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The Indian <keyword id="22196321" type="General" weightage="20" keywordseo="credit-card-industry" source="keywords">credit card industry</keyword> is struggling to grow, as new issues slow down on a year-on-year (YoY) basis. Not only has the growth i.e. issuance of new credit cards slowed down, but lenders are also becoming increasingly cautious of the asset qualities, a recent report by Nomura showed. From 19% in July 2024, the growth in the <keyword id="6368202" type="General" weightage="20" keywordseo="credit-card" source="Orion">credit card</keyword> spendings came down to 13% in August 2024. The year-to-date (YTD) growth has also significantly declined in FY25, currently standing at 17%, markedly down from 28% in FY24. For the fifth consecutive month, the number of new credit cards added to the system remained well below the 1-million, or 10 lakh mark. Around 9.2 lakh credit cards were added during the month, a slight uptick from the 7.55 lakh cards that came into the system In July 2024. However, there is growth in this space nevertheless, with about 10.55 crore active credit cards at present, marking a 15.6% YoY increase. Even the annualised spend per card, or the average amount spent via an annual card during an year grew 1% YoY to Rs 1.87 lakh. But this was far less than the 7% growth annual spends via one credit card saw in FY24. Meanwhile, what continues to burgeon consistently is the outstanding amount on these credit cards, which ballooned to Rs 2.7 lakh crore in June 2024, up from Rs 2.6 lakh crore in March 2024, and around Rs 2 lakh crore in the year ago period. To put this in perspective, pre-pandemic, the total outstanding amount stood at Rs 87,686 crore, which marks a 24% CAGR in this amount, in just a span of 5 years. <h2>Large drops, slowdown to sustain</h2>Even the monthly expenditure per card dropped 2% YoY to Rs 16,000 in August, 2024. Subsequently, the transaction volume via credit cards also dipped to 1.6% in August, along with the total amount of <keyword id="21084888" type="General" weightage="100" keywordseo="credit-card-spending" source="keywords">credit card spending</keyword>, which fell to Rs 1.69 lakh crore in August, from Rs 1.73 lakh crore in July. Also, there has been a hefty cutdown in provisions made for credit card reward points, which reflects in the quantum of credit card benefits that have been mowed out by companies of late, making credit cards far less lucrative than before. <h2>HDFC takes lead </h2>During August 2024, <keyword id="19895995" type="General" weightage="20" keywordseo="HDFC-Bank" source="keywords" meta.keywordsubtype="org" meta.entityname="HDFC Bank" meta.hostid="261" meta.entityid="HDFC Bank">HDFC bank</keyword> added a total of 2.41 lakh credit cards, taking its total tally of active credit cards to 2.19 crore. <keyword id="19900482" type="General" weightage="20" keywordseo="ICICI-Bank" source="keywords" meta.keywordsubtype="org" meta.entityname="ICICI Bank" meta.hostid="261" meta.entityid="ICICI Bank">ICICI Bank</keyword> came a second distant, adding 1.45 lakh credit cards during the month, which means that the second-largest credit card issuer now holds over 1.75 crore active credit cards. Axis Bank and SBI Cards also added 1.27 lakh and 1.1 lakh cards, respectively to their repertoire during the month, while the growth numbers at Kotak Mahindra Bank remained largely flat, stagnating the bank's total card tally at 54.13 lakh. This was due to the ongoing ban on the bank due to its weak IT infrastructural issues imposed by RBI in April 2024. If anything, the bank's number of credit cards declined by 61,191 during the month. Even as the festive season approaches, experts think that it is unlikely to make a major dent in credit card spendings, which are expected to see a further slowdown in the quarters to come.

Credit card growth experiencing a slowdown, as borrowers struggle to pay back loans

<keyword id="19895995" type="General" weightage="20" keywordseo="HDFC-Bank" source="keywords" meta.keywordsubtype="org" meta.entityname="HDFC Bank" meta.hostid="261" meta.entityid="HDFC Bank">HDFC Bank</keyword> on Saturday posted a marginal 5 per cent increase in its standalone profit at Rs 16,821 crore in the second quarter ended September 2024. The country's biggest private sector lender had earned a <keyword id="19942166" type="General" weightage="20" keywordseo="net-profit" source="keywords">net profit</keyword> of Rs 15,976 crore in the same quarter a year ago. Total income increased to Rs 85,500 crore during the quarter under review against Rs 78,406 crore in the same period last year, HDFC Bank said in a regulatory filing. The bank reported <keyword id="20202322" type="General" weightage="20" keywordseo="interest-income" source="keywords">interest income</keyword> of Rs 74,017 crore during the quarter compared to Rs 67,698 crore in the same period a year ago. Net Interest Income (NII) improved to Rs 30,110 crore, from Rs 27,390 crore in the second quarter of previous year, registering a 10 per cent growth. As regards asset quality, the bank witnessed slight deterioration with gross <keyword id="19927319" type="General" weightage="20" keywordseo="Non-Performing-Assets" source="keywords">Non-Performing Assets</keyword> (NPAs) rising to 1.36 per cent of the gross loans by the end of September 2024 from 1.34 per cent a year ago. Similarly, net NPAs or bad loans rose to 0.41 per cent from 0.35 per cent at the end of the second quarter of the previous fiscal. On a consolidated basis, the bank logged a growth of 6 per cent in net profit to Rs 17,826 crore as against Rs Rs 16,811 crore in Q2FY24. SEE ALSO:<a href="https://www.businessinsider.in/personal-finance/news/best-credit-cards-for-online-shopping-in-india/articleshow/114354358.cms" target="_blank"></a> <a href="https://www.businessinsider.in/personal-finance/news/best-credit-cards-for-online-shopping-in-india/articleshow/114354358.cms" target="_blank">Best credit cards for online shopping this festive season</a><a href="https://www.businessinsider.in/tech/mobile/webstories/best-smartphones-under-25000-in-india-in-october-2024/slidelist/114339207.cms" target="_blank"></a> <a href="https://www.businessinsider.in/tech/mobile/webstories/best-smartphones-under-25000-in-india-in-october-2024/slidelist/114339207.cms" target="_blank">Best smartphones under ₹25,000 in India in October 2024</a><a href="https://www.businessinsider.in/stock-market/webstories/waaree-energies-ipo-price-band-to-risk-factors-all-you-need-to-know/slidelist/114350114.cms" target="_blank"></a> <a href="https://www.businessinsider.in/stock-market/webstories/waaree-energies-ipo-price-band-to-risk-factors-all-you-need-to-know/slidelist/114350114.cms" target="_blank">Waaree Energies IPO – Price band to risk factors, all you need to know</a>

HDFC Bank Q2 profit soars 5% to ₹16,821 crore

In a significant move, the <keyword id="19899810" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="keywords">Reserve Bank of India</keyword> (<keyword id="19899808" type="General" weightage="100" keywordseo="rbi" source="keywords">RBI</keyword>) has imposed penalties on <keyword id="19952948" type="General" weightage="20" keywordseo="axis-bank" source="keywords">Axis Bank</keyword> and <keyword id="19895995" type="General" weightage="20" keywordseo="hdfc-bank" source="keywords">HDFC Bank</keyword> for lapses in regulatory and statutory compliance. The fines, which amount to a total of ₹2.91 crore, highlight the central bank's ongoing efforts to ensure that financial institutions adhere to prescribed guidelines. The RBI levied a penalty of ₹1.91 crore on Axis Bank for violations that included contraventions of the <keyword id="19976511" type="General" weightage="20" keywordseo="banking-regulation-act" source="keywords">Banking Regulation Act</keyword> and non-compliance with specific RBI directions related to interest rates on deposits, Know Your Customer (KYC) norms, and collateral-free loans for agriculture. Meanwhile, HDFC Bank faced a ₹1 crore fine for failing to comply with directions concerning interest rates, customer service practices, and the use of recovery agents. <h2>Axis Bank: Key regulatory failures</h2>Axis Bank’s penalty stems from a supervisory evaluation conducted by the RBI based on its financial position as of March 31, 2023. Upon reviewing the bank’s activities, the RBI found several areas of non-compliance. One of the primary issues was the opening of savings deposit accounts in the names of ineligible entities, a direct violation of regulatory norms. Additionally, Axis Bank was found to have issued multiple customer identification codes to certain clients instead of assigning a Unique Customer Identification Code (UCIC), which is mandatory to avoid duplication and ensure proper monitoring of accounts. The bank also violated guidelines concerning agricultural loans. RBI regulations prohibit banks from asking for collateral for agricultural loans up to ₹1.60 lakh, but Axis Bank had obtained such collateral in certain cases. Lastly, a wholly-owned subsidiary of Axis Bank was found to be engaged in providing technology services—an activity that is not permissible for a banking company. This contravention added to the overall penalty levied by the central bank. <h2>HDFC Bank: Regulatory shortcomings</h2> In the case of HDFC Bank, the RBI’s investigation was based on its financial position as of March 31, 2022. The central bank uncovered several violations, including the offering of gifts, specifically covering the first-year premium for complimentary life insurance, which exceeded the permissible limit of ₹250. Moreover, HDFC Bank was found to have opened savings accounts in the names of ineligible entities, a violation similar to that of Axis Bank. Another significant failure was the bank’s inability to ensure that customers were not contacted by bank officials outside the permitted time frame of 7 am to 7 pm. <h2>RBI's Stance on Compliance</h2> While the RBI has been stringent in penalising both banks, it clarified that these penalties are based on lapses in regulatory compliance and are not reflective of the validity of any transactions or agreements between the banks and their customers. The central bank’s message is clear—financial institutions must adhere strictly to guidelines to maintain transparency, protect customers, and uphold the integrity of the banking system. The penalties serve as a reminder to all banks to stay vigilant and maintain high standards of compliance to avoid such financial and reputational damage in the future. Both Axis Bank and HDFC Bank have accepted the fines and are expected to take corrective actions to avoid future infractions. For customers, this action from the RBI is a reassurance that regulatory oversight remains a priority to ensure fair banking practices across the country.

RBI slaps fine of Rs 2.91 crore on Axis Bank and HDFC Bank: All details

<ul><li>Three banks would be most impacted by the move as their capital ratios would be affected by 30-85 basis points.</li><li>Capital buffers will have to be further strengthened by banks if they want to lend to consumers for unsecured loans.</li><li>Borrowers with more than five personal loans rose from 1% in 2018 to 7.7% in March 2023, as per a report.</li></ul> Shares of <keyword id="116253" type="General" weightage="50" keywordseo="sbi-cards" source="Orion">SBI Cards</keyword>, RBL Bank, <keyword id="6357149" type="General" weightage="50" keywordseo="hdfc-bank" source="Orion">HDFC Bank</keyword> and <keyword id="6653" type="General" weightage="50" keywordseo="icici-bank" source="Orion">ICICI Bank</keyword> are expected to come under pressure after the Reserve Bank of India asked lenders on Thursday to set aside more capital for consumer loans. This move is expected to impact the capital buffers of these banks. According to analysts, these banks would be most impacted by the move as their capital ratios would be affected by 30-85 basis points. For banks the first line of defense against bad loans is CET Tier 1 capital or Common Equity Tier 1 capital (CET1), which is the highest quality of regulatory capital, as it absorbs losses immediately when they occur. According to Motilal Oswal Financial Services, the CET 1 impact would be maximum for RBL/HDFC Bank/ICICI Bank at 84 basis points/72 basis points/64 basis points. Among non banks, SBI Cards would be the most vulnerable with a 416bp impact on capital ratios. Capital buffers will have to be further strengthened by banks if they want to lend to consumers for unsecured loans. If a bank had to set aside say ₹20 for loans, it will now have to set aside 25% more for every unsecured loan it issues. Not just this the banks will have to set aside more capital if they want to lend to shadow banks or non banking financial institutions as well. When cost of capital increases, so will lending rates. In the years after the pandemic broke, unsecured personal loans to retail borrowers have been on a steady rise. Not just banks but even non banks have been merrily issuing such loans to borrowers, and in many cases these borrowers have multiple such loans used for consumption. From 12-14% these loans are now growing at 30% rate. The central bank has cracked down on some non banks for not adhering to norms while underwriting such small ticket loans. The red flags have been flying high for a while now. According to proprietary research done by UBS, borrowers with more than five personal loans rose from 1% in 2018 to 7.7% in March 2023. New disbursement of personal loans to borrowers with weaker credit profiles accounted for 22% of disbursements. Of all banks, UBS was of the view that state-owned banks and non banking financial companies had a much higher share of weak borrowers compared to private banks. Analysts believe that pressure on net interest margins and higher credit costs to impact earnings of banks and shadow banks over FY24 and FY25. Paytm, a fintech company, has recently built a large loan portfolio which is mostly comprised of personal loans. With the <keyword id="30067" type="General" weightage="80" keywordseo="rbi" source="Orion">RBI</keyword> cracking down on these loans, the loan growth will be impacted for Paytm too. Deepak Shenoy, CEO of Capital Mind, took to social media to explain the impact, “See how it affects SBI cards: SBI Cards had credit card receivables of ₹ 45,000 crore with 23% capital adequacy ratio (CAR). So ₹10,500 cr in capital (23% of ₹45Kcr). Increase risk weight to 125% means ₹45K cr=₹56K cr risk weighted assets.” Shenoy explains that if “SBI Cards wants to grow, and keep high CARs (min is 15% I think?) they’ll need to raise capital and dilute. Which means for the same profit = higher capital. Means lower ROEs.” ALSO READ: <a href="https://www.businessinsider.in/stock-market/markets/news/foreign-investors-continue-to-bet-big-on-banks-and-nibbling-on-small-and-mid-cap-stocks/articleshow/104462273.cms" data-type="tilCustomLink" target="_blank">Borrowers with multiple personal loans a big risk to profitability of banks and NBFCs</a>

RBI tightens norms on personal loans for banks and NBFCs; stocks to be under pressure

Kolkata, Outlook for bank <keyword id="6354680" type="General" weightage="20" keywordseo="credit" source="Orion">credit</keyword> offtake remains positive in 2024 while deposit growth is expected to improve, according to the latest research report of <keyword id="19974164" type="General" weightage="20" keywordseo="careedge-ratings" source="keywords">CareEdge Ratings</keyword>. The report said that credit offtake continued to grow, increasing 20.3 per cent year-on-year to reach Rs 159.7 lakh crore for the fortnight ending January 12, 2024. The rise was due to the impact of the merger of <keyword id="19896378" type="General" weightage="20" keywordseo="hdfc" source="keywords">HDFC</keyword> with <keyword id="19895995" type="General" weightage="20" keywordseo="hdfc-bank" source="keywords">HDFC Bank</keyword> along with growth in personal loans. If the impact of the merger is excluded, credit grew at a lower rate of 16.1 per cent year-on-year for the fortnight compared to last year's growth of 16.5 per cent, the report said. Deposits also grew 13.1 per cent year-on-year the fortnight (including the merged impact). The report said that deposit growth is expected to improve in 2024. The outlook for credit offtake continues to remain positive in 2024 supported by factors like economic expansion and continued push for retail credit supported by increasing digitalisation, according to the report. Unsecured personal loans and <keyword id="19938496" type="General" weightage="20" keywordseo="nbfc" source="keywords">NBFC</keyword> advances might witness a certain level of cooling off, the report said, adding that currently, capital levels are quite comfortable for banks and NBFCs. Higher interest rates, inflation and global uncertainties regarding geo-political issues are other key factors which could weigh on credit growth, the report said. The credit-deposit (CD) ratio has been generally hovering below 80 per cent since September 2023, the report said. The CD ratio saw an uptick of 44 basis points and stood at 79.9 per cent in the fortnight ending January 12, 2024, reaching a three-year high. Deposits have seen relatively steady performance since the COVID times, the report said. However, in recent years, credit growth has been significantly outperforming deposit growth, it said.

Outlook for bank credit offtake remains positive in 2024: CareEdge Ratings

Both indices, <keyword id="19896382" type="General" weightage="20" keywordseo="Sensex" source="keywords">Sensex</keyword> and <keyword id="19896381" type="General" weightage="20" keywordseo="Nifty" source="keywords">Nifty</keyword>, closed the day in red. While Nifty was down by 0.27% and closed at 24,413.50, Sensex also dipped over 200 points and closed at 80,148.88 points on July 24th, 2024. <keyword id="20079495" type="General" weightage="20" keywordseo="HDFC-Life" source="keywords" meta.keywordsubtype="org" meta.entityname="HDFC Life" meta.hostid="261" meta.entityid="HDFC Life">HDFC Life</keyword> (up by 4.36%), <keyword id="19924892" type="General" weightage="20" keywordseo="Tech-Mahindra" source="keywords" meta.keywordsubtype="org" meta.entityname="Tech Mahindra" meta.hostid="261" meta.entityid="Tech Mahindra">Tech Mahindra</keyword> (up by 3.12%), <keyword id="19908646" type="General" weightage="20" keywordseo="BPCL" source="keywords" meta.keywordsubtype="org" meta.entityname="BPCL" meta.hostid="261" meta.entityid="BPCL">BPCL</keyword> (up by 2.91%), <keyword id="19903558" type="General" weightage="20" keywordseo="NTPC" source="keywords" meta.keywordsubtype="org" meta.entityname="NTPC" meta.hostid="261" meta.entityid="NTPC">NTPC</keyword> (up by 2.67%) and <keyword id="19906967" type="General" weightage="20" keywordseo="Tata-Motors" source="keywords" meta.keywordsubtype="org" meta.entityname="Tata Motors" meta.hostid="261" meta.entityid="Tata Motors">Tata Motors</keyword> (up by 2.46%) were amongst the top gainers of the day. On the other hand, Bajaj Finserv (down by 2.09%), Tata Consumers (down by 1.90%), Britannia (down by 1.88%), Axis Bank (down by 1.82%) and Bajaj Finance (down by 1.67%) were amongst the leading laggards. Bajaj Finance reported its Q1FY25 results recently. While its profits rose 14% YoY to Rs 3,912 crore, the firm's net interest income also reported a 25% jump. However, the stock was trading at Rs 6,614.90, down by over 1% today. The company's loan losses and provisions during April-June 2024 period jumped to Rs 1,685 crore, as opposed to Rs 995 crore during April-June 2023. Most midcap and small cap indices registered significant growth today. Mid cap 100 was up by 1.04%, small cap 100 was up by 1.76%. However, India VIX dipped by as much as 7.72%. Small cap 50 (up by 1.74%), small cap 250 (up by 1.86%) and microcaps (up by 2.68%) also saw healthy leads during the day. As for sectoral indices, consumer durables and oil and gas were up by over 1%, while media gained over 2% during the day. Auto, bank, <keyword id="19931572" type="General" weightage="20" keywordseo="fmcg" source="keywords">FMCG</keyword>, PSU and private banks closed the day in red. Mr. Aditya Gaggar Director of Progressive Shares noted that a mixed trend was seen in the markets where mid and smallcap segments were seen compounding their morning gains while Bank Nifty-led correction dragged the index lower to end the session at 24,413.50 with a loss of 65.55 points. "Media was the top gainer among the sectors followed by energy while profit-booking-led correction was seen in the FMCG segment. On the daily chart, the index has formed a spinning top candlestick pattern indicating indecisiveness between the bulls and bears. The level of 24,200 will remains a crucial support while 24,560 is considered as an immediate resistance", Gaggar continued. Out of the 2,770 stocks traded during the day, 1,992 stocks saw advances, while 700 declined, and 78 others remained unchanged. 130 stocks hit their 52-week high during the day, while 14 stocks hit their 52-week low price. 210 stocks hit the upper circuit, or maximum permissible trading price during a singular trading session, while 46 stocks hit the lower circuit, or the minimum permissible price allowed during one trading session.

Stock market closing: Sensex dips 280 points to close in red, Nifty closes 0.27% down

<ul><li>Travel loans are <keyword id="35520" type="General" weightage="20" keywordseo="personal-loans" source="Orion">personal loans</keyword> and since they are unsecured, they have a high rate of interest. </li><li>Make sure your EMI is not more than 10% of your monthly income. </li><li>Carefully read and understand the terms and conditions of the loan, including repayment schedules and any potential penalties for late payments.</li></ul>A trip to Europe may be on the bucket list for many people, but it can burn a hole in your pocket. However, in this age when you can buy an iPhone 14 Pro Max in monthly instalments, you can also fund your Europe trip through a loan. “Personal loans for holidays are similar to regular personal loans, except that the borrower has flexible repayment options, wherein he can pay only the interest in the first six months and the regular EMIs can start post that. This helps the borrower manage his cash flow in a better way,” says Rahul Kalyani, vice president, partnerships, LoanTap, a personal loan app. <cmsannotation type="cmsannotation" annotationid="High interest rates" comment="subhead" text="High interest rates">High interest rates</cmsannotation> What comes in the guise of a holiday loan or a <keyword id="7185356" type="General" weightage="20" keywordseo="travel-loan" source="Orion">travel loan</keyword> is, thus, actually, a personal loan. And since these are unsecured loans, they have a high rate of interest. Interest rates on such loans would start from 10.5%, but can go as high as 24% per annum, according to BankBazaar. The <keyword id="6357149" type="General" weightage="50" keywordseo="hdfc-bank" source="Orion">HDFC Bank</keyword> website also mentions a similar interest rate range. Since the tenure for personal loans range from 12 months to 5 years, for a loan of ₹1 lakh at 14% interest, one will need to pay an EMI in the range of ₹8,979 (for 12 months) to ₹2,327 (5 years). Higher interest rates would mean a higher EMI outgo. The interest rates on these loans are determined by various factors. “First, credit score plays a significant role, as a higher score often leads to lower interest rates due to the lower risk associated with the borrower. Additionally, lenders consider the borrower's income level and debt-to-income ratio to assess their repayment capacity. Loan amount and term also affect interest rates, with larger amounts or longer terms potentially resulting in higher rates,” says Yashoraj Tyagi, chief business officer and chief technology officer at CASHe, a personal loan app. <cmsannotation type="cmsannotation" annotationid="The EMI can bite you for years to come" comment="subhead" text="The EMI can bite you for years to come">The EMI can bite you for years to come</cmsannotation> Taking a loan for a holiday means that you're going to remember your holiday for months if not years to come, and not for the reasons you would like to. Let us take an example. Suppose you take a loan of ₹6 lakh to fund a Europe trip for your family at an interest rate of 14%. If you want to repay the loan over 3 years, the monthly EMI will be around ₹20,500. This means that over the next three years, you will have an EMI commitment of ₹20,000 over and above your other monthly expenses. If not planned properly, this can hurt. Missed payments would mean penalties such as late fees, and an adverse effect on your credit score. <cmsannotation type="cmsannotation" annotationid="Analyse your EMI-paying capability" comment="subhead" text="Analyse your EMI-paying capability">Analyse your EMI-paying capability</cmsannotation> “Only take a travel loan if you don’t have enough cash in your assets,” says Anuj Kacker, chief operating officer and co-founder of Freo, a neobank. Before going for any personal loan like a holiday loan, it is important to take a close look at one's monthly expenses and financial obligations. “Understanding the debt-to-income ratio helps determine if the EMI payments can be comfortably accommodated within the existing budget. Performing a careful assessment of personal finances and creating a realistic budget that accounts for the EMIs can provide a clearer picture of whether the loan can be repaid without undue financial strain,” says Tyagi. You may also seek the advice of a financial planner or use online EMI calculators to evaluate whether you can pay off the loan smoothly and then make an informed decision. “Make sure your EMI is not more than 10% of your monthly income. Keep in mind that while the loan is available, be frugal where you can. Money which comes easily can be seen as free money and may be spent carelessly. Beware of that,” says Shweta Jain, chief executive officer and founder of Investography, a financial planning firm. <cmsannotation type="cmsannotation" annotationid="Keep in mind" comment="subhead" text="Keep in mind">Keep in mind</cmsannotation> It is important to take into account the complete cost of the loan, which includes the principal amount, interest rates and any additional fees. Conduct thorough research and compare offerings from various lenders to find the most favourable interest rates and loan terms that align with your requirements. “Carefully read and understand the terms and conditions of the loan, including repayment schedules and any potential penalties for late payments,” says Tyagi. Lastly, it is important to consider any possible changes in your financial situation and how they might impact your ability to repay the loan in the future. By being mindful of these factors, you can make a well-informed decision and enjoy your holiday without unnecessary financial strain in the years to come.

You can take a loan to fund your summer sojourn in Europe, but it pays to be careful

Shares of state-owned behemoth Life Insurance Corporation (<keyword id="19903588" type="General" weightage="20" keywordseo="LIC" source="keywords">LIC</keyword>) have outperformed rivals like <keyword id="20079495" type="General" weightage="20" keywordseo="HDFC-Life" source="keywords" meta.keywordsubtype="org" meta.entityname="HDFC Life" meta.hostid="261" meta.entityid="HDFC Life">HDFC Life</keyword> and <keyword id="21278696" type="General" weightage="20" keywordseo="ICICI-Prudential-Life" source="keywords">ICICI Prudential Life</keyword>, as it placed bets on India's growth sectors, including infrastructure, while the private sector concentrated its bets on tech, consumer and consumer-related <keyword id="19910880" type="General" weightage="20" keywordseo="BFSI" source="keywords">BFSI</keyword> companies. LIC's stock has gained nearly 79% from Rs 620 on June 18, 2023, to Rs 1,109.15 at the closing on Tuesday, according to stock exchange data. In contrast, HDFC Life gave a negative return with Tuesday's closing price of Rs 646.55 on the BSE as compared to Rs 666.55 a year back. ICICI Prudential Life Insurance Co delivered a return of 12%, considering its stock price rise from Rs 582 on June 18, 2023, to Rs 654.10 on June 16, 2024. Over the past one year, <keyword id="19898108" type="General" weightage="20" keywordseo="SBI" source="keywords">SBI</keyword> Life Insurance shares have risen from Rs 1,314 to Rs 1,621.20, delivering a return of 23%. Capital market analysts said <keyword id="19935977" type="General" weightage="20" keywordseo="insurance-companies" source="keywords">insurance companies</keyword> make money in two ways - charging premiums for policies and then investing the premiums into assets. It is the latter that generates the bigger delta in profits, thus impacting value creation and managing risks. Global majors, including Warren Buffet-owned Berkshire Hathaway, have been successful due to their ability to make superior investments. Most Indian insurance companies are yet to capitalise on the emergence of the country's <keyword id="19997284" type="General" weightage="100" keywordseo="infrastructure-sector" source="keywords">infrastructure sector</keyword>, analysts said. Indian insurance companies have concentrated investments in the BFSI, IT, and consumer sectors - all of which have been underperformers in the recent past. Only 8-10% of their investments are in the infrastructure sector. This is far less when compared to global standards. Large global insurance companies -- such as Allianz, Nippon Life Insurance, and Metlife, and other insurers like Berkshire Hathaway -- have much larger exposure ranging from 15 to 30% to the infrastructure sector, analysts noted. Over the past few years, global insurers have been increasingly considering infrastructure investments as 'core' investments as the stable and long-term cash flows of infrastructure assets naturally align with the liabilities of insurers. Additionally, infrastructure assets have defensive characteristics of high barriers to entry, strong pricing power, structural growth, and predictive cash flows, and listed infrastructure can provide investors with inflation-protected income and solid capital growth. <h2>Infra sector outperforming all</h2>For India, a strong government focus on the sector with large spending, supporting initiatives and encouraging policies, and improving governance has helped the infrastructure industry has come of age. This has helped the infra sector to outperform all other sectors, according to analysts. They said the high focus on retail loans, and the strategic reluctance to look at infrastructure for growth opportunities is proving detrimental for the shareholders of such companies. SBI, with its higher exposure to the infrastructure sector, has seen its stock gain 48% in the year (from Rs 592 to Rs 880.95 on Tuesday), while those of its private counterparts HDFC Bank, Kotak Mahindra Bank, ICICI Bank and Axis Bank have gained only in the range of (-)3%to 24%. Kotak and HDFC Banks with negligible exposure to the infrastructure sector are the worst performing, with their shares giving a negative return, stock exchange data showed. Kotak Mahindra Bank shares were at Rs 1,895 on June 18, 2023, and closed at Rs 1,805.20 on Tuesday. HDFC Bank closed at Rs 1,619.20 on BSE on Tuesday, down from Rs 1,679 a year back.

Exposure to India's infra sector helps LIC, SBI outshine peers

<ul><li><keyword id="19903588" type="General" weightage="20" keywordseo="lic" source="keywords">LIC</keyword> received government nod to increase stake in <keyword id="19895995" type="General" weightage="20" keywordseo="hdfc-bank" source="keywords">HDFC Bank</keyword> to 9.9%.</li><li>This is a positive trigger for the stock which has lost over 15% in the last two weeks.</li><li>Analysts believe that ‘costs’ of the merger will play out in interim with long-term benefits ahead.</li></ul>HDFC Bank traded in the green on Monday, after LIC received a nod from the government to raise stake in it to 9.9%. India’s largest insurer will have to shell out over ₹50,000 crore to raise its stake by an additional 4.8%. It’s expected to do the same gradually. The stock of HDFC Bank has been trading around its decadal lows, after the merged balance sheet threw up surprises in the third quarter. On Monday, it gained 1.5% higher to close at ₹1,457. “LIC getting <keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword> approval to raise their stake in HDFC Bank is positive for the latter,” said <keyword id="20368778" type="General" weightage="20" keywordseo="dr-v-k-vijayakumar" source="keywords">Dr V K Vijayakumar</keyword>, chief investment strategist, Geojit Financial Services. The sharp change in its loan to deposit ratio (LDR) to a tight 110% post-merger had spooked the markets. Its pre-merger LDR was anywhere between 85-89%. Ever since it announced its Q3 earnings report on January 16, the stock lost 15.4% of its value. The index heavyweight had also caused a widespread crash of banks’ stocks, but a few of them have recovered since. Bears to bulls ratio Analysts believe that HDFC Bank will have to grow its deposits 3-4% higher than credit growth – to get its LDR back to pre-merger levels. The management said that will happen over 3-4 years. A few experts are of the opinion that its recent sharp fall is a good opportunity to buy into the stock. “Among the foreign investors, the ratio of ‘bears’ to ‘bulls’ seemed much lower than the domestic investors. Many of them believe that the worst is almost over, and we should see an improving trend across all important parameters. Moreover, some pointed out that the Street is missing out on the merger synergy benefits that are yet to play out,” CLSA said after interacting with twenty of its clients who had concerns around its net interest margin and deposit growth. HDFC merged with HDFC Bank as of July last year. The benefits which created a mammoth institution will see interim pressures, but there are benefits on the horizon. “As the merger benefits accrue over a period, the intermittent period will see merger-related costs in the form of pressure on margins and cost to income ratio. The return on equity is expected to moderate in near terms owing to low leverage of the parent, however we expect return on assets (RoA) to sustain at 1.8-1.9% level,” said <keyword id="20368779" type="General" weightage="20" keywordseo="phillips-capital" source="keywords">Phillips Capital</keyword>.

HDFC Bank gains 1.5% after LIC gets nod to raise stake

<ul><li>Proprietary analysis done by <keyword id="6365707" type="General" weightage="20" keywordseo="ubs" source="Orion">UBS</keyword> shows that borrowers with more than five personal loans rose from 1% in 2018 to 7.7% in March 2023.</li><li>New disbursement of personal loans to borrowers with weaker credit profiles accounts for 22% of disbursements, which exposes this segment to a potential downcycle.</li><li>State-owned <keyword id="6368751" type="General" weightage="60" keywordseo="banks" source="Orion">banks</keyword> and non banking financial companies have a much higher share of weak borrowers compared to private banks. </li></ul> There’s a reason why lenders are luring consumers with multiple personal loans. In a bid to shore up loan books, lenders are indiscriminately lending to even those who cannot repay these loans. Raging <keyword id="22195" type="General" weightage="20" keywordseo="inflation" source="Orion">inflation</keyword> is not just burning a hole in the pockets of consumers. It is also impairing the ability of retail borrowers to repay their personal loans. In the aftermath of the pandemic, banks are in a better place when it comes to the headline figure on bad loans, but the defaults are rising sharply when it comes to personal loans that now account for more than 10% of outstanding loans for most banks. This is not good news for stock pickers or investors as profitability of lenders – public and some private – will come under pressure because many of these retail borrowers will default. This would lead to higher credit costs and higher provisions. Bank stocks have been rallying this year as at an aggregate level, the gross non performing assets of banks have hit decadal lows. Bank Nifty is now trading at 1.9x its price to book value, which is lower than its 10-year average of 2.2x. Pressure on net interest margins and higher credit costs to impact earnings of banks and shadow banks over FY24 and FY25. Shares of State Bank of India are down 4.4% in the last one month, while that of other private banks is down between 2-4%. While the Reserve Bank of India has been flagging off build up of stress in the retail loans segment, a deep dive into numbers is rather scary. According to analysis done by UBS, a global investment bank, shows that borrowers with more than five personal loans rose from 1% in 2018 to 7.7% in March 2023. Shockingly, new disbursement of personal loans to borrowers with weaker credit profiles accounts for 22% of disbursements, which exposes this segment to a potential downcycle. This is perhaps the reason why RBI is worried over rising stress in the retail loan portfolio of banks. Stress is clearly building up in the retail loan portfolio of leaders, which can be unsecured or secured. Secured loans are typically backed by some form of collateral like gold or property, while unsecured loans are backed by nothing. In June, RBI’s financial stability report said that one in every ten such retail borrowers is missing on making payments for such unsecured loans. The reason it is worrying is that these retail loans have doubled in value between 2021 and 2023 compared to total advances. In their bid to grow loan books, lenders are lending to consumers who are exhibiting their inability to repay such loans. Increasingly a lot of banks are now looking to issue unsecured loans to borrowers as they come with a higher interest rate. With corporates going easy on their borrowings, the retail credit boom has been the growth driver for most banks and non banks in India. According to analysts, state owned banks and non banking financial companies have a much higher share of weak borrowers compared to private banks. However, the stress in retail loans has been building since 2021. HDFC in January 2022 sold stressed retail loans worth Rs 2188 crore to asset reconstruction companies. Proprietary research done by UBS shows that unsecured loans as a percentage of total loans rose to 11.1% for State Bank of India, 12.8% for ICICI Bank and 10.7% for Axis Bank, but fell to 11.9% HDFC Bank (which merged with HDFC Limited) in June 2023. Says UBS in its report, “We believe the probability of regulators increasing the risk weight for personal loans is rising, and a 25% hike could lead to a 7- 40 bps drop in CET-1 ratios of banks we cover (SBI has a low buffer, in our view).” The financial stability report by RBI says "Although the gross non-performing ratio of retail loans at the system level was low at 1.4% as of March 2023, the share of 'special mention accounts' was relatively high at 7.4% for scheduled commercial banks (SCBs) and it accounted for a tenth of their retail assets portfolio," RBI said in the report.

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