average loan per borrower of Rs. 11,425 is less than previous year’s Rs. 13,162.

MFI loan portfolio continued to grow at a good clip despite Bandhan, which was then the largest MFI, becoming a bank. If Bandhan’s loan portfolio of Rs. 9,524 crore of 2014-15 is excluded, then the growth rate of the MFI sector between 2014-15 and 2015-16 is over 60 per cent, said P Satish, Executive Director, Sa-Dhan.

“Despite Bandhan going out of the microfinance space, the sector witnessed strong growth. Attaining over 28 lakh clients is no mean feat. This goes to show that the microfinance industry, having reached its inflection point, is growing steadily,” Satish added.

Satish, however, expressed some concern over 13 MFIs recording over 100 per cent growth rates. He also said that MFIs are finding the business correspondent model rather attractive on the credit side.

If Bandhan’s loan portfolio of Rs. 9,524 crore of 2014-15 is excluded, then the growth rate of the MFI sector between 2014-15 and 2015-16 is over 60 per cent: Sa-Dhan ED

 

Source: http://www.thehindubusinessline.com/todays-paper/tp-money-banking/microfinance-lending-hits-10-b/article9108686.ece