Small loans, big impact: Microfinance now big business at banks

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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.

 

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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.

 

Source: http://www.business-standard.com/article/finance/small-loans-big-impact-microfinance-now-big-business-at-banks-117031300020_1.html

After Italy & Greece, PE seeks to partner Indian lenders for bad loan portfolio

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Storied asset manager KKR & Co has approached lenders like State Bank of India and ICICI Bank with a proposal to manage and create value from their loan portfolios to under-performing Indian companies. The American private equity investor will build a platform to deploy fairly long-term capital and operational expertise to turnaround troubled assets, with banks on board sharing the future upsides.

 

The proposal – discussed with a few public and private sector banks – is modelled on Pillarstone, a similar European platform created by KKR for stressed loans in markets like Greece and Italy . India’s central bank governor Raghuram Rajan has pushed lenders to purge bad loans and has urged global alternate asset managers to play a bigger role in easing India Inc’s bad loan crisis. But most Indian banks have opted for ‘fire sale’ of stressed assets to rival corporate houses rather than staying on course with a turnaround plan, though it would help these lenders unlock better value eventually.

“They are talking about jointly managing a portfolio of loans to these stressed companies as against acquiring a one-off asset. It involves sweating underlying assets to generate more value rather than writing down. This is also different than the prevailing approach by the under-capitalized asset reconstruction companies, which is more focused on asset-stripping,” said a source directly familiar with the matter. The discussions are ongoing but may not lead to any conclusive agreement with KKR, a second source cautioned.

When contacted, KKR declined to comment on the story. SBI and ICICI Bank too offered no comments. Traditionally, India’s public sector banks have stayed away from dealing with foreign investors in the stressed loan market.

Bulge-bracket global funds such as KKR, Brookfield Asset Management and Apollo Global management have looked at opportunities to acquire stressed assets put on the block by lenders. KKR was in contention to acquire Jaypee’s cement units, which was clinched by Aditya Birla-led UltraTech Cements for Rs 16,000 crore, mostly through a refinancing deal. KKR’s offer centred around acquiring 51% ownership (leaving the rest with lenders) and turning around operations under a new management team. The lenders would recoup a part of the loan upfront, while waiting for future upsides riding on a business rejig. The banks preferred a one-time deal offered by Birla’s UltraTech.

Brookfield’s acquisition of debt-laden Gammon’s road and power assets is one of the few recent instances where a global investor acquired assets of a stressed entity. “Indian lenders have opted for selling assets in distress rather than exploring ways to shore up value on troubled loans. Yesterday’s lenders have become today’s collectors. Hopefully, there will be a time when bankers will behave like bankers,” Anil Singhvi, a shareholder activist and co-founder of proxy advisory firm Institutional Investor Advisory Services (IIAS), said.

Last year, KKR along with Italian lenders UniCredit and Intesa Sanpaolo launched Pillarstone as a platform to help big corporate borrowers recover and grow. It later signed up with lenders such as Alpha Bank and Eurobank to expand the platform into Greece. Both Italian and Greek lenders have agreed to pool in about EUR 1 billion of loans each as part of the engagement with Pillarstone. KKR has said European Bank for Reconstruction and Development is also considering co-investing in the platform, which is planning to start operations into other European markets.

KKR has argued that Pillarstone is a “timely intervention” in European markets where hefty bad loans are hampering a broader economic recovery, a concern shared by policymakers in India as well. In recent weeks, the top 20 public sector banks have reported a cumulative loss of almost Rs 15,000 crore in the fourth quarter of the last fiscal. This was triggered by an unprecedented surge in provisioning for bad loans following the RBI’s asset quality review. The non-performing assets on their balance sheets is estimated at Rs 3 lakh crore.

“Nearly 15% of system assets are stressed and even if we optimistically assume that only a third of these stressed assets are going to be ultimately written off, that still means that nearly 30% the shareholders’ equity in the banking system is currently at serious risk,” Saurabh Mukherjea of Ambit Capital said in his latest research report. “The problem-facing public sector banks is more serious as 17% of their assets are stressed. It would imply that nearly 50% of the shareholders’ equity of PSBs will be written off by the end of FY18, requiring $30 billion (equivalent to nearly 1.5% of our GDP) in equity infusion. It is unlikely the government will find resources to recapitalize these ailing public sector banks,” Mukherjea added.

Source:http://economictimes.indiatimes.com/articleshow/52634610.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

 

RBI asks income tax assessees to pay dues in advance, 29 banks authorized to accept payments

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The Reserve Bank appealed to income tax assessees to pay dues in advance of the due date as well use alternate channels of authorized banks to avoid the rush during end of March.

“Pay I-T dues in advance at RBI or at authorized bank branches. Appeal to income tax assessees to remit their income tax dues sufficiently in advance of the due date,” RBI said in a release.

“It is observed that the rush for remitting Income-Tax dues through the RBI has been far too heavy towards the end of March every year and it becomes difficult for the RBI to cope with the pressure of issuing receipts although additional counters to the maximum extent possible are provided for the purpose”, it said.

RBI said assessees can use alternate channels like select branches of agency banks or the facility of online payment of taxes offered by these banks.

A total of 29 agency banks have been authorized to accept payments of Income-Tax dues. The authorised banks include SBI and its five associates, HDFC Bank, ICICI Bank, Axis, Bank, Punjab National Bank, Bank of Baroda, Bank of India, Indian Overseas Bank.

Among others are Corporation Bank, Dena Bank, Canara Bank, Central Bank of India, Syndicate Bank and others.
RBI said by remitting dues at the designated banks will obviate the I-T assessess’ inconvenience in standing in long queues at the RBI offices.

 

Source: http://www.firstpost.com/business/rbi-asks-income-tax-assessees-to-pay-dues-in-advance-29-banks-authorized-to-accept-payments-2628134.html?utm_source=FP_CAT_LATEST_NEWS