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<div type="image" title="The RBI has cracked the regulatory whip on NBFCs and banks, who&amp;#39;ve been pushing microfinance and unsecured loans aggressively to grow their loan books." agency="ANI" msid="114778648" hostid="261" caption="&amp;lt;p&amp;gt;The RBI has cracked the regulatory whip on NBFCs and banks, who&amp;#39;ve been pushing microfinance and unsecured loans aggressively to grow their loan books.&amp;lt;/p&amp;gt;"></div> Imagine this. You have a younger sibling you’re mighty envious of. And why not? Unlike you, they seem to enjoy all the freedom and money in the world. They party like there’s no tomorrow, and here you are, stuck in a boring, ultra-disciplined but responsible routine that feels completely devoid of any independence, and mostly, funds. But of late, things are changing. This sibling is in massive trouble and just cannot escape the parent’s wrath anymore. Long story short, the party is over, and it is time to go back home. The rising defaults on this sibling’s part have now begun pulling the entire house down, thereby attracting the regulator’s ire. <h2>The Wild West of <keyword id="113684" type="General" weightage="20" keywordseo="microfinance" source="Orion">microfinance</keyword> and unsecured loans</h2>It's hard to ignore the issues with microfinance and unsecured loans in India. Many saw them as a small gamble and ignored the rising defaults much like the younger siblings’ tantrums, and now they find themselves in hot waters. The skyrocketing instances of non-payments aren't a micro-issue anymore and are threatening the stability of the entire banking system. In the quarter ended September 30, 2024, 5 of India’s 8 largest private sector <keyword id="19934118" type="General" weightage="20" keywordseo="banks" source="keywords">banks</keyword> reported a steep rise in their bad loan book, mostly thanks to microfinance loans. Some banks, in a bid to strengthen their fortress against these <keyword id="142154" type="General" weightage="100" keywordseo="bad-loans" source="Orion">bad loans</keyword>, have significantly upped their provisions. For instance, IndusInd Bank set aside Rs 525 crore during July and September 2024 to battle the menace of defaults on microfinance loans, which make up about 9% of its total loan book. See, banks rely heavily on their interest income, which they earn from advancing loans. Any loan where the borrower has not paid interest to the bank or defaulted for 90 days or more becomes bad, i.e. an NPA, or non-performing asset for the bank. And who likes things going bad? Simply put, there has been a steep rise in three areas, much to the dislike of banks and MFIs (micro-finance institutions). But hey, it's mostly their doing! <ol><li>GNPA ratio (gross net performing assets): The quantum of non-performing assets a bank has in proportion to its total assets.</li><li>Provision: The amount banks set aside to take care of such NPAs.</li><li>Slippage ratio: The rate at which good girls go bad, or the speed at which good loans turn into NPAs</li></ol>But how are these plaguing the Indian banking sector? And what does the road ahead look like? We decode it for you. <h2> Microfinance: A not-so-micro-menace</h2>Microfinance loans were initially brought forth for low-income households and individuals i.e. for those who might not generally have access to traditional ways of credit, like bank loans and more. They don’t require collateral or an asset to be pledged in lieu of the loan, making it a tad bit easier for borrowers. As of June 2024, the amount of outstanding loans in the microfinance industry stood at a staggering Rs 4,20,256 crore. Of this, NBFC-MFIs accounted for 40% and banks made for 33% of these. In 2022, RBI, in a bid to inspire some competition in this space, did something radical-they did away with the ceiling on how much interest MFIs could charge their customers. Previously, MFIs could add up to 12% to their cost of acquiring funds to determine the final interest rate chargeable to the consumer. So, assuming that Bank A incurs a 5% cost to acquire funds for further loaning, A could charge up to 17% interest from the end consumer. So, interest rates were in the hands of MFIs, and boy, did they have a gala time with it. Instead of spurring some healthy competition, as RBI expected, MFIs and banks went rogue and all guns blazing, competing for the title of “Who will charge the highest interest?” Recently, RBI banned 4 microfinance institutions (MFIs), namely Asirvad Micro Finance Limited, Arohan Financial Services Limited, DMI Finance Private Limited, and <keyword id="20117932" type="General" weightage="20" keywordseo="navi-finserv" source="keywords">Navi Finserv</keyword> from disbursing loans effective October 21, 2024. Why? Because they were charging 14% extra interest over their original cost of funds. To maintain their loan books (and pockets), banks and NBFCs resorted to shady practices like netting off loans, which RBI has now advised MFIs against. Here, lenders allow borrowers to settle a previous outstanding loan by issuing them a new loan! As crazy as it sounds, it helped banks to report less of their total assets as NPAs, since the new credit would cover pending instalments of the borrower’s previous loan. Then there was the issue of borrowers overleveraging, i.e. taking multiple loans using different IDs from various lenders and then failing to honour any of them. The consequence? Banks and NBFCs end up with massive NPAs. Data from credit bureaus suggests that over the last quarter, there was a 17.2% rise in the number of borrowers who had 5 or more active loans at the same time. <h2>Growth &gt; Caution</h2>It's an age-old tale unfolding yet again in India’s banking sector- Icarus flew too close to the sun and eventually, fell to its death. Between April and June 2024, NBFCs microfinance portfolio jumped by 2.7%. If you see this in terms of loan sources, microfinance loans issued by banks grew by 11.2% in Q1FY25. But the same portfolio in NBFCs swelled by almost double-23.9%. While most of these loans had an average ticket size between Rs 30,000-50,000, there was a sharp spike in the number of loans that had a ticket size of Rs 80,000 or more. Data suggests that as of March 2024, more than 12% of all microfinance borrowers had over 4 or more active loans. In dating parlance, this is a classic case of borrowers going polyamorous, minus the honesty and transparency. Not the best of situations, you'd agree! <h2>Will banks and NBFCs stand up to this stress?</h2>If their results for Q2FY25 are to be believed, NBFCs are not handling the pressure all that well. Or even slightly well. Only a few banks like Bank of Baroda (BoB), ICICI, and Indian Bank were up for the battle, even witnessing a decline in their loan delinquencies. Some others, like IndusInd Bank, saw their stock dip by a massive 16.2% over the last 5 days. Its slippages in the previous quarter burgeoned from Rs 15.3 billion in Q1FY25 to Rs 17.9 billion in Q2. As a result, the bank pushed a staggeringly high amount of money to create an NPA cushion for itself. While its management has highlighted its preference for secured lending, that was hardly reflected in its actions during the quarter, where growth in unsecured personal loans remained exceptionally high at over 7% on a QoQ basis. Turns out, only 44% of customers in IndusInd Banks’ microfinance loan portfolio were exclusive to it. The rest 47% were, you guessed it right-polyamorous! 27% had borrowed from another lender as well, apart from IndusInd Bank, while 20% were those who had outstanding loans with two other lenders, apart from IndusInd Bank. IndusInd Bank’s credit card segment did not miss the NPA bus and accounted for 7-8% of its GNPAs. Canara Bank’s total slippages during the previous quarter jumped to Rs 11.1 billion, up by 24.7% QoQ, and making up for 3.6% of its total loans. As for Bandhan Bank, its gross NPA for Q2FY25 inched up on a QoQ basis, up from 4.23% in Q1, to 4.68% in the second quarter. IDFC Bank’s heavy provisioning for its NPAs marred its profits significantly, causing its PAT (profit after tax) to dip by 73% on a YoY basis. Data from ICRA Analytics suggest that the AUM (asset under management) growth in microfinance loans and unsecured (personal and business) loans by the NBFCs will moderate to 10-12% and 19-21%, respectively, in FY2025 compared to 30% and 38%, in FY2024. Says A M Karthik, Senior Vice President &amp; Co-Group Head, Financial Sector Ratings, ICRA, “As bank funds constitute a larger share in the overall funding of NBFCs, a slower credit flow from banks to the NBFCs will compress their AUM growth. The NBFCs in unsecured and digital lending businesses shall face a higher squeeze in funding compared to others, and the unsecured lending space will continue to be a source of stress in the near term.” There has been uninhibited growth in <keyword id="6051027" type="General" weightage="20" keywordseo="Unsecured-loan" source="Orion">unsecured loan</keyword>s, apart from just the microfinance segment. For instance, Axis Bank’s gross slippages jumped by Rs 4,443 crore, largely thanks to its unsecured business. The same is the case with Yes Bank, which saw 35–40% of its retail slippages emerging from the unsecured loan portfolio. <keyword id="6376194" type="General" weightage="20" keywordseo="kotak-mahindra" source="Orion">Kotak Mahindra</keyword> Bank was also quick to follow Yes Bank’s suit, with around 35%-40% of its slippages coming from credit cards. <h2>How is the road ahead?</h2>While RBI has just cracked its whip and served a warning at the moment, experts at Morgan Stanley believe that more changes (read regulatory lashes) are underway. Moreover, with both festive and wedding seasons underway in our country, unsecured lending might pick up momentum, much to the disdain of the calibrated approach banks have been taking towards it so far. But if the situation doesn't improve, RBI will not waste any time in becoming the typical tyrannical <keyword id="19897820" type="General" weightage="20" keywordseo="bollywood" source="keywords">Bollywood</keyword> headmaster who runs his dominion with an iron fist. However, that's a story for another day. Do you have a topic in mind you'd want a simpler explanation for, or insights or personal experience to share on personal finance and more? Contact us at businessinsider@timesinternet.in.

Simply Put: Is the lending party over? The dangerous tango of Indian banks with microfinance and unsecured loans

Top 8 banks offering low interest rates on home loans; check full list here

<keyword id="6357132" type="General" weightage="100" keywordseo="canara-bank" source="Orion">Canara Bank</keyword> on Friday said it has crossed the business milestone of ₹20 lakh crore. "<keyword id="292298" type="General" weightage="20" keywordseo="Canara" source="Orion">Canara</keyword> Bank has achieved a milestone of crossing the total global business of ₹20,00,000 crore as on 22nd December 2022," the bank said in a regulatory filing. <keyword id="6368159" type="General" weightage="20" keywordseo="Stock" source="Orion">Stock</keyword> of Canara Bank closed at ₹291.45 apiece on <keyword id="35140" type="General" weightage="50" keywordseo="bse" source="Orion">BSE</keyword>, down by 6.54 per cent. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/news/flipkart-and-phonepe-complete-separation-six-years-after-acquisition/articleshow/96448321.cms">Flipkart and PhonePe complete separation six years after acquisition</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/stock-market/news/dsp-investment-managers-launches-nifty-bank-etf-says-bank-valuations-look-attractive-despite-the-rally/articleshow/96454815.cms">DSP Investment Managers launches Nifty Bank ETF, says bank valuations look attractive despite the rally</a>

Canara Bank hits business milestone of ₹20 lakh crore

Fund raising through overseas bonds is likely to fall in the current financial year due to elevated borrowing cost and weak domestic currency due to international cues, experts believe. According to the data compiled by Prime databases, companies and banks raised Rs 45,237.15 crore so far this year, as compared to Rs 77,845 crore amount raised in the similar period last year. "A higher US interest rates especially in the shorter end of the curve coincided with weakening <keyword id="6355302" type="General" weightage="80" keywordseo="rupee" source="Orion">Rupee</keyword> made the borrowing cost higher for Indian Corporates to tap the foreign bond market," said <keyword id="14789739" type="General" weightage="80" keywordseo="venkatakrishnan-srinivasan" source="Orion">Venkatakrishnan Srinivasan</keyword>, founder and managing partner at <keyword id="14812238" type="General" weightage="50" keywordseo="rockfort-fincorp-llp" source="Orion">Rockfort Fincorp LLP</keyword>, a Mumbai-based debt advisory firm. Due to this, most companies are opting for domestic market for fund raising. For instance, recently NTPC has raised 10 year onshore rupee bond at an aggressive rate of 7.44 per cent annualised and <keyword id="6357132" type="General" weightage="80" keywordseo="canara-bank" source="Orion">Canara Bank</keyword> Tier 2 bond 7.48 per cent which are comparable to 10 years government bond rate. Foreign fund raising has now not remained cheap after the <keyword id="117388" type="General" weightage="80" keywordseo="us-fed" source="Orion">US Fed</keyword> and other central banks across the globe started rising their policy rates to contain inflation which is hovering to a decade high in some countries. For instance, the US Fed hiked interest rates by 75 basis points for the second straight month in July. With this, they have cumulatively hiked 150 basis points in last two months due to rising inflation. Due to this, the yields on <keyword id="105472" type="General" weightage="50" keywordseo="us-treasury" source="Orion">US Treasury</keyword> notes touched 3% on Monday, which was in the last month was 2 per cent in the start of this financial year. There is also a currency risk to the issuers as rupee has depreciated to the record low before appreciating due to various international cues. Meanwhile, ECB borrowings figures too suffered a major setback as per April month data. However, a major chunk of ECBs is coming up for renewal for corporates which may push corporates to refinance their existing borrowings both in offshore especially for those issuers who have natural hedge and some in onshore markets. According to the ICRA, overseas issuances are doubtful in FY2023 due to elevated borrowing costs following a rapid increase in foreign currency benchmark rates, as well as tighter liquidity conditions globally. While private bank issued AT-I in overseas market during FY2022, totalling Rs 128 billion, domestic AT-I issuances picked up steam once the Centre's permission came for most banks in H2 FY2022, as public banks require prior government approval before issuing AT-I bonds. The issuances totalled Rs 300 billion, with demand coming from corporate treasuries, family offices, and high-net-worth individuals, as well as some private banks. Going ahead market participants expect companies and banks to raise funds through domestic corporate bond market because both onshore and offshore both borrowing cost has risen. "we expect more and more corporate bond issuers to tap the domestic rupee bond market as both onshore and offshore borrowing costs are elevated," <keyword id="45963" type="General" weightage="80" keywordseo="srinivasan" source="Orion">Srinivasan</keyword> added. SEE ALSO : <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/sustainability/news/tamil-nadu-government-becomes-the-first-state-in-the-country-to-prepare-an-official-glossary-to-address-lgbtqia-community/articleshow/93776056.cms">Tamil Nadu becomes the first state in the country to prepare an official glossary to address LGBTQIA+ community</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/corporates/news/india-inc-s-credit-profiles-improve-as-earnings-growth-outpaces-debt-sp/articleshow/93779118.cms">India Inc.’s credit profiles improve as earnings growth outpaces debt: S&amp;P</a>

Overseas bond issuances may fall this year on elevated borrowing cost say experts

<keyword id="6357132" type="General" weightage="100" keywordseo="canara-bank" source="Orion">Canara Bank</keyword> plans to raise Rs 2,000 crore, which includes Rs 1,000 crore through Basel-III Tier-II bonds maturing in 10-years, market participants said. The bidding for the bonds will take place on August 25 between 11 a.m. and 12 p.m. on the <keyword id="35140" type="General" weightage="50" keywordseo="bse" source="Orion">BSE</keyword>'s bidding platform. Most banks were raising funds in the past few weeks either through certificates of deposit, fixed deposits and bonds amid rising credit demand. This was even after the rates on these instruments were rising after the <keyword id="6354335" type="General" weightage="50" keywordseo="reserve-bank-of-india" source="Orion">Reserve Bank of India</keyword> (<keyword id="30067" type="General" weightage="50" keywordseo="rbi" source="Orion">RBI</keyword>) hiked repo rate 50 basis points in the recent policy. SEE ALSO : <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/sustainability/news/demolition-of-noida-twin-towers-will-leave-behind-35000-cubic-metres-of-debris/articleshow/93728274.cms">Demolition of Noida twin towers will leave behind 35,000 cubic metres of debris</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/auto/news/audi-to-hike-its-prices-by-2-4-from-september-onwards-in-india/articleshow/93728939.cms">Rising input and supply chain costs push luxury carmaker Audi to hike prices by 2.4%</a>

Canara Bank to raise up to ₹ 2,000 cr via Basel-III Tier-II bonds

NEW DELHI: Some of the essential services related to banking, transportation, railways and electricity are likely to be impacted during a two-day nationwide strike called by a joint forum of central trade unions beginning Monday. Talking to PTI, All Indian Trade Union Congress General Secretary <keyword id="366518" type="General" weightage="20" keywordseo="amarjeet-kaur" source="Orion">Amarjeet Kaur</keyword> said, "We are expecting participation of over 20 crore formal and informal workers with mass mobilisation of workers across the country during the strike on March 28 and 29 to protest against government policies." She said that the strike is expected to hit the rural parts also, where informal workers of farming and other sectors will join the protest. The strike notices were given by workers' unions of various sectors such as coal, steel, oil, telecom, postal, income tax, copper, banks and insurance. Unions in railways and defence sector will carry out mass mobilization in support of the strike at several places, the joint forum said. The unions' demands include scrapping of the proposed changes in labour laws, privatisation of any form and the national monetisation pipeline. Increased allocation of wages under MNREGA (<keyword id="1194612" type="General" weightage="20" keywordseo="mahatma-gandhi-rural-employment-guarantee-act" source="Orion">Mahatma Gandhi Rural Employment Guarantee Act</keyword>) and regularisation of contract workers are also part of their demands. Workers of roadways, transport and electricity departments have also decided to join the strike in spite of the impending threat of ESMA (Essential Services Maintenance Act) which is likely to be imposed in Haryana and Chandigarh, the joint forum said in a statement. Trade unions, including INTUC, AITUC, HMS, CITU, AIUTUC, TUCC, SEWA, AICCTU, LPF and UTUC are part of the joint forum. Meanwhile, the <keyword id="6375040" type="General" weightage="20" keywordseo="power-ministry" source="Orion">power ministry</keyword> on Sunday advised all the state-run utilities and other agencies to be on high alert and ensure round-the-clock electricity supply and stability of the national grid. "The Centre of Indian Trade Unions (CITU) have called for a nationwide strike with effect from 06:00 hrs of March 28 to 06:00 hrs of March 30, 2022," an advisory issued by the power ministry said. The advisory has been issued to all states, central public sector undertakings, central electricity authority, national load dispatch centre and regional load dispatch centres. In the interest of the consumers of electricity, it is advised that all the power utilities shall take necessary measures to ensure round-the-clock functioning of the electricity grid and availability of all plants, transmission lines and substations, the ministry said, adding that all regional/state control room executives should be vigilant and on high alert. The ministry also suggested measures to be taken to ensure secure and reliable grid operations. Shutdown activities planned during March 28-29 may be rescheduled to suitable future dates to the extent possible, it said and asked all concerned officials to ensure close supervision of their regional network/control area. Also, manpower may be deployed at all critical sub-stations/power station 24X7 to handle any emergency situation, it said. Power supply to those engaged in essential services such as hospitals, defence, and railways must be ensured, it added and suggested setting up of a 24x7 control room for information dissemination and handling any kind of contingency. Bank employees' unions said they will support the strike. All <keyword id="3658" type="General" weightage="20" keywordseo="India" source="Orion">India</keyword> Bank Employees' Association (AIBEA) General Secretary C H Venkatachalam said the union demands the government to stop privatisation of public sector banks and strengthen them. Bank employees also demand speedy recovey of bad loans, higher deposit rates by banks, lower service charges on customers as well as restoration of old pension scheme for staff. A number of public sector banks, including country's largest lender SBI, have said that their services may get impacted to a limited extent due to the strike. SBI said it has made necessary arrangements to ensure normal functioning in its branches and offices during the strike. "It is likely that work at our bank may be impacted, to a limited extent, by the strike," SBI said. New Delhi-headquartered Punjab National Bank (<keyword id="13478968" type="COMPANY" weightage="20" keywordseo="pnb" source="Orion" meta.marketcap="38923.93999753" meta.tagname="Punjab National Bank" meta.tagpopularcount="0" meta.sectorid="15" meta.entitytype="company" meta.matchtype="exact" meta.aum="0" meta.entityid="11585" meta.tagseoname="punjab-national-bank" meta.sector="Banks" meta.tagnameorg="Punjab National Bank">PNB</keyword>) said, AIBEA, Bank Employees Federation of India (BEFI) and All India Bank Officers' Association (AIBOA) have served notices to go on strike on March 28-29. "While bank has made all arrangements to ensure normal functioning in its branches and offices, it is likely that work in our bank may be impacted to a limited extent by the strike," PNB said. Bengaluru-based <keyword id="13478969" type="COMPANY" weightage="20" keywordseo="canara-bank" source="Orion" meta.marketcap="40836.07197252" meta.tagname="Canara Bank" meta.tagpopularcount="0" meta.sectorid="15" meta.entitytype="company" meta.matchtype="exact" meta.aum="0" meta.entityid="9218" meta.tagseoname="canara-bank" meta.sector="Banks" meta.tagnameorg="Canara Bank">Canara Bank</keyword> said it is taking all necessary steps to ensure smooth functioning of bank branches and offices. However, the functioning of the bank may be impacted, Canara Bank added. Private lender <keyword id="2179992" type="General" weightage="50" keywordseo="rbl-bank" source="Orion">RBL Bank</keyword> said its bank unions are affiliated to AIBOA and AIBEA, and the employees associated with these unions may participate in the strike. "The bank will take all necessary steps for smooth functioning of the bank's branches/offices on the days of strike. However, it is likely that some of our branches would also be impacted by the strike," <keyword id="13478967" type="COMPANY" weightage="20" keywordseo="rbl" source="Orion" meta.marketcap="491.27195140500004" meta.tagname="Rane Brake Lining Ltd" meta.tagpopularcount="0" meta.sectorid="506" meta.entitytype="company" meta.matchtype="exact" meta.aum="0" meta.entityid="21601" meta.tagseoname="rane-brake-lining-ltd" meta.sector="Auto Ancillaries" meta.tagnameorg="Rane Brake Lining Ltd.">RBL</keyword> said. SEE ALSO: <a href="https://www.businessinsider.in/business/news/pvr-and-inox-leisure-announce-merger/articleshow/90476756.cms">PVR and INOX Leisure announce merger</a> <a href="https://www.businessinsider.in/business/startups/news/how-this-former-vedantu-cofounder-is-taking-on-instagram-and-snapchat-to-build-social-media-for-teens/articleshow/90443442.cms">How this former Vedantu cofounder is taking on Instagram and Snapchat to build social media for teens</a>

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Simply Put: Is the lending party over? The dangerous tango of Indian banks with microfinance and unsecured loans

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Canara Bank hits business milestone of ₹20 lakh crore

PTI

Overseas bond issuances may fall this year on elevated borrowing cost say experts

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Canara Bank to raise up to ₹ 2,000 cr via Basel-III Tier-II bonds

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Two-day Bharat Bandh: Essential services likely to be affected

PTI

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