Showing posts with label bank. Show all posts
Showing posts with label bank. Show all posts

Tuesday 13 September 2016

Asset management companies take NBFC route to fund realty projects

More than half a dozen institutional investors are in the process of procuring a licence to set up NBFC, buying out existing NBFC or reviving existing but dormant entity

Asset management firms are setting up non-banking financial companies (NBFC) to bridge the capital deficit in the real estate sector.
More than half a dozen institutional investors are in the process of procuring a licence to set up a new NBFC, buying out an existing NBFC or reviving an existing but dormant entity to start lending.
Real estate NBFCs have steadily become key capital providers to developers, particularly those who don’t have easy access to banks and large private equity (PE) funds.
Asset management firm Rising Straits Capital, founded by Subhash Bedi, who also co-founded Red Fort Capital, is in the process of acquiring an NBFC. Once it’s done, Rising Straits will infuse equity capital into it and capitalize it before it starts lending.
“It makes logical sense for us to progress in this direction because we have the required skill and mindset,” said Kalyan Chakrabarti, managing director, Rising Straits Capital.
It plans to lend to different real estate asset classes including residential, office, hospitality, warehousing and education, where the initial focus will be to give small to medium sized loans for 3-5 years.
This year, Red Fort Capital’s NBFC Red Fort Capital Finance Pvt. Ltd has started actively investing from its lending book in residential and commercial projects.
“There is no better time to be in the NBFC business than in a slowdown scenario when developers need capital. We provide speed capital that is flexible and tailor-made to meet a developer’s needs and we do anything from land acquisition financing to deficit financing to last-mile funding to inventory funding to special situation funding,” said Abhiram Himanshu, director, Red Fort Capital. It will invest between Rs.35-60 crore across 5-7 transactions before it goes on to do larger deals and is focusing on funding developers in Bengaluru and Hyderabad.
Following a separation between Red Fort Capital co-founders Bedi and Parry Singh, the former set up Rising Straits Capital.
The NBFC lending space is a crowded one, with tough competition among peers and from private equity funds, which have transitioned from being equity-givers to debt lenders. Yet, the opportunities are many and the possibility to make decent returns remains substantial.
Canada’s Brookfield Asset Management Inc. has applied to the Reserve Bank of India for an NBFC licence, said a person familiar with the development. “The plan is to fund residential project lending in relatively large ticket deals of Rs.200-400 crore,” said the person, who did not wish to be named.
Financial services firm ASK Group, which has also applied for a licence earlier this year, will set up an NBFC that will do both real estate and non-real estate funding.
Sunil Rohokale, chief executive and managing director of ASK Group, said an NBFC is a “strategic fit” in the company, which currently has a real estate fund business along with wealth management and private equity funding. It is tough to estimate how much money NBFCs have pumped into real estate in the last few years, but to put things in perspective, Piramal Fund Management Pvt. Ltd (PFM) is an apt example.
Of the Rs.32,000 crore of PFM’s assets under management, including equity investments and commitments made but not yet disbursed, around Rs.28,000 crore is from its NBFC, including construction finance. From Rs.1,600 crore in early 2014, PFM has scaled it up to Rs.28,000 crore, building a successful business in India’s worst slowdown.
“The market needed a one-stop shop for capital and we provided that,” said Khushru Jijina, managing director, Piramal Fund Management.
Milestone Capital Advisors Ltd has recently revived its NBFC Milestone Finvest, and plans to deploy both debt and equity from its fund business, said a person familiar with the development, who didn’t wish to be named. Financial services firm Lodha Ventures has hired an agency to decide a name for its NBFC, said founder Abhinandan Lodha.
“From the NBFC, we want to offer debt to less-known developers, who are specialized in certain micro-markets. Growth capital has to be provided to them, as they may not have the ability to approach large NBFCs,” Lodha said.
To be sure, loans from NBFCs are more expensive than bank finance, but they are more flexible and offer customized solutions to developers.
“NBFCs offer both early-stage land financing and last-mile funding crucial to developers. The challenge is to find the right investments under deployment pressure. Smaller NBFCs with limited pools of capital may find it tougher than large NBFCs, who have a large platform which balances out the risk. So, the key is to attain scale,” said Nikhil Bhatia, managing director-capital markets India at property advisory CBRE Asia Pvt. Ltd.

Tuesday 2 August 2016

RBI clears decks for universal banking

Issues new norms for ‘on-tap’ licensing; large industrial houses barred


The Reserve Bank of India on Monday unveiled guidelines for ‘on-tap’ licensing of new private banks, opening the door for entities such as Edelweiss Financial Services, JM Financial, LIC Housing Finance, Magma Fincorp, Muthoot Finance, Shriram Capital and UAE Exchange & Financial Services, which had missed the bus in the last round, to float universal banks.
The guidelines in respect of promoter eligibility, corporate structure, foreign shareholding, dilution of promoter group shareholding and listing on the stock exchanges appear liberal as compared to the 2013 guidelines under which IDFC Ltd and Bandhan Financial Services were allowed to set up banks.
Under the new guidelines, resident individuals and professionals with 10 years’ experience in banking and finance are eligible to promote universal banks. Previously, only entities/groups in the private sector, entities in the public sector and non-banking financial companies (NBFCs) were eligible.
Large industrial houses are excluded as eligible entities, but can invest in the (universal) banks up to 10 per cent. A universal bank is a bank offering retail, wholesale and investment banking services under one roof.
Under the new guidelines, a Non-Operative Financial Holding Company (NOFHC) is not mandatory for setting up a bank in case the promoters are individuals or stand-alone promoting/converting entities who/which do not have other group entities.
The RBI has said that in case a bank is to be set up through an NOFHC, a promoter/promoter group should hold not less than 51 per cent of the total paid-up equity capital in the holding company. Earlier, entities/groups had to set up a bank through a wholly owned NOFHC.
Entities/groups in the private sector that are ‘owned and controlled by residents’ and have a track record of at least 10 years, are eligible as promoters. If such entity/group has total assets of ₹5,000 crore or more, the non-financial business of the group should not account for 40 per cent or more in terms of total assets/gross income.
Existing NBFCs ‘controlled by residents’ with a track record of at least 10 years are also eligible as promoters. However, any NBFC, which is a part of the group that has total assets of ₹5,000 crore or more and where the non-financial business accounts for 40 per cent or more is not eligible.
Paid-up capital

The initial minimum paid-up voting equity capital has been left unchanged at ₹500 crore. However, thereafter, the bank must have a minimum net worth of ₹500 crore at all times.
The criteria requiring promoter/s and the promoter group / NOFHC to hold at least 40 per cent of the paid-up voting equity capital, which will be locked-in for five years from commencement of business, remains unchanged. The promoter group shareholding will need to be brought down to 15 per cent within 15 years (from 12 years earlier).
The (universal) bank has to get its shares listed on the stock exchanges within six years (from three years earlier) of the commencement of business.
The current aggregate foreign investment limit is 74 per cent will apply to universal banks. Under the earlier regime, the aggregate non-resident shareholding could not exceed 49 per cent for the first five years.

George Antony, Managing Director, UAE Exchange India, said: “…The final call on application for the universal banking licence will be decided post the board meeting to be convened shortly.”

Monday 1 August 2016

BANKS ARE ILL, LONG LIVE NBFCs


Shares of Bharat Financial Inclusion Ltd, earlier known as SKS Microfinance Ltd, on Friday closed at 909.20—inching closer to the price at which retail investors had bought its shares in an initial public offering (IPO) six years ago. The 1,654 crore SKS IPO in July 2010, the first by any microfinance company in India and second in the world, was subscribed 13.7 times. The shares were sold at 985 in the IPO, but retail investors were given a discount of 50. It was listed on 16 August 2010 and soon rose to 1,490. That was before a crisis hit the microfinance industry following the promulgation of a state law in Andhra Pradesh. The law prompted large-scale defaults by borrowers and drying up of bank funds to the microfinance sector, and the SKS stock soon plunged to 54.5 as investors rushed to sell. 

The company posted a net profit of 235.91 crore in the June quarter, an almost four-fold increase from 61.16 crore a year ago on higher total income and a 96.85 crore tax write-back, beating analysts’ estimates. The gross non-performing assets (NPAs) for the quarter were 0.1% and, after setting aside money for bad loans, the net NPAs were 0.03%. Its loan portfolio rose 76% to 8,463 crore from 4,797 crore in the year-ago period.

Another listed microfinance company which is on its way to become a small finance bank, Ujjivan Financial Services Ltd’s stock rose to 540.85 on Friday before closing at 511.40. In May, Ujjivan’s 887 crore IPO was subscribed 41 times. In less than three months since its listing, the stock price has more than doubled. On Friday, Ujjivan announced a 71.37 crore net profit for the June quarter, more than double the profit it had reported in June 2015. Its loan book jumped 66% in the past one year to 5,850 crore. Its gross NPAs in June were 0.18% and net NPAs, 0.04%.

The third listed microfinance entity, Equitas Holdings Ltd, closed at 196.35 on Friday, losing around 2.5%, but it’s still trading at around 80% higher than its IPO price of 110. Its 2,163 crore IPO in the first week of April was subscribed 17 times. Its June-quarter net profit rose 60%.

Clearly, there is a re-rating of non-banking financial companies (NBFCs); investors are pulling out of banks and putting their money in NBFCs as they are growing faster than banks and their quality of assets is far better. The price-to-book ratio of Bharat Financial— which we get by dividing the current price of the stock by the book value per share—is probably the highest among all NBFCs barring mortgage lender Gruh Finance Ltd. Bharat Financial’s one-year forward price-to-book ratio is around 5.5, far higher than the best-performing private banks on the stock market like HDFC Bank Ltd and Kotak Mahindra Bank Ltd (both around 3.75), IndusInd Bank Ltd (3.5) and Yes Bank Ltd (close to 3). Among public sector banks, only State Bank of India’s one-year forward price-to-book value is higher than 1. Many of them are trading at half of their book value.

This is because most public sector banks have bloated bad loans and very few of them are actually growing the loan books. A handful of them announced their June-quarter earnings and they indicate that there is no respite from adding to the pile of bad loans and shrinking balance sheets.

The banks are not lending for fear of accumulating more bad loans and the NBFCs are taking advantage of that. What we are witnessing in the Indian financial sector now is quite unique. The Reserve Bank of India seems to be pushing for a bank-led financial system, but the business of lending is increasingly becoming sector agnostic because of the emergence of new channels such as mobile and Internet.

The banking regulator has given conditional licences to eight microfinance institutions to set up small finance banks; it also wants some of the larger NBFCs to become wholesale banks. However, for an NBFC, particularly a microfinance entity, the incentives to become a bank is far less today than in the past. They don’t need to entirely depend on banks for resources anymore; the Micro Units Development and Refinance Agency Bank as well as the National Bank for Agriculture and Rural Development are giving them funds. Besides, they can also collect deposits from the borrowers and cater to their need for savings by being a business correspondent of banks. Finally, new channels are being used to disburse loans.

Indeed, they will have to follow stricter norms for recognizing bad loans—from non-payment for 180 days to 90 days, on the line of banks—but this is not happening overnight. Similarly, their capital requirement by the end of the current financial year will not be as high as it was prescribed by an RBI panel in 2014. Finally, the drop in the yield of 10-year government bond, currently trading at its lowest since 2009, indicates that their cost of borrowing can only go down. No wonder then that the NBFCs have aggressively been building their retail books and the banks, though reluctant to lend to the borrowers directly, are happy to increase their exposure to these companies.

The NBFCs have got a fresh lease of life in the Indian financial system but does that explain the investors’ bullishness on a few of them, particularly the two MFIs that will become small finance banks? One thing is for sure that once they become banks, they will not be able to sustain the pace of growth in their loan book as they would need to focus on raising liabilities from the public in the form of deposits and that won’t be a cakewalk. There is also no clarity on whether Ujjivan and Equitas would need to tap the market again after three years of starting the bank. Under the RBI norms, listing is mandatory for a bank within three years. Both the entities have listed their holding companies. Of course, the regulator can always relax the norms either by accepting the listing of a holding company as a proxy for a bank or giving them more time for the bank listing.

Thursday 28 July 2016

We are AA+ rated, we want to be rated AAA: Rana Kapoor (MD & CEO of Yes Bank Ltd)

Rana Kapoor, MD & CEO of Yes Bank Ltd.
Rana Kapoor, managing director and chief executive officer of Yes Bank Ltd, comments on the bank's first quarter earning in an interview.

Let me come first of all to the growth, asset quality is not a problem with Yes Bank but 33% loan growth is a very impressive number at time when growth is scarce. Is this repeatable? 
    If you see last year, which was a very tough year, FY15-16, we grew the loan book at 30%. The fact is that our overall denominator is still like a medium-sized bank which is now leaning towards a small large bank.
So, our growth last year was 30% and we have reason to believe that with the sectoral and fairly well fine-tuned segmented, geographic as well as sectoral strategies we can address the credit demand in some sectors which is resurfacing. 

 So, this 33% is manageable?
   Thirty-three percent is not sustainable beyond a point but we have reason to believe that next four years, which is the third phase of Yes Bank’s lifecycle of growth from a small large bank into a medium large bank till 2020, we have reason to believe that we can sustain between 27-30% credit growth and because of these sectoral strategies we have, there is reason to believe that with good credit filters, relationship management, intensified product penetration that this can be done. 

   Where did this 33% growth come from? 
Fundamentally the growth is coming in from the sectors we focused on literally from inception. Some of them continue to be sunrise sectors like agri-business. We have reason to believe that in renewable energy we have a fairly significant market share apart from substantial market and mind share in that particular business. 

Broadly is it corporate, retail, small and medium enterprises, midcap? 
The engines are all moving, the interesting thing is that the corporate businesses, because of our proven track record and relative resilience in asset quality, give us an opportunity with that proven track record to build market share and mind share. At the same time all the growth engines and what we like to believe in our SME businesses which is not small anymore -- it is 23% of our total advances -and if you look at even the consumer and commercial retail, which is clubbed as retail banking, is almost inching up to double digits, it is about 11%.
So, with the overall branch banking driven growth and strong growth in retail liabilities and with credit cards, which is the last mile product launch, we are going to be a very comprehensive retail bank this year. 

Other income has contributed substantially to your profit, it straightaway goes to the bottomline. The notes to accounts gave us very broad ideas that it comes from guarantees, letters of credit, financial advisory, selling of products, can you give me a breakup, did a substantial amount come from sale of securities, investments? 
Overall if you look at the composition of our earnings in this quarter, we were approximately 60% driven by net interest income and just around 40% by non-interest income. This was a very good quarter because what we are seeing is increased market share on corporate banking and in corporate finance, the reason is that our branch that we set up in Gandhinagar—the international banking unit—that is giving us new breakthroughs in clients like pharmaceutical sector which was difficult to compete with when we did not have an offshore loan book. 

How much of equity dilution will come because of the qualified institutional placement? What are you prepared for as an upper limit? 
When we discussed this three months ago, I had shared with you that we expect overall dilution of around 12-13.5%. So, I will pretty much stick to that number, may be 12-13%. The fact of the matter is that the continued resilience of the asset quality of the bank, the sustained profitability of the bank, increased market share of the bank, the outreach of retail and branch banking is in a way helping to rerate the bank. We have had a soft landing on asset quality. 

If it is 12-13% equity dilution, your return on equity (RoE) at the moment is about 21%, how many months will it take or how many quarters will it take to come back to 21%?
 When we meet investors this question comes up invariably in every meeting. Equity capital raising for a bank like ours is value and earnings accretive from day one. So, we have reawatch son to believe that give or take 6-8 quarters we can restore RoE back to 20% and at the same time because our RoE is a 20% and our dividend payout policy is about 80% retention and 20% dividend payout, that in itself gets us about 20% of organic growth through retention of profits.
So, the incremental capital that comes in is going to help us to grow at 30% and with that we can become RoE competitive in less than 6-8 quarters.
We have done it in the past, if you see our 2010 capital raise, $225 million, within 4-5 quarters we were back to 20%. If you look at our $0.5 billion capital raise in May 2014, which was a very big success, it has doubled in value since then; that also enabled us to get back to 20%t RoE in less than 8 quarters. So, it is value and earning accretive. 

Will you be wanting to take over a microfinance or a small bank?. We just saw IDFC do that. Small bank business is fairly lucrative, look at the way Equitas and Ujjivan are doing. Will inorganic be a thought? 
I must confess that the DNA of Yes Bank, which has been in a way personifying in itself over the last almost 12 years, is driven by hardcore entrepreneurship, what we call professional entrepreneurship. So, the ability to create building blocks within the bank, to make them profitable within reasonable timeframes is the real entrepreneurial joy of our top management.
So, we will look at acquisitions as and when they come through but there is a fair amount of organic capacity, bandwidth, bench strength, the bank has to be able to build businesses organically.
We are building a securities business as a subsidiary which is going to be more in retail, broking and asset management in course of time; we have got a licence. So, our ability as a bank with a professional DNA, as the professionals bank of India, is really organic. What happens is HR in India needs to be very homogenous and sometimes when you address it and put a shock in the system it can take a couple of years to recuperate. The systems have to synergise, IT has to be very friendly on the interfaces involved. So, a bank like ours which is still like a brand new bank even though we are 12 years old has the ability to engineer new businesses organically. 

So, your preference is organic? 
Prefer that, more weightage on that but if there is a very sweetheart deal, why not? 

There will always be one or two sceptics out there who would feel that if you are growing 33% at a time when the economy is still difficult, have you become a little more, shall I say, courageous in lending? What are yourself given targets on non-performing loans (NPLs)? Do you think you will go maximum to 0.8-0.9%, how might the subsequent quarters look like?
 The guidance on gross (NPLs) is that we should not exceed 1%. We have a minimum provisioning policy literally of 60% and right now our overall provisioning coverage is 64.2%. Which means net-net we should not fall or increase net NPAs beyond 40%.
At the same time there is a lot of focus and visibility on recovery of losses, recovery of NPAs, reducing restructurings; as you will see in our numbers, we have made significant progress in reducing restructurings overall. In sale of assets to asset reconstruction companies (ARCs), security receipts, when you look at the totality of the asset quality, I can promise you today, we are outperforming the perceived retail banks in the country.
We are AA+ rated but we want to be AAA but I am sure you are talking in equity context.


Thursday 7 July 2016

NPAs: Need For A Holistic Approach To Resolution

The banks have been given time till March 31, 2017 by RBI to clean up their books while the gross non performing assets have reportedly ballooned to over Rs 5.5 lakh crore by end of March 2016



Banking system faces enormous challenges as the spectre of gargantuan non-performing assets (NPAs) is haunting them even as the regulator is coming out with new schemes to address the NPA menace head-on.

The banks have been given time till March 31, 2017 by RBI to clean up their books while the gross non performing assets have reportedly ballooned to over Rs 5.5 lakh crore by end of March 2016. This Herculean task needs to be addressed in a holistic manner, keeping the Indian ecosystem in mind, so as to minimise future slippages in the accounts. To begin with, it would be pertinent to recognise that all borrowers are not ‘chors’ and that all lenders cannot be accused of not having done the due diligence and then try to find a resolution before the problem starts eating into the very growth of economy.

Aggravating Factors
The list of factors that caused a jump of more than 475 per cent in NPAs in a matter of 5 years are many. However, factors like commodity cycle downturn, delays in approval from government be it environmental clearance, land acquisition process, obtaining right of way, forest clearance and lack of dispute redressal mechanism in a business-like manner, besides, policychanges like cancellation of telecom licences, withdrawal of coal and iron ore mines, dumping by some countries which made local products unviable, were other contributory factors which were further compounded by the indecisiveness of the decision makers who simply did not take any timely decisions fearing political backlash.

Just to elaborate this point further, let me draw on the steel sector. According to RBI’s Financial Stability Report, June 2015, five out of the top 10 private steel producing companies are under severe stress on account of delayed implementation of their projects due to land acquisition and environmental clearances among other factors. And then the operational units in the steel sector lost their cost competitiveness. As is well-known, some of the critical factors affecting the competitiveness of this industry, particularly in economic downturn, include government’s support (tax incentives), tariff protection, raw material security at competitive prices and availability of infrastructure and logistics. Who would have seen this coming when the projects were set up.

Five Sectors-Demand Upside Holds The Key
It is interesting to note here that five sectors-iron and steel, infrastructure, EPC, mining and textile account for bulk of the reported NPAs which had their share of external factors responsible for accumulation of NPAs in the last 4-5 years. While wilful defaulters need to be dealt with strictly, it is also a fact that all these sectors play key role in the growth of the economy-both at the domestic level and in international trade. A robust revival of demand would enable the companies in these sectors to generate enough cash flows to not only service the debt but return to growth path in a short time.

RBI’s S4A Scheme-May Not Meet With Enough Success
During the last few years, the corporates have piled on an unmanageable mountain of debt without commensurate increase in the earning capacity. In this backdrop, the caveats attached relating to limiting the lenders from changing any of the terms of repayment and interest rate in respect of the sustainable debt portion as also the high level of equity dilution that could be expected with the implementation of the scheme, may lead to limited success and may not meet with the desired results.

Financial Health-palliative Care
As RBI Governor rightly put it, ‘band aid’ approach would not work over a long term. What is needed is a major surgery. While it is a good sign that banks are finally willing to acknowledge the problem, it does not mean that the issue is resolved. The real task begins only now. It is not DRT or CDR or SDR or S4A or Bankruptcy laws alone which can cure this malady. What we need is a macro view taken on the entire economy and then arrive at a resolution strategy which could unlock fair value from the distressed assets for the benefit of all stakeholders. 

The success of the above will to a great extent depend on pro-active measures taken in a co-ordinated manner by Govt. and the Regulator to quickly respond to the challenges being faced by the industry and ensure long term stability in policies which are critical to their well-being. To address the existing NPA problem and protect the economic value of their loan, it is imperative that banks go for a holistic resolution. It is the right time that pain is acknowledged, loan book is corrected, and assets are rightly priced and nurtured further by infusing new money for revival and operations by inviting a new promoter or special situation fund who can bring in their portion of equity or risk capital.

We all understand that without removing the extra flab of debt, the brides may not find any suitors. Further, the investors willing to take over stressed assets are well informed and fully aware of the inherent risks and challenges associated with reviving a distressed company without the support of the old promoters. The new promoter/investor will not be able to bring in the entire equity since Indian businesses cannot sustain superlative returns as they are not very competitive. Thus, it essentially means that the project/company would need to be supported mostly by the existing lenders who have access to cheaper funds in the form of low cost deposits and can manage risk of recovery in the hands of new management/special situation fund who have proven track record of success with higher credibility. When this happens as also with the bankruptcy laws coming in place, the business of investment in distressed assets will become more mature and there will be good interest among serious investors and business assets will be put back to use.

Unlike in other parts of the world, where business successes and failures are taken with equanimity and promoters do not mind shutting the business and moving on, Indians hate ‘failure’ and see failure as a stigma and leave no corner to project success. This die hard belief in making the venture successful and running might turn out to be a blessing in disguise in turning around the stressed assets and resolving the NPAs.

Thursday 5 May 2016

With 10 branches, first small finance bank kicks off operations

The bank’s business is projected to increase four-fold from Rs 3,000 crore as on March 31, 2016 to Rs 12,000 crore and branch network to 216 by March 2021.



Jalandhar-based Capital Small Finance Bank Ltd, India’s first small finance bank, has commenced operations. The bank kicked off operations with ten branches.


In the current fiscal, the bank would consolidate in Punjab by adding 29 branches. The bank’s business is projected to increase four-fold from Rs 3,000 crore as on March 31, 2016 to Rs 12,000 crore and branch network to 216 by March 2021.
Capital Small Finance Bank has been set up by converting the erstwhile Capital Local Area Bank Ltd. “Consequently, the bank ceases to exist with effect from April 24, 2016. It was one of the 10 applicants to be given in-principle approval for setting up SFBs as announced by the Reserve Bank in its press release dated September 16, 2015,” the RBI said.
Ten selected applicants include Au Financiers (Jaipur), Capital Local Area Bank (Jalandhar), Disha Microfin (Ahmedabad), Equitas Holdings (Chennai), ESAF Microfinance and Investments (Chennai), Janalakshmi Financial Services (Bengaluru), RGVN (Northeast) Microfinance (Guwahati), Suryoday Micro Finance (Navi Mumbai), Ujjivan Financial Services (Bengaluru) and Utkarsh Micro Finance (Varanasi).
The small finance bank will primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
There won’t be any restrictions in the area of operations of small finance banks. The minimum paid-up equity capital for small finance banks shall be Rs 100 crore.
The promoter’s minimum initial contribution to the paid-up equity capital of such a small finance bank should at least be 40 per cent and gradually brought down to 26 per cent within 12 years from the date of commencement of business of the bank.
The RBI had granted approval to 11 entities for launching payments banks in August 2015. It had given approval to IDFC and Bandhan to start universal banks last year.
Meanwhile, microfinance player Ujjivan Financial Services, which got the RBI nod for a small finance bank, will hit capital markets on Thursday to raise nearly Rs 885 crore through an initial public offering.

Tuesday 26 April 2016

HDFC to raise Rs 500 crore by issuing bonds to finance housing biz

The bonds with a tenor of five years, have April 26, 2021, as the redemption date


To cater to housing finance needs, India's largest mortgage lender HDFC on Monday said it will raise Rs 500 crore by issuing bonds on a private placement basis.

Issue size of Rs 500 crore secured redeemable non-convertible debentures, to be held on private placement basis, will carry a coupon rate of 8.35% per annum.

"The object of the issue is to augment the long-term resources of the corporation. The proceeds of the present issue would be utilised for financing/refinancing the housing finance business requirements of the corporation," HDFC said in a regulatory filing.

The bonds with a tenor of five years, have April 26, 2021, as the redemption date.

HDFC said the issue can be subscribed by only the persons who are specifically addressed through a communication by the company.

Scrips of the company traded 1.77% down at Rs 1,111.40 apiece on BSE.

Thursday 17 March 2016

Banks put up a united front on stressed assets

The message from bankers to the top management of stressed firms was clear: banks are willing to help only if the need is genuine and promoters are doing their bit.


Mumbai: On one side were the bankers—from some of India’s top banks, many state-owned.
On the other side were promoters and CXOs of companies, including some storied ones, that had borrowed money from them and were finding it difficult to pay it back.
Earlier this week, when the two met at State Bank of India’s (SBI’s) headquarters in Mumbai’s Nariman Point, the proceedings were anything but pleasant.
The message, at the end of a series of meetings, was clear: the banks would work in concert; they wanted interest payments to restart; they would help but only if the promoters and management were doing all they could to pay back the money owed by their companies; else, they would take charge.
The banks present included SBI, ICICI Bank Ltd, IDBI Bank Ltd, Punjab National Bank, Central Bank of India, Union Bank of India and Dena Bank.
The companies included Visa Steel Ltd, Uttam Galva Steels Ltd, Adhunik Metaliks Ltd, Aban Offshore Ltd, Bhushan Power & Steel Ltd and Bhushan Steel Ltd.
“We have been patient with a lot of borrowers, but if someone is trying to take advantage of that, we will not shy away from taking them to task,” said a senior banker at a state-owned bank who was present at the meetings. He sought anonymity as the meetings were confidential.
The meetings dovetailed with a massive clean-up of bank balance sheets; the Reserve Bank of India (RBI) has given them a deadline of March 2017 to complete the exercise.
The banking regulator has asked banks to provide for and reclassify stressed assets as part of an asset quality review that took place in December. Banks were asked to make at least half the required provisions in the October-December quarter and the remaining in the fourth quarter of 2015-16 (January-March).
In a report on Wednesday, JP Morgan analysts Seshadri Sen and Dhiren Shah wrote that while aggressive recognition and reclassification of stressed loans was a positive for the banking system, inadequate bank capital and low prices quoted by stressed asset buyers could play spoilsport.
Experts say joint lender meetings with borrowers could prove beneficial.
“When borrowers and all their bankers sit together, the true nature of the stress can be identified. If there are any issues that can be fixed on the bank’s end or even on the borrower’s part, it can be solved. For problems which go beyond these two, banks can always reach out to the government, which seems to be keen on reducing stress in the system,” said Vibha Batra, senior vice-president at rating company Icra Ltd.
According to the banker mentioned above, bankers had previously discussed the need for joint meetings to ensure that all lenders are on the same page.
SBI, being the lead lender in a number of instances, took the lead. The options discussed by the lenders include reclassification of loans to non-performing category, bringing in more promoter equity, working with restructuring and turnaround of firms, invoking lenders’ rights to take over collateral and finally, taking operational control of companies.
“Most borrowers came with an open mind, which made the discussions easier. But there were a few who refused to even turn up. Over the next few days, we will decide on how to move against them,” said a second banker at another state-owned bank who spoke on condition of anonymity.
Bankers warn that given the external environment, it would be too much to expect an immediate improvement in asset quality. Some cases discussed at the meetings involved iron and steel companies, which are not only highly leveraged but are also having to cope with low demand, both domestic and global.
In such cases, lenders say, the best option is to wait it out. “Whether we do it with a new promoter or old is a case-specific decision to take. But we are open to giving time to these borrowers,” said the second banker quoted above.
In some cases, lenders may choose to classify the loans as a non-performing asset (NPA), giving themselves more time to find a resolution, after due provisioning. “If it (the asset) is standard, the timeline is too stringent for any process to take place,” the second banker said.
Once the asset is classified as bad and lenders are convinced that the resolution process will show results, they could allow the company to avail of fresh loans under the current credit limits.
According to Icra’s Batra, in highly leveraged sectors such as steel which are reeling under various pressures, the least that bankers can do is to recognize the stress and provide adequately. “Once banks have adequately provided for these loans, it becomes easier for everyone to identify the issues and evaluate bank balance sheets better,” she said.
The marathon meetings with promoters form part of a larger movement by the banking system to bring problematic borrowers to task.
Apart from this, lenders are also actively trying to find investors who can buy stakes in companies where they have acquired equity control in lieu of debt.
In a 3 March advertisement on its website, SBI asked for expression of interest (EOI) from interested parties that might want to acquire management control of a company which is setting up a 2.51 million tonne per annum integrated steel plant in Bokaro, Jharkhand. The deadline for submission of the EOI is 21 March.
Gross NPAs of 39 listed banks surged to Rs.4.38 trillion in the quarter ended 31 December from Rs.3.4 trillion at the end of the September quarter, according to data collated by corporate database provider Capitaline.
In a statement last week, ratings agency Crisil Ratings said that it expects stressed assets (a sum of gross NPAs and other troubled assets) in the Indian banking system to rise to over Rs.7 trillion (or 11.3% of total loans) by March 2017, from about Rs.4 trillion (7.2% of total loans) as of March 2015.

Tuesday 15 March 2016

IDBI Federal Life Insurance buys office space worth Rs 111 cr in Marathon Futurex

In one of the major office space transaction, IDBI Federal Life Insurance Company Limited has bought commercial space worth over Rs 111 crore at Marathon Futurex in Lower Parel in Mumbai. The company has acquired around 61,720 sq ft office space spread over two floors at the IGBC’s Gold rated Green Building. The deal was registered last week after completion of all formalities.

The 450 employees of IDBI Federal Life Insurance will occupy the offices on 22nd and 23rd floors of the tower. The deal works out at around Rs 18000 per sq ft and falls within the ongoing property rates for outright transactions. Rates in Lower Parel are in the range of Rs 18,000-20,000 per sq ft based on the profile and facilities offered in commercial complexes here.

Mr.Mayur Shah, Managing Director, Marathon Group said, “This is one of the biggest commercial realty deals in the recent time which instills the hope that commercial real estate is on track.”


He added, “Among the biggest commercial real estate deals that have taken place in last couple of months, maximum deals have taken place in Marathon Futurex in Lower Parel. The reason is the distance of railway stations from the iconic building and the gold rated green building with amenities and facilities that are at par with international standards. With increasing standards Indian corporate houses and entry of multinationals, Marathon Futurex is the apt office space solutions for these companies.”

Sun Capital

Kotak Mahindra, Canada pension board launch $525 mn stressed asset fund

The fund has a flexible investment mandate with aim to restructure, recover and turn around companies in distress.



Kotak Mahindra Group has tied up with Canadian Pension Plan Investment Board (CPPIB) to launch a $525 million fund to invest in the stressed asset market in India. The Canadian pension fund manager will have the option to invest up to $450 million in this partnership, Kotak Mahindra Group said in a statement on Monday.
“This investment will address the growing opportunity arising from the current stress in the Indian banking and corporate sectors,” the statement said.
The fund has a flexible investment mandate—providing financing solutions to companies—in addition to investing in stressed asset sales by banks with the aim to restructure, recover and turn around companies in distress, it added.
“Through this agreement, CPPIB will selectively invest in assets that we believe will deliver value in line with our long-term investment mandate,” said Adam Vigna, managing director, principal credit investments, CPPIB.
On 22 January, Mint had reported that Kotak Mahindra Group and CPPIB are in the process of launching a $500-600 million stressed asset fund in India, before the end of the financial year.
The fund will work closely with Kotak Mahindra Group and its affiliate, Phoenix Asset Reconstruction Company (ARC) Pvt. Ltd, to locate opportunities in the stressed asset market in India. Kotak Mahindra Bank currently owns 49% stake in Phoenix ARC.
Kotak Mahindra and the CPPIB have been in discussions since 2015, as stressed assets piled up at domestic banks in the aftermath of an economic downturn that made it difficult for many borrowers to repay debt.
In January, Ajay Piramal-led Piramal Group said it will launch a $1 billion stressed assets fund in association with Nirmal Gangwal, founder of Brescon Corporate Advisors Ltd, a corporate turnaround firm. The fund will be looking at investing in stressed firms and possibly take over management where needed.
The stressed asset market is looking attractive to domestic and foreign investors due to a pile-up of bad loans in the Indian banking system, which is working on a March 2017 deadline to clean up its books.
Gross non-performing assets (NPAs) of 39 listed banks surged to Rs.4.38 trillion in the quarter ended 31 December 2015, from Rs.3.4 trillion at the end of the September quarter, according to data collated by corporate database provider Capitaline.
In a statement last week, ratings agency Crisil Ratings had said that it expects stressed assets (a sum of gross NPAs and other troubled assets) in the Indian banking system to rise to over Rs.7 trillion (or 11.3% of total loans) by March 2017, from about Rs.4 trillion (7.2% of total loans) as on March 2015
Sun Capital


Monday 14 March 2016

Bonds beat bank loans

Borrowing through corporate bonds and commercial paper (CP) has exceeded loans disbursed by banks so far in FY16, reports Bhavik Nair in Mumbai. Bank loans include those to individuals and therefore, the data suggests a whole host of companies may have stayed away from banks. Typically, banks lend more in a year than is borrowed in the bond and money markets.
However, money raised via CPs and corporate bonds have touched Rs 3.55 lakh crore thus far in FY16, which is higher than the non-food credit by banks which is approximately Rs 3.03 lakh crore. Companies have tapped the bond markets primarily because it is cheaper to borrow there. The difference in borrowing rates has been anywhere between 50-100 basis points. Shashikant Rathi, EVP, capital markets, Axis Bank, points out the shift in borrowings to the corporate bond market from the banking system has been seen across sectors.
Banks are seeing subdued demand for term loans and project finance given investment activity is sluggish.
Moreover, the sharp drop in prices of commodities and lower inflation has brought down the demand for working capital too.
Moreover, their loans are priced higher than bonds and CPs prompting companies to opt for the latter.
In 2015, banks reduced their base rates close to 60-70 basis points. For example, State Bank of India brought its base rate down to 9.70% from 10% at the beginning of the 2015. However despite this their loans remained more expensive than borrowings in the bond market since yields fell more sharply. For example, immediately after the cut in the repo rate by 50 basis points on September 29, by the central bank, short-term CP rates fell by 50-75 basis points. Primarily, companies which enjoy a rating above AA- have moved to corporate bond market since, as Rathi points out, yields here are lower by 150-200 basis points.

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