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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 microfinance 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, <keyword id="46717" type="General" weightage="20" keywordseo="IndusInd-bank" source="Orion">IndusInd Bank</keyword> 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 <keyword id="79363" type="General" weightage="20" keywordseo="npa" source="Orion">NPA</keyword>, 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, <keyword id="30067" type="General" weightage="20" keywordseo="RBI" source="Orion">RBI</keyword>, 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 Navi Finserv, 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 installments 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 honor 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 <keyword id="763994" type="General" weightage="20" keywordseo="Gross-NPA" source="Orion">gross NPA</keyword> for Q2FY25 inched up on a QoQ basis, up from 4.23% in Q1, to 4.68% in the second quarter. <keyword id="62152" type="General" weightage="20" keywordseo="IDFC-bank" source="Orion">IDFC Bank</keyword>’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 unsecured loans, 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. Kotak Mahindra 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 Bollywood headmaster who runs his dominion with an iron fist and takes things (and ceiling rates) into their own hands. However, that's a story for another day.

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

Deep convolutional neural networks (DCNNs) do not see objects the way humans do -- using configural shape perception -- and that could be dangerous in real-world artificial intelligence (Al) applications, say researchers. DCNNs are the type most commonly used to identify patterns in images and video. "Our results explain why deep AI models fail under certain conditions and point to the need to consider tasks beyond object recognition in order to understand visual processing in the brain," said researcher <keyword id="15021557" type="General" weightage="80" keywordseo="james-elder" source="Orion">James Elder</keyword> from <keyword id="196997" type="General" weightage="50" keywordseo="york-university" source="Orion">York University</keyword> in Toronto. "These deep models tend to take 'shortcuts' when solving complex recognition tasks. While these shortcuts may work in many cases, they can be dangerous in some of the real-world AI applications we are currently working on with our industry and government partners," <keyword id="6470117" type="General" weightage="80" keywordseo="elder" source="Orion">Elder</keyword> added. For the study, published in the journal <keyword id="12161883" type="General" weightage="50" keywordseo="iscience" source="Orion">iScience</keyword>, the team employed novel visual stimuli called "<keyword id="15021558" type="General" weightage="80" keywordseo="frankensteins" source="Orion">Frankensteins</keyword>" to explore how the human brain and DCNNs process holistic, configural object properties. "Frankensteins are simply objects that have been taken apart and put back together the wrong way around. As a result, they have all the right local features, but in the wrong places," Elder said. The investigators found that while the human visual system is confused by Frankensteins, DCNNs are not -- revealing an insensitivity to configural object properties. According to the researchers, modifications to training and architecture aimed at making networks more brain-like did not lead to configural processing, and none of the networks were able to predict trial-by-trial human object judgements accurately. "We speculate that to match human configural sensitivity, networks must be trained to solve a broader range of object tasks beyond category recognition," Elder noted. SEE ALSO : <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/science/health/news/healthy-lifestyle-may-reduce-dementia-risk-in-diabetic-patients/articleshow/94293286.cms">Healthy lifestyle may reduce dementia risk in diabetic patients</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/stock-market/news/sensex-gains-343-points-nifty-up-106-points-mm-indusind-top-gainers/articleshow/94293184.cms">Sensex gains 343 points, Nifty up 106 points – M&amp;M, IndusInd top gainers</a>

Even smartest AI models don't match human visual processing: Study

<ul><li><keyword id="46717" type="CITY" weightage="20" keywordseo="IndusInd-Bank">IndusInd Bank</keyword> today posted 33% increase in its third quarter net profit to ₹1,309 crore. </li><li>Its net interest income too went up by 34% to ₹3,074 crore from ₹2,288 crore in the comparable quarter. </li><li>The fee income of this bank which has been banking heavily on its retail business, also went up by 22%. </li><li>Its deposits and advances too went up by a robust 22% on an annual comparison.</li></ul>Hindujas owned IndusInd Bank today posted 33% increase in its third quarter net profit to ₹1,309 crore from ₹985 crore in the same quarter last year. Its net interest income or revenues too went up by 34% to ₹3,074 crore from ₹2,288 crore in the comparable quarter. The fee income of this bank which has been banking heavily on its retail business, also went up by 22%. Its deposits and advances too went up by a robust 22% on an annual comparison. “During Q3 FY-20, the Bank witnessed a healthy growth in its topline as well as in operating profits. The Bank also reached a milestone as the Balance Sheet footage crossed ₹ 3 trillion and the advances crossed the ₹2 trillion-mark. PCR (provisioning coverage ratio) has been increased to 53% to strengthen the balance sheet,” said Romesh Sobti, managing director and CEO, IndusInd Bank said. However, the bank’s stock dropped by 2.9% to ₹1,493 as per BSE data at 3 pm. The bank which acquired Bharat Financial in 2017, is banking on its expanded footprint especially in the rural areas to drive growth going ahead. The acquisition turned effective on July last year, allowing the bank to derive full benefits of acquiring the shadow bank. A research note by Nomura says that the acquisition is a moat for the bank. “The asset side franchise has strengthened with BHAFIN, and IIB will undergo a full-fledged extension of the pilots that management believes will enable it to use Bharat Financial’s reach to create a rural touchpoint network that provides significant cross sell opportunity and also improve efficiency in a manpower-intensive MFI business,” said Nomura. The research note also believes that asset side strengths of the bank will be able to offset weaknesses in liabilities. “Bulkiness in liabilities and fees, apart from recent corporate asset quality issues, has been IIB's key weakness. While it is easier said than done, if the bank delivers well on granularizing its liabilities and successfully monetizing rural distribution via BHAFIN, it should drive a sustainable re-rating, in our view,” the note said.

IndusInd Bank stock falls 3.9% as its net profit grows by 33%

Google-owned <keyword id="10879" type="General" weightage="20" keywordseo="youtube" source="Orion">YouTube</keyword> saw its revenue from ads falling 2.6 per cent (year-on-year) in the March quarter -- third quarter in a row that its ad revenue has decreased. YouTube logged $6.69 billion in advertising revenue for the quarter that ended March 31, compared to $6.87 billion during the same period last year. The company, however, is seeing growth in Shorts as watch time and monetisation is "progressing nicely". "People are engaging and converting on ads across Shorts at increasing rates," according to Philipp Schindler, Google's chief business officer. According to Sundar Pichai, Alphabet and Google CEO, the number of channels that uploaded to Shorts daily grew over 80 per cent last year. "Those posting weekly on Shorts saw the majority of new channel subscribers coming from their Shorts posts," he informed during the analysts' call late on Tuesday. Overall, Alphabet reported $69.8 billion in revenue for the first quarter, a 3 per cent increase (on-year). "We are pleased with our business performance in the firstAquarter, with Search performing well and momentum in the Cloud. We introduced important product updates anchored in deep computer science and AI," said Pichai. Ruth Porat, CFO of Alphabet and Google, said that resilience in Search and momentum in Cloud resulted in Q1 consolidated revenues of $69.8 billion, up 3 per cent year over year. "We remain committed to delivering long-term growth and creating capacity to invest in our most compelling growth areas by re-engineering our cost base," said Porat. In January, Alphabet slashed 6 per cent of its workforce, impacting 12,000 employees. "As of March 31, 2023, the number of employees includes almost all of the employees affected by the reduction of our workforce. We expect most of those affected will no longer be reflected in our headcount by the end of the second quarter of 2023, subject to local law and consultation requirements," said Alphabet. SEE ALSO: <a href="https://www.businessinsider.in/personal-finance/news/what-type-of-documents-require-for-the-return-filing-in-fy-2022-23/articleshow/99764857.cms">Your comprehensive document checklist for income tax return filing</a> <a href="https://www.businessinsider.in/business/auto/news/bajaj-auto-q4-net-profit-falls-2-yoy-to-1433-crore/articleshow/99766398.cms">Bajaj Auto Q4 net profit falls 2% YoY to ₹1,433 crore</a> <a href="https://www.businessinsider.in/finance/banks/news/indusind-bank-likely-candidate-for-rerating-after-q4-profit-surge-of-46/articleshow/99756150.cms">IndusInd Bank likely candidate for rerating after Q4 profit surge of 46%</a>

YouTube's revenue falls as ads slow down for 3rd quarter in a row

Maruti Suzuki Q4 net profit zooms 43% to ₹2,624 crore beating expectations, to add capacity of 1 million vehicles

<ul><li><keyword id="6359783" type="General" weightage="100" keywordseo="bajaj-auto" source="Orion">Bajaj Auto</keyword>’s shares edged lower by 1% on Wednesday even as the Pune-based manufacturer <a href="https://www.businessinsider.in/business/auto/news/bajaj-auto-q4-net-profit-falls-2-yoy-to-1433-crore/articleshow/99766398.cms">delivered better-than-expected results in Q4</a>.</li><li>Analysts remain divided on the company’s prospects going forward, due to macroeconomic headwinds, rising competition and disruption.</li><li>Bajaj Auto plans to launch an upgrade to its Chetak electric scooter and first electric three-wheelers.</li></ul>Bajaj Auto’s shares headed lower on Wednesday even as the Pune-based manufacturer of popular two-wheelers like <keyword id="76971" type="General" weightage="20" keywordseo="Pulsar" source="Orion">Pulsar</keyword><a href="https://www.businessinsider.in/business/auto/news/bajaj-auto-q4-net-profit-falls-2-yoy-to-1433-crore/articleshow/99766398.cms"> delivered better-than-expected results in Q4</a>. While the company beat analyst expectations thanks to a richer product mix during the quarter, brokerages point out that uncertainty on exports and concerns of disruption still persist. Bajaj Auto’s shares edged lower on on Wednesday, down by 1%. The company reported a 2% YoY decline in its standalone net profit to ₹1,433 crore. Two-wheeler sales, which constituted nearly 88% of the company’s total volumes, were down by over 10% during FY23, largely due to shrinking exports. Brokerages are divided on the stock despite its strong operating performance. “Post the recent rally, we believe most of the positives are already being factored in at the current market price,” said the analysts at Kotak Institutional Equities. Bajaj Auto’s shares rose 13% in the last one month and over 20% in 2023 so far, outperforming the broader Nifty Auto index which has gained nearly 8% and 2%, respectively. An average of brokerage estimates suggests that there is an upside of a little over 3% over the next 12 months, with an average target price of ₹4,443, as compared to the current market price of ₹4,306 per share. <cmsannotation type="cmsannotation" annotationid="Exports to recover in FY24, but that will shrink margins" comment="subhead" text="Exports to recover in FY24, but that will shrink margins">Exports to recover in FY24, but that will shrink margins</cmsannotation> Declining exports have been a major pain point for Bajaj Auto in FY23. The share of exports in its total volumes declined to 46% in FY23 from 58% in FY22. This was in large part due to demonetization in Nigeria, which is Bajaj Auto’s key market. Demonetization led to limited availability of US dollars and in conjunction with inflation, it limited exports. Management commentary in Q4 underlined that the exports have bottomed out and a recovery is expected in FY24, but brokerages say that this is contingent upon the availability of US dollar improving. A downside of exports recovering is a decline in margins owing to the lower average selling price of vehicles in Africa. “We do not expect the current profitability to sustain as we expect demand from African geography (lower average selling prices) to recover from the second half of FY24 onwards,” the Kotak report added. <cmsannotation type="cmsannotation" annotationid="Ripe for disruption from electrification" comment="subhead" text="Ripe for disruption from electrification">Ripe for disruption from electrification</cmsannotation> A richer product mix aided Bajaj Auto’s margins in the March quarter – its operating margins rose 220 basis points YoY to 19.3%. However, analysts underscore a key emerging concern – disruption from electrification. “A large part of its India profit pool of premium motorcycles and three-wheelers is vulnerable to possible disruption from electrification,” said the analysts at Motilal Oswal. Bajaj Auto sold over 5,500 units of its Chetak electric scooter in March 2023 while its peers — Ather, TVS and Ola Electric sold between 12,000, 15,000 and 21,000 electric scooters, respectively. The company plans to catch up by ramping up its manufacturing capacity to 10,000 units from June this year, but even at those levels, its peers are still ahead. The company also said that an upgrade to its Chetak electric scooter is in the works. Three-wheelers, which accounted for nearly 12% of the company’s total volumes, is another segment where Bajaj Auto is lagging behind its rivals Mahindra and Kinetic, among others, who already have their vehicles on sale. Bajaj Auto said it will launch its own electric three-wheelers in the coming days. <cmsannotation type="cmsannotation" annotationid="Analysts divided, upside limited" comment="subhead" text="Analysts divided, upside limited">Analysts divided, upside limited</cmsannotation> Analysts are divided on the company’s prospects going forward. Bajaj Auto is guarding its margins with price hikes and a better product mix. But, headwinds like elevated commodity costs could limit its scope. “At current valuation, most positives are priced in, leaving limited upside,” said the analysts at Reliance Securities, downgrading the company from ‘buy’ to ‘hold’. All in all, Bajaj Auto has a few challenges on hand which includes heightened competition in the budget two-wheeler segment, disruption concerns in the high-margin premium motorcycles and three-wheeler segments, and uncertainty in its export markets. <div type="javascript" title="Custom" contenttype="Text"><cdata><![CDATA[]]></cdata></div> SEE ALSO: <a href="https://www.businessinsider.in/personal-finance/news/what-type-of-documents-require-for-the-return-filing-in-fy-2022-23/articleshow/99764857.cms">Your comprehensive document checklist for income tax return filing</a> <a href="https://www.businessinsider.in/business/auto/news/bajaj-auto-q4-net-profit-falls-2-yoy-to-1433-crore/articleshow/99766398.cms">Bajaj Auto Q4 net profit falls 2% YoY to ₹1,433 crore</a> <a href="https://www.businessinsider.in/finance/banks/news/indusind-bank-likely-candidate-for-rerating-after-q4-profit-surge-of-46/articleshow/99756150.cms">IndusInd Bank likely candidate for rerating after Q4 profit surge of 46%</a>

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

Ira Alok Puranik

Even smartest AI models don't match human visual processing: Study

IANS

IndusInd Bank stock falls 3.9% as its net profit grows by 33%

Katya Naidu

YouTube's revenue falls as ads slow down for 3rd quarter in a row

IANS

Maruti Suzuki Q4 net profit zooms 43% to ₹2,624 crore beating expectations, to add capacity of 1 million vehicles

Rounak Jain

Bajaj Auto rides on richer product mix in Q4, but export and disruption concerns persist

Rounak Jain

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