Financial Awareness-February(11-20) 2017

  1. Govt said to cut bank capital infusion for this fiscal because of slow loan growth (Source: MINT)
  • Government may cut the amount of capital it plans to inject into state-controlled lenders this fiscal year by as much as Rs7,800 crore($1.2 billion) because of slow loan growth
  • India can infuse the deferred Rs7,800 crore in the coming fiscal year, along with the Rs10,000 crore pledged for the period as part of the Union budget revealed on 1 February.

2. Cabinet approves SBI merger with five associate banks (Source: MINT)

  • The cabinet has approved the proposed merger of State Bank of India (SBI) and five subsidiaries—a combination that will create the first Indian lender to rank among the world’s top 50.
  • The SBI merger with associate banks will give State Bank of India an asset base of Rs37 trillion, 22,500 branches, 58,000 ATMs and over 50 crore customers.

3. Government to give more space to asset-reconstruction & state-run companies to take over stressed assets (Source: ET)

  • The government will look to give more space to asset reconstruction and state-run companies to take over stressed assets instead of setting up a bad bank, an idea that gained currency after the Economic Survey suggested it to help banks get rid of their biggest burden.
  • The government is expected to hold meetings with all stakeholders to assess the dispute resolution process. A government official said globally, bad banks have not been very successful and in India as well the experiment with Stressed Asset Stabilization Fund (SASF) has not been encouraging. Stressed assets of around Rs 9,000 crore were transferred into SASF when IDBI was converted into a bank. This trust has recovered Rs 4,500 crore and the remaining valuation of the block is only Rs 400 crore.

4. Bankers seek dispensation from regulator to recast of bad loans (Source: ET)

  • Bankers led by State Bank of India (SBI) have asked for a special dispensation from the banking regulator to revive companies that require deep restructuring of loans.
  • Such restructuring involves haircuts, longer duration loans and reduction in interest rates and converting a substantial portion of loan into equity. Bankers have conveyed regulator that they would be more willing to recast a loan if they have the flexibility to provide for losses across several quarters rather than doing it in one shot.

5. Fitch India affiliate sees banks’ core capital needs at $13.6 bn by March 2019 (Source: ET)

  • India’s banks will need 910 billion rupees ($13.6 billion) in Tier-1 capital until March 2019 to grow at a bare minimum pace of 8 to 9 percent on average, India Ratings and Research said
  • Of the total capital needs, 500 billion rupees will have to come from additional Tier-1 bonds, the rating agency, an affiliate of Fitch, said.
  • India Ratings “believes there is an increasing divide between the large and smaller (state-run banks), with the former having some access to growth capital, better market valuation, and also some non-core assets to divest while the latter would only receive bailout capital if required,” the agency said.

6. Rs3.2 trillion debt will turn into potential slippages in next 12 months: report (Source: MINT)

  • Of Rs 83 trillion stressed corporate debt at the end of the September quarter, close to Rs3.2 trillion will turn into potential slippages in the next 12 months, India Ratings and Research said.
  • The rating agency has maintained stabled outlook for large public sector banks and private sector banks on the back of better access to capital. However, it has retained negative outlook on mid-sized and smaller public banks with weak capitalization and large stock of aging non-performing loans.
  • Telecom sector which contributes 6% of stressed bank debt at the end of December quarter has the highest portion of unrecognized stress.

7. Banks look for insurance as cyber threats increase (Source: MINT)

  • With instances of cyber threats increasing, the banks, which are increasingly going digital prodded by government and regulators following note-ban, are looking for cyber insurance.
  • The country reportedly lost a whopping $4 billion in fiscal 2016 to cyber crimes, while globally, the economic loss due to cyber crimes stood at $455 billion in 2016. According to insurance industry reports, cyber crimes are growing at 40-50% annually globally.

8. Scan & pay: HDFC Bank readies to take on Paytm (Source: ET)

  • HDFC Bank has drawn up ambitious plans for QR code based payments – a model popularised by Paytm – as IndiaQR kicks off on February 20th.
  • The RBI and payment networks — (Visa/MasterCard/RuPay/American Express) will unveil IndiaQR — a “scan and pay” facility for small shops that do not have the volumes to justify deploying a card swipe machine.
  • HDFC Bank has appointed payment tech company In-Solutions Global (ISG) to provide an end-to-end merchant acquiring platform. ISG will provide a package which includes app development to the switch.

9. Digital push: Oriental Bank launches mobile wallet ‘Batuaa’ (Source: BL)

  • Oriental Bank of Commerce (OBC) has come up with several digital offerings including launch of mobile wallet ‘Oriental Batuaa’.
  • Besides introducing a new version of mobile banking, OBC has also launched two new cards. While the Oriental Premium card is a RuPay based Platinum international debit card with airport lounge access, the other card-Oriental Prepaid Card is a RuPay card for individuals and corporates.

10. Ahead of merger with SBI, associate State Bank of Travancore to raise up to Rs 600 crore (Source: FE)

  • Ahead of its proposed merger with parent SBI, State Bank of Travancore (SBT) will raise up to Rs 600 crore to shore up additional tier-I capital by issuing Basel compliant bonds on private placement. The bank got approval of its Executive Committee on February 18th to raise the money.

11. Edelweiss ARC makes Rs 500-crore bid for Adhunik (Source: ET)

  • The junk loan arm of financial services group Edelweiss has made a surprise bid for debtridden Adhunik, a Rs 4,000-crore company that is a problem case for high street banks.
  • According to proposal, a slice of the loan book and 26% stake in Adhunik Power and Natural Resources would be sold to Edelweiss ARC. The proposed transaction would go down as one of the rare debt recast deals where lenders would receive close to Rs 500 crore cash.
  • The consortium of 24 lenders have also received offers from other interested parties like Srei Infrastructure and OPG Power Ventures. Edelweiss ARC has offered to pay close to Rs 60-80 crore for 26% stake and Rs 420 crore for purchase of loans. In all, ARC has offered to buy out Rs 2,800 crore of loan. The proposed loan transaction would be a 15:85 deal — wherein 15% or Rs 420 crore will be paid in cash while the balance will be in the form of security receipts which would be redeemed over the next 5 to 7 years.

12. Power scenario in India set for major change, India-Ratings assigns ‘AA’ to Rs 10,000 cr UPPCL bond, may light up UDAY in UP (Source: FE)

  • In a significant step that can change the power scenario in the country and signal the success of the Ujwal Discoms Assurance Yojana (UDAY) in Uttar Pradesh, India Ratings and Research (Ind-Ra) has assigned UP Power Corporation (UPPCL)’s proposed R10,000-crore bond a provisional ‘IND AA(SO)’ rating with a stable outlook.
  • This makes it India’s first state government revenue-supported bond. Another first for this transaction is the Reserve Bank of India-backed structured debt servicing mechanism. Under this mechanism, in case the specially created bond servicing account falls short of the amount required to service the debt, and later if the state government is unable to fund it by a specified date, the RBI will debit the requisite amount from the state government’s account with the central bank and credit it to the UPPCL bond servicing account one day prior to the due date of bond servicing. Ind-Ra believes this structure will provide confidence to investors and timely servicing of the debt.

 

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