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New Delhi, <keyword id="19955699" type="General" weightage="20" keywordseo="crisil-ratings" source="keywords">Crisil Ratings</keyword> on Monday said the credit quality outlook for Indian corporates remains positive for the April-September period of the 2024-25 fiscal year with upgrades continuing to outpace downgrades. In the last fiscal year, <keyword id="19898320" type="General" weightage="20" keywordseo="crisil" source="keywords">Crisil</keyword> gave 409 rating upgrades and 228 downgrades. Some export-linked sectors, such as textile and seafood, saw a higher downgrade rate due to subdued global demand or high-cost inventory that impacted profitability. "India Inc's credit quality outlook is positive for the first half of fiscal 2025 with upgrades expected to outnumber downgrades. Multiplier effect of government capex will continue to drive infrastructure and linked sectors. Healthy balance sheets will continue to support the credit quality outlook, with capex funding seen prudent," <keyword id="21152659" type="General" weightage="20" keywordseo="crisil-rating" source="keywords">Crisil Rating</keyword> said. It said the outstanding bank credit is expected to cross Rs 200 lakh crore by March 2025, from Rs 172 lakh crore a year ago, even though there would be moderation in the rate of credit growth. The Indian economy with a GDP growth of 6.8 per cent is expected to remain the fastest-growing large economy in the current fiscal. The growth will, however, moderate from 7.6 per cent expected in 2023-24 as high interest rates and lower fiscal impulse to growth will temper demand, according to Crisil. Crisil Ratings Managing Director <keyword id="20983741" type="General" weightage="20" keywordseo="gurpreet-chhatwal" source="keywords">Gurpreet Chhatwal</keyword> said the three key pillars of India Inc's credit quality -- deleveraged balance sheets, sustained domestic demand and government-led capex -- kept the upgrade rate elevated in the second half of FY24. "With balance sheets in most sectors at their healthiest, capacity utilisation around peak levels and expected interest rate cuts, a broad-based pick-up in private capex is finally in sight," Chhatwal said, adding that sectors with export linkages could have some uncertainties around them. Stating that bank credit outstanding could cross Rs 200 lakh crore by March 2025, credit growth will remain healthy, albeit a tad lower at 14 per cent this fiscal year. Credit growth was 16 per cent in the last fiscal year that ended on March 31. Overall gross non-performing assets (NPAs) will continue to trend down and touch fresh decadal lows, it said. Crisil Ratings Senior Director and Chief Ratings Officer <keyword id="21152658" type="General" weightage="20" keywordseo="krishnan-sitaraman" source="keywords">Krishnan Sitaraman</keyword> said there is a likelihood of interest rate cuts globally in 2024. "We expect the RBI to cut interest rates in the second half of the current fiscal," Sitaraman said, adding that credit quality is likely to remain positive. The RBI is scheduled to announce its first monetary policy review for the current fiscal on April 5. For FY25, as many as 21 of 26 corporate sectors have strong to favourable credit quality outlook, marked by robust balance sheets and healthy operating cash flows -- expected to be as much, or higher, than in fiscal 2024. These include auto-component manufacturers, companies in the hospitality and education sectors where the credit quality is supported by healthy domestic demand. It also includes sectors benefiting from the government's infrastructure spending, such as construction companies, and steel, cement and capital goods manufacturers. Four corporate sectors -- specialty chemicals, agrochemicals, textile cotton spinning and diamond polishers -- are facing headwinds given their fortunes are aligned with global macroeconomic conditions, which are subdued at present.

Credit quality outlook of India Inc positive in first half of FY25: Crisil Ratings

<keyword id="141555" type="General" weightage="20" keywordseo="Securitisation" source="Orion">Securitisation</keyword> volume in <keyword id="3658" type="General" weightage="20" keywordseo="india" source="Orion">India</keyword> jumped 42 per cent on-year and past the Rs 1.15 lakh crore mark in the first nine months of this <keyword id="46627" type="General" weightage="20" keywordseo="fiscal" source="Orion">fiscal</keyword>, said credit rating agency CRISIL Ratings Ltd. According to CRISIL Ratings, the market activity in the quarter that ended December 2022 continued the momentum witnessed in April to September period. The activity was broad-based, with wider participation, as the number of originators crossed 120 compared with about 100 in the preceding fiscal. Among new originators in the securitised market were small finance banks that have increased their securitised issuances in recent quarters and added this mechanism as one of their routes to access incremental liquidity. Growth in the non-mortgage space was led by commercial vehicle (31 per cent) and microfinance (14 per cent) loans, CRISIL Ratings said. The credit rating agency said the unsecured loans, including personal and business loans, also continued to draw investor attention, comprising seven per cent of the securitised assets compared with three per cent in fiscal 2022. The share of property-backed loans, though, declined to about 38 per cent from about 43 per cent. Senior Director and Deputy Chief Ratings Officer <keyword id="198711" type="General" weightage="80" keywordseo="krishnan-sitaraman" source="Orion">Krishnan Sitaraman</keyword> said: "The securitisation market is continuing to regain its mojo post the pandemic, propped up by a resurgence in microfinance and increasing preference among investors for vehicle loans. Additionally, personal and business loans seem to be gaining greater acceptance, bringing diversity to the bouquet of asset classes being securitised." According to the report, direct assignment (DA) transactions accounted for 60 per cent of the nine-month transaction quantum with this route being utilised for the sell-down of most mortgage and gold loan pools. Correspondingly, the share of pass-through certificates (PTCs) was at 40 per cent, down marginally from 41 per cent a year ago. On the investor side, foreign banks and multinational institutions (about 14 per cent) were more active, given their preference for investing in PTCs backed by loans advanced to economically weaker sections. Private (53 per cent) and public sector (25 per cent) banks remained the largest investor groups, while the share of nonbanks remained low with mutual funds also making sporadic investments. The public sector banks have invested in PTC-backed pools comprising a vehicle, microfinance, and unsecured business loan receivables in recent quarters, the report said. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/stock-market/news/hdfc-bank-wipro-dmart-among-stocks-in-focus/articleshow/97018162.cms">Sensex, Nifty50 end lower led by losses in metals, auto, banks</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/finance/banks/news/paytm-payments-bank-gets-final-nod-from-rbi-to-operate-bharat-bill-payment-system-services/articleshow/97032913.cms">Paytm Payments Bank gets final nod from RBI to operate Bharat Bill Payment System services</a>

Securitisation volume in India jumps 42% past ₹1.15 lakh cr mark in 9MFY23: Crisil

The assets under management (AUM) of <keyword id="100080" type="General" weightage="20" keywordseo="housing-finance" source="Orion">housing finance</keyword> companies are expected to grow 10-12 per cent in this financial year 2022-23, as against 8 per cent in the last financial year, mainly due to home loans, which could grow 15 per cent on-year, said CRISIL. Last fiscal, HFC growth was a story of two halves: stunted to just about 2 per cent (annualised) in the first half because of the second wave of the pandemic, and a V-shaped 14 per cent (annualised) growth in the second half. "Structural factors driving end-user housing demand remain intact this fiscal despite the impact of rising real estate prices and interest rates. This should drive 13-15 per cent growth in the home loan segment. And despite the recent hikes, interest rates remain below previous cycles and haven't impacted customer interest materially," said <keyword id="198711" type="General" weightage="80" keywordseo="krishnan-sitaraman" source="Orion">Krishnan Sitaraman</keyword>, Senior Director and Deputy Chief Ratings Officer, <keyword id="183985" type="General" weightage="80" keywordseo="crisil-ratings" source="Orion">CRISIL Ratings</keyword>. Despite the growth, housing finance companies are expected to continue losing home-loan market share to banks amid stiff competition. While access to funding is not a big challenge for most housing financiers, competitive borrowing cost is crucial versus banks, which benefit from low-cost deposit funding. HFCs have already conceded 400 basis points market-share to banks over the past four fiscals resulting in banks' share rising to 62 per cent as of March 2022. This trend is unlikely to reverse in the near term. Banks are expected to gain market share further with <keyword id="83209" type="General" weightage="80" keywordseo="hdfc-ltd" source="Orion">HDFC Ltd</keyword>, the largest HFC, set to merge with <keyword id="6357149" type="General" weightage="80" keywordseo="hdfc-bank" source="Orion">HDFC Bank</keyword> next fiscal. The ability of HFCs to compete with banks in the traditional salaried-home-loan segment remains a challenge given their relatively higher funding costs. HFCs are expected to increasingly partner with banks and leverage each other's strengths to grow their books. Some HFCs are already moving in this direction. Therefore, asset/on-book growth is likely to be lower compared with AUM growth. Meanwhile, one segment where HFCs have been growing relatively faster is affordable housing loans, where competition from banks is limited. Affordable housing financiers (AHFCs), therefore, have seen relatively better growth of 12-15 per cent in the recent past despite moderation from earlier levels. Given their relatively smaller footprint and large underlying demand, AHFCs are expected to keep growing faster than traditional HFCs. SEE ALSO : <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/news/moonlighting-not-ethically-right-for-full-time-employees-ibm/articleshow/94200133.cms">Moonlighting not ethically right for full-time employees: IBM</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/sustainability/news/flood-like-a-situation-highlights-how-cities-must-adapt-to-climate-change/articleshow/94199419.cms">Flood-like a situation highlights how cities must adapt to climate change</a>

Housing finance companies' AUM to grow 10-12% in FY23: CRISIL

Gross non-performing assets (<keyword id="127693" type="General" weightage="20" keywordseo="npas" source="Orion">NPAs</keyword>) of banks will rise to 8-9 per cent this fiscal, well below the peak of 11.2 per cent seen at the end of fiscal, ratings agency <keyword id="6359483" type="General" weightage="20" keywordseo="crisil" source="Orion">Crisil</keyword> said in a report. The Covid-19 relief measures such as the restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS) will help limit the rise, the report added. With 2 per cent of bank credit expected under restructuring by the end of this fiscal, stressed assets-comprising gross NPAs and loan book under restructuring-should touch 10-11 per cent. <keyword id="198711" type="General" weightage="20" keywordseo="krishnan-sitaraman" source="Orion">Krishnan Sitaraman</keyword>, Senior Director and Deputy Chief Ratings Officer, <keyword id="183985" type="General" weightage="20" keywordseo="crisil-ratings" source="Orion">CRISIL Ratings</keyword>, said: "The retail and MSME segments, which together form 40 per cent of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around. Stressed assets in these segments are seen rising to 4-5 per cent and 17-18 per cent, respectively, by this fiscal end. The numbers would have trended even higher but for write-offs, primarily in the unsecured segment." The retail segment, which had a relatively stable run over the past decade, has been singed by the pandemic, with salaried and self-employed borrowers alike facing significant income challenges and higher medical expenses, especially in the second wave. Thus, in a first-of-its-kind move, the <keyword id="6354335" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="Orion">Reserve Bank of India</keyword> (<keyword id="30067" type="General" weightage="20" keywordseo="rbi" source="Orion">RBI</keyword>) introduced loan restructuring for retail borrowers to help them tide over the situation. This followed a six-month moratorium permitted by lenders last fiscal. Despite the measures, CRISIL Ratings believes stressed assets in the retail segment will rise to 4-5 per cent by the end of this fiscal from 3 per cent last fiscal. While home loans, the largest segment, will be the least impacted, unsecured loans are expected to bear the brunt of the pandemic. The MSME segment, despite benefiting from ECLGS and the recent limit enhancement and tenure extension, is likely to see asset quality deteriorate and will require restructuring to manage cash-flow challenges. In fact, restructuring is expected to be the highest for this segment, at 4-5 per cent of the loan book, leading to a jump in stressed assets to 17-18 per cent by this fiscal end from 14 per cent last fiscal, Crisil said. The corporate segment, though, is expected to be far more resilient. A large part of the stress in the corporate portfolio had already been recognised during the asset quality review initiated five years ago. That, coupled with the secular deleveraging trend, has strengthened the balance sheets of corporates, and enabled them to tide over the pandemic relatively unscathed compared with retail and MSME borrowers. This is evident from restructuring of only 1 per cent in the segment. Consequently, corporate stressed assets are expected to remain range-bound at 9-10 per cent this fiscal. The rural segment, which was hit harder during the second wave of the pandemic, has also seen a strong recovery. Therefore, stressed assets in the agriculture segment are expected to remain relatively stable. Subha Sri Narayanan, Director, CRISIL Ratings, said: "While the performance of the restructured portfolio will definitely need close monitoring, the slippages from the restructured book are expected to be lower this time. Restructuring under various schemes in the past focussed on larger exposures and primarily involved extension of maturity without any material haircuts, resulting in high subsequent slippages. This time, the entry barriers for restructuring are more stringent. Also, recent trends indicate that a reasonable proportion of borrowers, primarily on the retail side, have started making additional payments as their cash flows improve, despite having availed of restructuring. MSMEs, however, may take longer to stabilise and we remain watchful." The estimates of CRISIL Ratings are predicated on a base-case scenario of 9.5 per cent GDP growth this fiscal and continued improvement in corporate credit quality. A virulent third wave and significant deceleration in demand growth could pose significant downside risks to these estimates. On the other hand, operationalisation of the <keyword id="11922748" type="General" weightage="20" keywordseo="national-asset-reconstruction-company-ltd" source="Orion">National Asset Reconstruction Company Ltd</keyword> by the end of this fiscal and the expected first-round sale of Rs 90,000 crore NPAs could lead to lower reported gross NPAs. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/startups/news/mestastop-raises-1-3-crore-funding-from-iim-ahmedabad-incubator/articleshow/87131734.cms">IIM-Ahmedabad incubator invests in an under-trial AI startup that can possibly predict cancer and lead to drug discovery</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/tech/apps/news/whatsapp-rolls-out-redesigned-icons-working-on-done-and-undo-buttons-for-media-editing/articleshow/87131523.cms">WhatsApp rolls out redesigned icons, working on “Done” and “Undo” buttons for media editing</a>

Bad loans of India's banks to rise to 8-9% this year, says CRISIL

<keyword id="19895063" type="General" weightage="20" keywordseo="India" source="keywords">India</keyword>'s infrastructure landscape will witness substantial growth with investments in key sectors — <keyword id="19895602" type="General" weightage="20" keywordseo="renewable-energy" source="keywords">renewable energy</keyword>, <keyword id="20028505" type="General" weightage="20" keywordseo="roads" source="keywords">roads</keyword>, and real estate, according to <keyword id="19898320" type="General" weightage="20" keywordseo="CRISIL" source="keywords" meta.keywordsubtype="org" meta.entityname="CRISIL" meta.hostid="267" meta.entityid="CRISIL">CRISIL</keyword> report. The report projected a rise in investments by approximately 38 per cent over the fiscal years 2025 and 2026, This surge, expected to amount to Rs 15 lakh crore, underscores the nation's ambitious drive towards sustainable development and enhanced connectivity. According to Krishnan Sitaraman, Senior Director and Chief Ratings Officer at <keyword id="19955699" type="General" weightage="20" keywordseo="CRISIL-Ratings" source="keywords" meta.keywordsubtype="org" meta.entityname="CRISIL Ratings" meta.hostid="267" meta.entityid="CRISIL Ratings">CRISIL Ratings</keyword>, the momentum in these sectors remains robust, buoyed by consistent policy interventions that have not only attracted significant investor interest but also bolstered the credit profiles of private players. "The underlying demand drivers in these three sectors remain strong, with regular policy interventions fueling investor interest. This has also supported healthy credit risk profiles of private players and strengthened their execution and funding capabilities," noted Sitaraman. In the renewable energy domain, the focus is on fostering a sustainable energy transition. The government's ambitious targets have spurred a series of auctions, culminating in a robust pipeline of projects totalling 75 GW, with 50 GW slated for implementation over the next two fiscal years. Policies such as higher import duties and production-linked incentives for domestic manufacturing of modules and batteries have further stabilized the sector, reducing dependency on imports and enhancing supply chain reliability. However, challenges persist, particularly in the commissioning of storage-linked capacities, which have faced hurdles in securing off-takers, potentially impacting their viability amidst higher tariff structures. India's road infrastructure is poised for significant expansion, aimed at improving <keyword id="22096052" type="General" weightage="20" keywordseo="physical-connectivity" source="keywords">physical connectivity</keyword> and bolstering economic efficiency. With a strengthened order book and the adoption of models like the hybrid annuity model (HAM), road developers are set to increase construction by approximately 12,500 km annually over the next two fiscal cycles. The HAM framework, in particular, provides upfront rights-of-way and risk-sharing mechanisms, mitigating execution risks and attracting private sector investments. Despite these advancements, the sector faces challenges related to funding under the build-operate-transfer (BOT) toll model, necessitating improvements in traffic estimation accuracy and lender confidence. The real estate sector is witnessing steady growth, supported by favorable policies such as the Real Estate (Regulation and Development) Act, 2016, which has enhanced transparency and project completion timelines. Manish Gupta, Senior Director and Deputy Chief Ratings Officer said, "Regular policy interventions in these sectors have also increased investor interest, thus providing opportunities to developers to unlock equity capital. Cumulatively ~Rs 2 lakh crore of equity capital has been deployed in these sectors over the past two fiscals driven by strong investor participation." He added, "A key enabler here has been the emergence of vehicles such as infrastructure investment trusts (InvITs) and real estate investment trusts (REITs). The capital inflows from investors have helped improve credit profiles of private players, thus strengthening their ability to fund future growth." Demand for both residential and commercial properties is expected to grow by 8-12 per cent and 8-10 per cent respectively, driven by competitive rentals, increasing global capability centres, and domestic demand. In real estate, while reduction in inventory in recent years has added to the resilience of the sector, discipline in new launches and, consequently, the impact on inventory going ahead will remain monitorable. Looking ahead, while the growth trajectory appears promising, risks such as delayed commissioning of storage-linked capacities in renewables, funding uncertainties in road projects under the BOT (Build, Operate, Transfer) model, and the need for disciplined inventory management in real estate could potentially dampen momentum. Monitoring these factors will be crucial in ensuring sustained growth across these pivotal sectors.

Investments in renewables, roads, and realty to surge 38 pc over FY25-26 to Rs 15 lakh crore: Crisil

Mumbai, The total capital outlay for roads and renewables in 2023-24 and 2024-25 is likely to jump by 35 per cent to Rs 13 lakh crore compared to that in the last two fiscal years, according to a report. Conducive policies, rising investor interest and strong execution speed are expected to drive the capital outlay in the sectors, the report by Crisil Ratings said on Tuesday. The pace of road <keyword id="34617" type="General" weightage="20" keywordseo="construction" source="Orion">construction</keyword> and capacity addition in renewables is seen growing by 25 per cent and 33 per cent, respectively, in the current and next fiscal, and the <keyword id="46930" type="General" weightage="20" keywordseo="capex" source="Orion">capex</keyword> growth is expected to sustain over the medium term, the report said. Crisil Ratings Managing Director Gurpreet Chhatwal said the pace of execution of renewable energy projects is set to increase 33 per cent to 20 GW per annum over the current and next fiscal as compared to 15 GW per annum in the past two fiscal years, supported by a healthy executable pipeline of 50 GW of projects as of March 2023. Similarly, road construction is set to improve 25 per cent to 12,500-13,000 km annually over the current and next fiscal, driven by healthy awarding of projects and step-up in execution, it said. Chhatwal said the levels at which companies are bidding for projects is a key monitorable going forward. The agency's Senior Director Manish Gupta said while the last two years have seen aggressive bidding, there are no challenges on the implementation side. Gupta said investor interest has been encouraging, with Rs 75,000-80,000 crore raised through equity and asset monetisation in the past two fiscals in both these sectors. Continued focus on asset monetisation and equity raising, along with healthy cash flows, will keep the capital structure balanced in both sectors, the report said. According to the report, despite higher capital outlays, rated renewables and road entities should have a healthy average debt service cushion of 1.2x-1.3x over the tenure of debt on their balance sheets, which supports their credit profiles. About the upcoming general elections, Gupta said the government is aware of it and is trying to finish as many projects as possible before the polls. Replying to a question on the recent slowdown in the pace of road construction, Chhatwal said every year, the pace of work is higher in the second half of the fiscal and the agency expects the same to continue this fiscal as well. The pace of road construction will increase to 34 km per day by the end of 2024-25, a 25 per cent jump over the current pace, its Chief Rating Officer Krishnan Sitaraman said. Timely asset monetisation will remain important in the roads sector as InvITs continue to grow, the report said, adding that for renewables, if geopolitical developments affect supply chains, it may impact the internal rate of return and pose a risk to estimates.

Road, renewables capex likely to rise by 35% in FY24 & FY25: Crisil

The COVID-19 pandemic and the ensuing economic impact will lead <keyword id="612887" type="PERSON" weightage="20" keywordseo="Bank-credit-growth">bank credit growth</keyword> to nosedive to only 1 per cent in 2020-21, as against the 6.14 per cent achieved in the the last financial year, a report said on Monday. Domestic rating agency Crisil, which estimates bank credit growth to come at 0-1 per cent in this financial year, had earlier predicted it to expand by 8-9 per cent. Bank credit is an important factor illustrative of the general economic climate because it denotes aspects like the investments which are happening in a country or consumption of high-value items. Crisil expects a 5 per cent contraction in India's GDP for 2020-21. "The impact of the pandemic on credit growth will be a whopping 8 per cent," a Crisil statement said stressing that lenders' confidence needs to be boosted to push the number up. "This crisis is unprecedented and so will be its economic fallout – such as lower capex demand as well as lower discretionary spends, to name some – which will slow down credit offtake significantly across segments in the current fiscal," its senior director Krishnan Sitaraman explained. The low-base and a gradual economic recovery will push up the credit growth to high single digits in 2021-22, the agency said. It, however, rued that in the present, the uncertainty has made lenders risk-averse. "While the Reserve Bank of India has been reducing policy rates and the government has introduced measures to encourage lending, banks continue to be risk-averse, as reflected in higher surplus liquidity parked with the central bank and the high credit spreads for most borrowers," its director Subha Sri Narayanan said. Sitaraman said the corporate loan portfolio, which constitutes over half of the overall assets, will be the worst hit and is expected to de-grow during the fiscal because the lockdown has led to significant disruption in operations with limited capacity utilisation across sectors. Job losses and salary cuts will reduce expenditure on discretionary items and result in a slide in retail loans, which account for about a fourth of bank credit, it said. Purchase of new homes and vehicles are expected to be delayed, impacting demand for financing, it said, adding disbursements across most asset classes will see a significant decline this fiscal. The overall retail loans growth will fall to low single digits as against mid-teens over the last few years, it said. Factors aiding the retail growth to be in the positive territory will be lower repayments due to the moratorium and capitalization of the accumulated interest, it said. Loans to micro, small and medium enterprises and agriculture offer some solace for lenders this fiscal, the rating agency said. On the back of the government's fiscal stimulus package, small business loans will increase by 6-7 per cent and are likely to be driven by state-owned lenders, it said. Agri loans will grow by 3-4 per cent supported by expectations of a normal monsoon and a faster recovery in rural areas. SEE ALSO: <a href="https://www.businessinsider.in/finance/news/sbi-axis-bank-and-kotak-mahindra-bank-and-other-banking-stocks-are-raising-capital-to-fill-npa-hole/articleshow/76054599.cms">Indian lenders like SBI, Axis Bank and others need $20 billion⁠ in capital— most of it will go into filling up NPA holes</a> <a href="https://www.businessinsider.in/business/news/yes-bank-case-ed-raids-five-premises-of-cox-and-kings-in-mumbai/articleshow/76256791.cms">Yes Bank's top borrower Cox and Kings sees raids at five of its premises</a> <a href="https://www.businessinsider.in/stock-market/markets/news/sbi-share-price-is-up-5-are-brokerages-raise-target-prices-to-over-200/articleshow/76254529.cms">SBI share price is up 5% as brokerages raise target prices to over ₹200</a>

CRISIL forecasts bank credit growth will plummet to 1% with the economic fallout COVID-19

Mumbai, Mar 5 () The troubled non-bank lenders' segment is "defying caution" and growing the riskier unsecured loans portfolio at a pace of 25 per cent in the current fiscal, a report said on Thursday. A rising propensity for personal loans and attractive risk-adjusted returns are the possible reasons driving the non-banking finance companies (NBFC) to grow on such loans, domestic rating agency Crisil said. The going has been very difficult for the NBFC segment since the crisis at infra-focused lender IL&amp;FS in September 2018, with liquidity getting scarce and the economy slowing down. Crisil said the growth in the unsecured books at 25 per cent is four times that of the decadal lows in overall assets under management, which are set to clock a 6-8 per cent growth in FY2020. It is, however, lower than the compounded annual growth rate of 30 per cent in unsecured loans clocked for the fiscal fiscal years till FY2019, it said. Since the IL&amp;FS crisis, the major factors that hit the non banks include constrained funding access amid rising borrowing costs, re-calibration and de-risking of loan books, and economic slowdown, it said. The unsecured loans segment has emerged a favourite because of a structural shift in conducting the business, wherein there is a larger reliance on credit bureau data, the higher risk-adjusted returns where other segments are struggling to grow and an ability to have higher profit margins. "Growth in this segment (unsecured) hasn't emerged unscathed by the recent turmoil, but the impact on it has been relatively lower," its senior director Krishnan Sitaraman said. He added that the share of unsecured loans in the overall assets under management for the non-bank lenders is set to grow by 1.50 percentage points in a single year to 9 per cent now. Acknowledging that the delinquencies are not yet alarming, the agency warned the "frenetic growth can also spawn asset quality worries because repayments can become highly volatile based on macro-economic and region-specific events". Delinquencies in the personal and consumer durables loans are expected to inch up this fiscal but will still be under 3 per cent, while the over 90-day overdue repayments on unsecured loans to small businesses are set to grow by up to 0.60 per cent over the 4.5 per cent level in FY19, it said. The two and three-wheeler loans stress is also expected to rise by a similar 0.50-0.60 per cent, it said. "While the reported non performing assets in these segments do not seem worrisome at this juncture, write-offs have been very high because recoveries after default are typically very low," its associate director Rahul Malik said. The agency also said that non-banks and borrowers alike seem to have attained a degree of ease with regards to dealing in unsecured loans, but underlined that there is a need to have strong capital buffers. AA MRMR

Non-bank lenders defying caution, growing riskier unsecured loans: Report

Mumbai, May 22 () Beyond its timing, there was no surprise in the rate cut move by the RBI on Friday, and there exists a scope for more cuts of up to 1 percentage point because of the troubles on the growth front, analysts said. However, the decision to extend the moratorium and not go for a restructuring package came for some criticism. Earlier in the day, RBI's rate setting panel cut key rates by 0.40 per cent for the second consecutive time during the pandemic after pre-poning its scheduled meeting. Governor Shaktikanta Das said GDP will contract in the fiscal, and the rate cut was directed largely to push up the growth process. "We expect the terminal repo rate to be cut by 100 basis points in the current cycle even after today's rate cut," house economists at largest lender SBI said, adding an aggressive cut in repo rate is the effective policy response to adjust the real interest rate as inflation is set to "collapse" in FY21. Such a move will, however, have a "significant sobering impact" on asset quality of banks as RBI research shows, they added. Bank of Baroda's chief economist Sameer Narang said he expects the GDP to contract by 4.7 per cent in FY21, and headline inflation at 3.5 per cent, which leaves the room for the RBI to deliver another 25 bps reduction in policy rate. Yes Bank's economists said the RBI will further support the economy with a 0.50 per cent cut in the key rates amidst a widening of negative output gap and assertion of disinflationary pressures. "All this (the rate cut) was expected and will provide support especially so as the lockdown has been quite severe for the last two months or so impacting activity," analysts at Care Ratings said, hinting that the markets reacted negatively to the move because of the negative growth statement from Das. Singaporean lender DBS said the reverse repo is likely to become the operative rate from here on as the system is in net surplus liquidity. However, it was on the regulatory policies front, and the moratorium in particular, that the analysts had some reservations. SBI note said the market was expecting a clarity on the moratorium, consultancy firm EY made it more explicit. "It (the announcements) fell short of a one-time restructuring proposition. Instead the moratorium on all term-loans has been extended by three months along with an Funded Interest Term Loan (FITL) plan for loan recoveries from 1 September 2020 to 31 March 2021." "Given that the economy would take considerable time to recover, a higher EMI (current EMI plus FITL installment) will be difficult to honour. I think a one time restructuring would have enabled a more certain recovery," its partner Abizer Diwanji said. Domestic rating agency Crisil said Extension of moratorium by another three months will be beneficial from a borrower's perspective, particularly for those whose cashflows have been impacted on account of the extended lockdown and expectation of only a phased resumption of economic activity. "From a lender's perspective, what needs to be monitored is borrower behaviour pertaining to payment discipline once the moratorium is lifted as 6 months of continuous non-payment of debt obligations can result in some element of credit indiscipline creeping in for certain borrowers," its senior director Krishnan Sitaraman said. He also said that there will be an increase in non-performing asset levels despite the move to extend the recognition because of the gloomy times that the economy is passing through. AA MKJ MKJ

No surprise in RBI policy decision, still exists scope for further cuts: Analysts

New Delhi, Aug 17 (IANS) The Reserve Bank of India's (RBI) move on one-time loan restructuring will help soften the Covid-19 pandemic's impact on the asset quality of banks, CRISIL Ratings has said in a report earlier. According to the rating agency, without the loan restructuring support, gross non-performing assets (NPAs) could have touched a two-decade high of 11.5 % by the end of this fiscal, but will now likely print considerably below that level. The central bank has permitted relaxations for corporate loans under the June 2019 Prudential Framework on Resolution of Stressed Assets. These will benefit borrowers in most categories. Indeed, in a first, the restructuring option has been extended to retail borrowers as well, given that many of them may face challenges in servicing debt owing to salary cuts and job losses. Micro, small and medium enterprises (MSMEs), which have been substantially a ffected by the pandemic-led disruptions, have also got relief in the form of a three-month extension in the existing restructuring scheme, i.e. till Mar ch 31, 2021. The major beneficiaries, though, will be sub-Rs 500 crore corporate exposures and retail exposures, which were earlier expected to see the highest increase in NPAs in percentage terms. The debt at risk in these segments - or loans at risk of slipping into NPAs this fiscal unless restructured by banks - is a sizeable Rs 3 lakh crore, the report has said. Krishnan Sitaraman, Senior Director, CRISIL Ratings, said, "In the corporate segment, the situation today is different from the previous asset quality stress cycle, which started four years ago. Last time, the NPAs came primarily from bigger, chunkier accounts, whereas this time, an analysis of the top 100 exposures of our large, rated banks reveals that following a period of consolidation and deleveraging, these entities are likely to be better-positioned to withstand the current challenges. The key beneficiaries of the RBI's measures, though, will be small and mid-sized accounts, which are far less resilient in the current situation." CRISIL's analysis of the credit profile of banking sector exposures over Rs 25 crore bears this out. The study, covering 14,000 companies that constitute over 75% of the overall corporate portfolio of banks, shows that the debt at risk in corporate loan accounts with exposure less than Rs 500 crore is Rs 2 lakh crore. As a proportion of loans outstanding in this segment, it is 5 times that for larger corporate loan accounts with exposure more than Rs 500 crore. Further, the retail segment, which was considered a safe haven for banks in r ecent years, is witnessing significant pressure, given the stress being faced by salaried as well as self-employed borrowers. While home loans, the largest secured segment, would be less at risk owing to the psychological attachment of Indians to the homes they live in, and the priority they accord to repaying home loans, this does not hold for segments such as unsecured loans. The total debt at risk in the retail segment is estimated to be Rs 1 lakh crore. Asset quality in the MSME segment, which is among the most vulnerable, is already benefitting from the restructuring scheme that was in force till December 31, 2020, as well as measures such as the Rs 3 lakh crore Emergency Credit Line Guarantee Scheme. With the proposed extension of the restructuring scheme, the reported gross NPA for the segment is, therefore, unlikely to see much of an increase vis-A-vis March 2020 levels. Subha Sri Narayanan, Director, CRISIL Ratings, said, "While the RBI measures will cushion the rise in NPAs, implementation is key, as are individual banks' policies on extending these relaxations to customers. For corporate loans, given the requirements of participation by lenders having 75% of exposure by value and 60% by number, and independent credit assessment by a credit rating agency, as well as the stringent timelines for invocation and implementation, we are likely to see banks being selective in extending restructuring. On the retail side, banks could follow different paths, with the well-capitalised ones choosing to recognise more of the stressed loans as NPAs rather than restructuring these." Factors such as prescribed eligibility criteria, additional provisioning requirements, and capping of restructuring tenures are expected to play a role in limiting the extent of restructured assets. Nevertheless, slippages to NPA in small and mid-size corporate loan accounts this fiscal should be well be low what was envisaged earlier. --IANS sn/ptr

Loan restructuring to stem runaway rise in NPAs this fiscal

Mumbai, Feb 6 () Bankers and analysts were positively surprised with the slew of liquidity-enabling measures announced in an otherwise expected RBI monetary policy that left the key rates unchanged at 5.15 per cent. The market has taken the long-term repos worth Rs 1 lakh crore as the biggest developmental and regulatory step that came out of the blue, they said. So is the CRR buffer benefits for lending to the growth-oriented sectors such as to housing, auto and small units. The Reserve Bank announced long-term repurchase agreements (repos) of one-year and three-year tenors of appropriate sizes, totalling Rs 1 lakh crore at the policy repo rate, from the fortnight beginning on February 15. Bankers and analysts are unanimous that these measures would infuse liquidity on one hand and ensure cheaper credit flow to the needy-segments of the economy. SBI Chairman Rajnish Kumar said the policy is "a statement of intent" carefully using a repository of policy novelties to address the current delicate balance of growth and inflation. "While keeping rates on hold was anticipated, the bouquet of developmental and regulatory steps is a positive surprise to the financial ecosystem. "Long-term repos for 1-year and 3 year at the repo rate, will bring down cost of funds for banks and will facilitate better transmission within the current constraints of downward rigidity of deposit rates," Kumar said. Similarly, exemption of CRR maintenance for all additional loans given for retail loans like auto, housing, and to MSMEs is positive for all banks and to these targeted sectors. This will also help lower the cost of funds. Extension of date of commencement of commercial operations of project loans for commercial realty by one more year without downgrading the asset classification will allow realtors to focus on project completion. Extending the date of recasting MSME loans will also help the sector to navigate the current downturn and is a logical corollary of budget announcement, Kumar said. Welcoming the policy, Icra's Aditi Nayar said the dovish tone along with reiteration that policy space is available for future action is a big positive. "We anticipate that the stance will be maintained as accommodative as long as RBI perceives the output gap to be negative, regardless of the level of inflation. So we no longer expect the stance to be changed to neutral in the next few policies," she said. Zarin Daruwala of Standard Chartered Bank India said, "The MPC delivered a strong pro-growth policy in the face of sluggish growth and high inflation." Cash reserve ratio leeway for fresh retail and MSME loans, a one-time permission to extend restructuring of MSME loans and concessional one-to-three year repo funds are all positive steps to bring down lending rates, she said. Crisil's Krishnan Sitaraman said, "The move to exempt banks from CRR requirements for incremental loans to auto, housing and MSMEs will have a salutary effect on channeling of credit to these sectors and can play a role in addressing the sluggishness seen in these sectors." Similarly, the extension of date of commencement of commercial operations by one more year for project loans for commercial realty will bring some relief to projects which are genuinely delayed due to business reasons. This can arrest the fresh slippages in this segment. Linking MSME loans to external benchmarks will accelerate interest rate transmission and lighten interest burden. Also, extending the one-time restructuring window for them will bring some more relief to the sector and keep sectoral NPAs under control. Terming the RBI policy as "quite progressive and forward looking" A K Das of Bank of India said the long-term repos open up ways to transmit the signal rate changes. Measures for realty and MSMEs and CRR exemption for incremental retail and housing loans are growth-oriented and will give an impetus to bank lending, he added. Describing the policy as a "whatever it takes" moment for the country and policymakers, B Prasanna of ICICI Bank said these steps show willingness of MPC to think laterally. "The crowning glory of all measures is the provision of long-term repos at the repo rate that is intended towards facilitating better transmission in the bond and loan markets. Besides lowering rates in the short end of the sovereign curve it is also likely to lower corporate bond yields, deposit rates and lending rates," he said. Sunil Kumar Sinha of India Ratings said, "If the monsoon does not turn out to be normal, then the inflation forecast can have adverse impact on the food inflation which is already witnessing pressure from rising prices of items such as pulses and coarse cereals." "Given this, despite continuing with the accommodative stance, RBI is unlikely to tinker with the policy rate till the second quarter of FY21," he said. BEN ABMABM

Bankers, analysts hail liquidity boosting policy measures

Mumbai, Apr 17 () The reduction in reverse repo rate by 25 basis points to 3.75 per cent by the Reserve Bank is a significant step but it is important that banks should increase their risk appetite, say economists and analysts. The Reserve Bank of India on Friday announced a 25 basis points reduction in reverse repo to 3.75 per cent from 4 per cent in order to encourage banks to deploy these surplus funds in investments and loans in productive sectors of the economy. "The reduction of reverse repo is significant but it needs to be seen if the flow to the private sector actually increases," Care Ratings Chief Economist Madan Sabnavis said. DBS Bank India Economist Radhika Rao said the reduction in the reverse repo rate is meant to prod banks to consider lending activity rather than park funds with the central bank. "Given the still sizeable funds that is being parked with the central bank under the reverse repo operations even after the 90 basis points cut in March, points to the limited credit and risk appetite of financial institutions," Rao said, while cautioning that a further reduction might disincentives banks to utilise the reverse repo window. SBI's Group Chief Economic Advisor Soumya Kanti Ghosh said the RBI has excluded the accounts availing moratorium from the 90-day NPA norm, thus providing a breather to banks as well as customers. "However, given the working capital challenges it is advisable for the RBI now to relook at the 90-day norm," he said. Ghosh said once an account is classified NPA, the borrower will not be able to raise funds from any other lender. "In the current circumstances the only way to save the economy and the financial system seems to be a relaxation of the IRAC norms i.e extending the 90-day schedule to 180 days," he said. Ghosh, however, said this relaxation should be given along with a well laid out calendar of returning to the current norm of 90 days in the next two years, by which time hopefully the Covid-19 crisis would have subsided. RBI also announced targeted long-term repo operations (TLTRO 2.0) for an aggregate amount of Rs 50,000 crore, to begin with, in tranches of appropriate sizes. The funds availed under this will have to be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at least 50 per cent of the total amount availed going to small and midsized NBFCs and MFIs. KPMG India Partner and Head (CFO Advisory) Sai Venkateshwaran said "the TLTRO 2.0 for a total of Rs 50,000 crores, will provide some of the much needed liquidity for NBFCs, that have been faced with a significant ALM mismatch as they haven't benefited from the grant of moratorium announced by RBI earlier." RBI also announced providing special refinance facilities for a total amount of Rs 50,000 crore to Nabard, Sidbi and NHB to enable them to meet sectoral credit needs. Crisil Ratings Senior Director Krishnan Sitaraman said the twin funding measures announced by RBI will definitely provide some relief to NBFCs / HFCs / MFIs who have been providing moratorium on their loans to borrowers but were facing uncertainty in obtaining moratorium on their bank loans. "At the same time the fact that no formal announcement was made on applicability of bank loan moratorium to NBFCs would be a dampener for them," he said. According to EY India's Economist and Chief Policy Advisor D K Srivastava, the two measures -- reduction in reverse repo and increase in the state governments' WMA limits by 60 per cent of the original limit -- would facilitate increase in economic activities as the lockdown is progressively eased. RBI further said in respect of all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall exclude the moratorium period, that is there would be an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020. "With the objective of ensuring that banks maintain sufficient buffers and remain adequately provisioned to meet future challenges, they will have to maintain higher provision of 10 per cent on all such accounts under the standstill, spread over two quarters, i.e., March, 2020 and June, 2020," RBI said. According to Icra Ratings Senior Vice President and Group Head (financial sector) Karthik Srinivasan, the proposal for 10 per cent provisions on the accounts under the standstill on asset classification because of moratorium is likely to significantly increase the credit provisions for the banks. "With an estimate of 3-4 per cent of the bank credit being in overdue category, i.e. SMA 1 and SMA2, which currently requires provision of only 0.4 per cent, the provisioning requirements of banks can increase by Rs 300-400 billion because of the proposed regulations," he said. Deloitte India's Economist Rumki Majumdar said the ability to grant relaxed NPA classification to borrowers and excluding NPA classification from the moratorium period will encourage NBFCs to lend to MSMEs without worrying about the impact such lending may have on their NPAs, which have been high. According to Covestro India's Head of Finance Avinash Bagdi, the bold steps taken by RBI to ensure smooth functioning of banks and financial institutions will help the country to prevent the economic slowdown curve from steepening. HV ABMABM

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