India Inc more analytics savvy than global peers

by | posted in: Corporate Updates, Economy, Business Updates, Corporate Affairs, India & International - Corporate updates | 0
There are a few aspects that are common to Indian organisations that have a successful analytics strategy in place.

Non-banking finance companies could well outpace commercial banks, struggling to grow amid muted loan expansion and bad loan burden, said global rating company Moody’s.

But, NBFCs too are exposed to certain risks emanating from their fast-faced growth in loan against properties, which they are in a position to mitigate with larger share in mortgaged loans.

Non-bank financial companies (NBFCs) in India (Baa3 positive) will demonstrate broadly stable asset quality, but  delinquencies will likely rise over the next 1-2 quarters, as demonetisation adversely affects collections across asset classes, said Moody’s Investors Service in a note.

“While the 90+days delinquency rate in the commercial vehicle (CV) loan segment largely stabilized in the first half of the fiscal year ending 31 March 2017, such delinquencies should build up in the near term due to the adverse impact of demonetisation and tighter recognition norms for non-performing  assets (NPAs),” said Alka Anbarasu, a Moody’s Vice President and Senior Analyst.

Moody’s also notes that the growth in loans against property (LAP) has outpaced overall retail credit growth in recent years, but relatively loose underwriting practices–combined with intensifying competition – will translate into higher asset quality risk for this segment.

Furthermore, over the past 3 years, NBFCs have gained some market share in the origination of retail lending, on the back of the faster growth exhibited by such entities when compared to the banks.

This is particularly the case when compared to public sector banks, which face significant challenges on their asset quality and overall solvency profiles.

“Nevertheless, we expect that competitive pressures from the banking sector will remain intense as banks are increasing targeting of the retail segment to offset weakness in their corporate lending. In addition, retail lending, particularly housing loans, is more capital efficient for the banks,” said Anbarasu.

And, while the NBFCs’ capitalization levels are adequate, with average Tier 1 ratios in excess of 14%, capital generation will lag credit growth. Access to external capital will therefore be key in sustaining the NBFCs’ growth momentum.

On funding, Moody’s expects that the NBFCs’ funding profiles will broadly remain stable, and funding costs should moderate gradually, given the reduction in systemic rates.

In addition, the NBFCs’ profitability and capital, as well as funding and liquidity levels, will stay broadly stable.

The NBFCs are growing at a fast pace, and have gained market share in the origination of retail credit. And, their share of LAP pose a potential source of risk, with such loans growing at a rapid compound annual growth rate of about 25% over the last four years compared to 17% for overall retail credit.

Moody’s says that the NBFCs’ exposure to potential risks from LAP is broadly offset by their share of stable mortgage loans, because favorable demographics and economics, tax incentives for home loans and an increasingly affordable housing segment support asset quality.

Moody’s expects that the loss given default for both home loans and LAP will be limited, in light of the underlying collateral.

Source: http://economictimes.indiatimes.com/articleshow/57749011.cms

 

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

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs | 0
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.

 

chart

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

Demonetisation: Amidst cash chaos Fintech startup Capital Float opens its coffers for small merchants

by | posted in: Corporate Updates, Economy, Business Updates, Corporate Affairs | 0
Advertisement The fintech startups has partnered with Point of Sale (PoS) card machine vendors to provide merchants quick and easy access to loans. (Reuters)

Amidst cash chaos and consequent surge in digital payment due to government’s demonetisation drive, a Bangalore based digital lending firm for small and medium enterprises (SMEs), Capital Float has decided to offer quick and easy loans to small merchants.

The fintech startups has partnered with Point of Sale (PoS) card machine vendors to provide merchants quick and easy access to loans.

Under this offer, any merchant who is using the services of vendors like Mswipe, Petpooja, ICICI Merchant Services, MRL Postnet, Bijlipay and Pine Labs for transations would be eligible for upto 200% finance on sales from their card machines. The merchant would be able to repay the loan as nominal percentage of their daily card settlements.

Capital Float, a Non-Banking Financial Company (NBFC) has a product called ‘Merchant Cash Advance’ which is targeted towards any merchant that accepts cards payment in exchange of the goods and services. The company underwrites such borrowers according to their monthly card sales and offers loans up to twice the amount of their average monthly card sales.

With the increase in card transactions due to demonetisation, company is expecting a surge for its Merchant Cash Advance offering. According to company officials, with the increase in card transactions, now more number of merchants will qualify under the loan criteria and also avail larger loan amounts as compared to the past.

Source: http://www.financialexpress.com/industry/demonetisation-amidst-cash-chaos-fintech-startup-capital-float-opens-its-coffers-for-small-merchants/458261/

DIPP notifies 100% FDI in more financial services

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Cross Border Transactions, M&As, Joint Ventures, Economy, Business Updates, Corporate Affairs, India & International - Corporate updates | 0

DIPP notifies 100% FDI in more financial services The commerce and industry ministry notified 100 percent foreign direct investment in ‘other financial services’ carried out by NBFCs.

 

The move will help attract foreign capital into the country. “The government has liberalised its FDI policy in Other Financial Services and non-banking finance companies (NBFCs), the DIPP said in a press note.

 

Other financial services will include activities which are regulated by any financial sector regulator – RBI, SEBI, IRDA, Pension Fund Regulatory and Development Authority, National Housing Bank “or any other financial sector regulator as may be notified by the government in this regard,” it said.

 

Such foreign investment would be subject to conditionalities, including minimum capitalisation norms, as specified by the concerned regulator or government agency, it said.

 

The press note, however, did not specify the sectors which have been opened up for automatic route. The present regulations on NBFCs stipulate that FDI would be allowed on automatic route for only 18 specified NBFC activities after fulfilling prescribed minimum capitalisation norms mentioned therein.

 

In the Budget 2016-17 Speech, Finance Minister Arun Jaitley had announced about this liberalisation.

 

Currently, 100 percent FDI through automatic route is permitted in 18 NBFC activities including merchant banking, under writing, portfolio management services, financial consultancy and stock broking. In 2015-16, foreign direct investment in India grew by 29 percent year-on-year to USD 40 billion.

Source: http://www.moneycontrol.com/news/economy/dipp-notifies-100-fdimore-financial-services_7829901.html

 

India’s microfinance industry clocked 60% growth in fiscal 2016: Report

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs | 0

After years of subdued growth, the Indian microfinance (MFI) industry expanded more than 60% to Rs54,329 crore in 2015-16 compared to the previous year, according to a report prepared by Sa-Dhan, the self regulatory organisation of MFIs.

The MFI client base expanded by 2.8 million in the year, taking the total number of clients to 39.9 million, said the report. This growth was despite the fact that Bandhan, which was the largest MFI, moved out of the space to become a full fledged bank.

The top 10 MFIs classified as non-banking financial companies (NBFCs) accounted for about 80% of the total gross loan value, the report said. They include Janalakshmi Financial Services Ltd, Ujjivan Financial Services Ltd and SKS Microfinance Ltd.

“Attaining over 28 lakh clients is no mean feat. This goes on to show that the microfinance industry, having reached its inflection point, is growing steadfastly,” P. Sathish, executive director of Sa-Dhan, said.

The MFI sector experienced a crisis after Andhra Pradesh, the biggest market for small loans made to the unbanked poor and self-employed, in 2010 clamped down on micro lenders.

The state government tightened regulations governing MFIs after reports surfaced that coercive loan recovery practices by the lenders had driven some overextended borrowers to commit suicide. That led to a shrinking of the asset base of the microfinance industry and a surge in bad loans.

Of the total client base of 39.9 million, the southern region alone contributed to 39% of the total client base. Kerala and Karnataka now have the maximum number of MFI branches.

The growth in this sector is also due to Reserve Bank of India allowing many NBFC-MFIs to act as banking correspondents (BCS) connecting commercial banks with customers in small towns and rural areas.

“The MFIs are finding the BC model rather attractive on the credit side,” Sathish added.

The report also claims that 94% of the total loans taken from MFIs are for income generating activities, dominated by agriculture and animal husbandry.

Source: http://www.livemint.com/Industry/4Zb0zp5yOh0toqEdBFz4jL/Indias-microfinance-industry-clocked-60-growth-in-fiscal-2.html

Microfinance lending hits $10 billion

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs | 0

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

In just 5 months, MUDRA lends over Rs. 42,000 crore & invests Rs 203 crore in securitisation deals

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs | 0

Micro Units Development & Refinance Agency (MUDRA) has recently closed its fourth deal with a total book of over Rs 203 crore, five months after it stepped into the securitisation market.

It has invested Rs 100 crore in two securitisation deals with Janalakshmi Financial Services and another Rs 50 crore in Satin Credit Care. It has also invested Rs 53 crore in SK Financial Services, a Jaipur-headquartered NBFC through a securitisation deal.

“We are directly investing in pass through certificates either as junior or senior investor,” Jiji Mammen, CEO, MUDRA, said.”All our investments are in healthy loan portfolios that will fetch us good yields.”

The coupon rates for all the securitisation deals are between 9.5 per cent and 10 per cent and the average yield for all assets was around 22 per cent, according to Mammen. Securitisation allows companies to provide part of their loan books and its receivables as guarantee to financial institutions. MUDRA was established as a subsidiary of Small Industries Development Bank of India (Sidbi) by PM Narendra Modi in April this year. The agency was set up with an initial corpus of Rs 5,000 crore to provide capital to all banks seeking refinancing of small business loans under Pradhan Mantri Mudra Yojna.

MUDRA’s latest attempt is to provide support to NBFCs and MFIs so that they in turn finance micro enterprises by participating in securitisation of their loan assets. It provides second loss default guarantee for credit enhancement and participates in investment of Pass through Certificate as senior or junior investor.

In the past five months, MUDRA has disbursed Rs 42,000 crore, one fourth of its total annual target of Rs 1,80,000 crore. The lending agency’s disbursals nearly doubled in the past two months to about Rs 27,000 crore from the Rs 15,000 crore it disbursed in the first quarter of the current fiscal year.

MUDRA has given loans of over Rs 1.3 lakh crore to 35 million borrowers. About 35 per cent of the total loans sanctioned last year were disbursed by MFIs. Among 45 per cent of the total loans disbursed by PSUs, 20 per cent was disbursed by SBI alone while 23 per cent was disbursed by private banks.

Of the planned disbursement of Rs 1.8 lakh crore this fiscal year, public sector banks would disburse Rs 77,700 crore, followed by Rs 21,000 crore by private and foreign banks, Rs 15,000 crore by regional rural banks, and Rs 64,240 crore by MFIs.

Source: http://economictimes.indiatimes.com/articleshow/54286037.cms