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<ul><li>The overall credit demand stands at $220 billion, yet only $165 billion is serviceable, says a report by Redseer and GetVantage.</li><li>Formal lending systems like banks have only been able to service 30% of the overall credit demand.</li><li>Alternate finance systems like recurring-revenue advances and trade receivable financing have the potential to double their share in five years. </li></ul>Indian digital small and medium sized enterprises (SMEs) are on a growth path but suffer from a working capital deficit of around $112 billion — as only $53 billion was injected via various channels. As per a report by Redseer and GetVantage, the overall credit demand stands at $220 billion, yet only $165 billion is serviceable. “Small businesses account for 90% of credit demand but continue to struggle to raise capital, owing to poor business metrics, limited assets, and uncertain growth projections. If the current economic and regulatory climate continues, this gap is likely to widen significantly over the next five years,” said Kanishka Mohan, partner at Redseer. Moreso, as more businesses go digital along with growth in new-age businesses, the demand for credit will only grow. The report estimates that in the next five years, as the number of digital SMEs doubles, the demand for credit is expected to cross $570 billion. Advantage Alt-Fi Formal lending systems like banks have only been able to service 30% of the overall credit demand. Lack of collateral and clear documentation has always been a hindrance for traditional lenders such as commercial banks to provide adequate capital to SMEs. That presents an unprecedented opportunity for alternate-financing platforms, NBFCs and traditional financial lenders (Trad-Fi) like banks to collaborate and catalyze economic growth by prioritizing compliance, governance, inclusion and innovation, opines Bhavik Vasa, founder &amp; CEO of GetVantage. Alternate finance systems include third-party lenders such as revenue-based financing platforms, recurring-revenue advances and trade receivable financing etc. Alternate-finance provides access and flexibility which make these quasi-equity solutions ideal for SMEs. “India is a nation of small businesses, and modern businesses in India deserve modern capital solutions that are fair, accessible, and flexible. Alternate-financing has a vital role to play in extending the limited reach of traditional lenders to serve millions of new-economy businesses and emerging sectors,” says Vasa. At present, the share of alternate finance is around 5%, which Redseer estimates can double to reach to around 11% in the next five years. India has 64 million micro, small, and medium sized enterprises (MSMEs), which contribute to 30% of the nation’s GDP. The sector which is recognized as a crucial growth engine is riddled with challenges such as limited digitization and strained access to capital. Redseer says that only 12% or 7.7 million MSMEs in India are digitized. Yet, businesses that have been able to shift their operations online partly have been able to achieve scale as they could take advantage of new economic opportunities and cost efficiencies.

India’s small digital businesses have a capital problem and this will only grow

<ul><li>MSMEs hold immense potential in supporting India’s ambitious vision of a $40 trillion economy by 2047, says industry body Assocham.</li><li>Banks can fund <keyword id="6358354" type="General" weightage="20" keywordseo="msme" source="Orion">MSME</keyword> working capital requirements against <keyword id="4572080" type="General" weightage="20" keywordseo="GST-filings" source="Orion">GST filings</keyword>, suggests Assocham.</li><li>Another suggestion is to come up with a similar structure of REITs and InVITs, an investment trust that lends specifically to MSMEs via pooling.</li></ul>The micro, small and medium enterprises (MSME) sector has played a meaningful role in India’s growth. The sector holds immense potential in supporting India’s ambitious vision of a $40 trillion economy by 2047, says a report by industry body Assocham. However, the real struggle for small businesses lies in fundraising for future growth. The report highlighted challenges faced by MSMEs in terms of fundraising and recommended ways to solve the problem. “An April 2022 report by the Standing Committee on Finance estimated the credit gap in the MSME sector to the tune of ₹20-25 trillion. Therefore, funding via alternative sources apart from bank credit needs to be augmented for the MSME segment,” said the report. Given that nearly 60% of MSMEs raise funds through informal sources, formalization of the sector is necessary to facilitate growth, the industry body says. “To this end, banks could fund working capital requirements against GST filings, which are more reliable quantitatively, as compared to collateralized loans. This would not only enable MSMEs easy access to funds but also spur formalization through GST registrations,” Assocham said. Another suggestion is to come up with a similar structure of real estate investment trusts (REITs) and infrastructure investment trusts (InVITs). The industry body says that an investment trust that lends specifically to MSMEs via pooling – can be created. Disclosures a challenge with SME IPOs Apart from credit, small businesses also find it tough to raise equity. Raising funds by going public via <keyword id="5559702" type="General" weightage="20" keywordseo="SME-IPO" source="Orion">SME IPO</keyword> is also a challenge due to strict disclosure requirements. BSE SME Exchange was launched in 2012 while NSE launched SME Emerge platform and Nifty SME EMERGE Index in 2017 to encourage MSME companies to get public. “In November 2021, BSE also collaborated with the All-India MSME Association (AIMA) to encourage and promote the listing of MSMEs and start-ups through the SME platform. Although these steps helped overall resource mobilization in the initial years, evident from the gradual rise in number of MSMEs that have moved to the main board, we have not seen equity emerge as a source of MSME financing in a big way,” said the report. While tough disclosure remains a challenge, data shows that SME IPOs have witnessed good growth with hundreds of companies launching their issues with <a href="https://www.businessinsider.in/stock-market/news/small-is-the-new-big-sme-ipos-double-in-2022-while-mainboard-ipos-halve/articleshow/96618323.cms#:~:text=mainboard%20IPOs%20halve-,Small%20is%20the%20new%20big%3A%20SME%20IPOs%20double,2022%2C%20while%20mainboard%20IPOs%20halve&amp;text=In%202022%2C%20108%20SME%20IPOs,age%20technology%20IPOs%2C%20last%20year.">stellar performances</a>. In 2022, 108 SME IPOs were launched, as against 60 the year before. A net worth between ₹1 crore and ₹25 crore is one of the listing requirements for SME IPOs on BSE, as per BSE Stock Exchange. The minimum investment amount for an SME IPOs is quite large compared to regular IPOs – ₹1 lakh for SME IPOs versus nearly ₹15,000 for regular IPOs. The report also revealed that the Department for Promotion of Industry and Internal Trade (DPIIT) is in process of finalizing the new industrial policy, which amongst other things, encourages MSMEs to choose the corporate bond market. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/stock-market/news/mutual-funds-raise-bets-on-mid-small-cap-stocks-amid-volatile-markets/articleshow/98516460.cms">Mutual funds raise bets on mid &amp; small-cap stocks amid volatile markets</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/stock-market/news/fpis-continue-to-be-bearish-on-oil-gas-power-stocks-in-february-offload-equities-worth-7821-crore-in-the-two-sectors/articleshow/98511897.cms">FPIs continue to be bearish on oil &amp; gas, power stocks in February, offload equities worth ₹7,821 crore in the two sectors</a>

REIT-like structures, loans against GST filings can help solve MSME fundraising problems: Assocham

Ahead of the Union Budget, <keyword id="34743" type="General" weightage="50" keywordseo="rohit-arora" source="Orion">Rohit Arora</keyword>, CEO and Co-Founder of Biz2X, has suggested the government needs to come out with a specialised <keyword id="18173" type="General" weightage="100" keywordseo="sme" source="Orion">SME</keyword> <keyword id="50691" type="General" weightage="80" keywordseo="digital" source="Orion">digital</keyword> bank to cater to the funding needs of small businesses. Finance Minister <keyword id="129243" type="General" weightage="50" keywordseo="nirmala-sitharaman" source="Orion">Nirmala Sitharaman</keyword> will present the last full Budget before the 2024 general elections in the Lok Sabha on February 1, wherein she is expected to announce slew of measures to boost economic growth. <keyword id="176" type="General" weightage="80" keywordseo="arora" source="Orion">Arora</keyword> said that small and medium businesses perennially face credit shortage and it is time that the government should come out with a specialised bank to cater their requirements. "SME digital bank can provide a bouquet of services to MSMEs, such as business CASA accounts for transaction banking, invoice and payments processing, correspondent banking, SME credit and trade finance, and other business financial services," he said. Biz2X is a turnkey global SaaS platform that enables financial institutions to provide a customised online lending experience for their small and mid-size business customers. Further, Arora stressed that such a bank can also include a special portfolio of revenue-linked credit instruments that will address the credit needs of MSMEs and also help in diversifying SME credit vis-a-vis the present system of collateral-based financing, which restrains the very practicality of running a small business. Being completely digital, he said such banks can process quicker loan application and disbursals for SMEs, backed by advanced data analytics and technology-based decision making. "The current system of portfolio mapping and underwriting is an arduous and time consuming process, involving exhaustive documentations and required multiple visits to banks. Digital banking will quicken loan processing, lower risk and scale up faster, meeting the credit needs of small businesses," he said. He said many large sovereign funds, pension funds, multilateral agencies as well as large Indian private equity funds wants to invest in such an initiative, given its enormous economic potential. About 6.3 crore MSMEs (Micro, Small and Medium Enterprises) provide more than 11 crore jobs in India. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/corporates/news/gautam-adani-plans-to-launch-at-least-five-ipos-between-2026-to-2028/slidelist/97248256.cms">Gautam Adani plans to launch at least five IPOs between 2026 to 2028</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/finance/banks/news/idbi-bank-posts-60-growth-in-profit-in-third-quarter/articleshow/97251640.cms">IDBI Bank posts 60% growth in profit in third quarter</a>

SME digital bank can provide services like business CASA accounts to MSMEs: Biz2Credit co-founder

The growth momentum picked up by the manufacturing sector in the last few months is likely to be sustained for the next six-to-nine months, <keyword id="15451445" type="General" weightage="50" keywordseo="quarterly-survey-on-manufacturing" source="Orion">Quarterly Survey on Manufacturing</keyword> conducted by industry body <keyword id="6355001" type="General" weightage="100" keywordseo="ficci" source="Orion">FICCI</keyword> revealed. The latest Survey reveals that after experiencing a revival of the Indian economy in the FY 2021-22, the momentum of growth continued in subsequent quarters of Q1 (April-June 2022-23) and Q2 July-Sept (2022-23) with over 61 per cent of respondents reported higher production levels in Q2 (July-September 2022-23). This is significantly more than the percentage of respondents experiencing higher growth in Q2 of the last few years including pre-Covid years too. This assessment is also reflected in order books as 54 per cent of the respondents in Q2 (July-September 2022-23) that had a higher number of orders. FICCI assessed the sentiments of manufacturers for Q2 July-September (2022-23) for ten major sectors namely Automotive and Auto Components, Capital Goods, <keyword id="6378916" type="General" weightage="50" keywordseo="cement" source="Orion">Cement</keyword>, Chemicals Fertilizers and Pharmaceuticals, Electronics, <keyword id="655658" type="General" weightage="80" keywordseo="machine-tools" source="Orion">Machine Tools</keyword>, Metal and Metal Products, Paper Products, Textiles, Textile Machinery and Miscellaneous. Responses have been drawn from over 300 manufacturing units from both large and <keyword id="18173" type="General" weightage="50" keywordseo="sme" source="Orion">SME</keyword> segments with a combined annual turnover of over 2.8 lakh crores. Capacity Addition and Utilization: The existing average capacity utilization in manufacturing is over 70 per cent, which reflects sustained economic activity in the sector. The future investment outlook also slightly improved as compared to the previous quarter as close to 40 per cent of respondents reported plans for capacity additions in the next six months, by as much as over 15 per cent on average. Global economic uncertainty caused by the Russia-Ukraine War and increasing cases of various mutations of COVID virus worldwide have accentuated the volatilities impacting the major economies. High raw material prices, increased cost of finance, cumbersome regulations, and clearances, shortage of working capital, high logistics cost due to rising fuel prices and blocked shipping lanes, low domestic and global demand, excess capacities due to the high volume of cheap imports into India, unstable market, high power tariff, shortage of skilled labor, highly volatile prices of certain metals, etc. and other supply chain disruptions are some of the major constraints which are affecting expansion plans of the respondents. Inventories: Over 87 per cent of the respondents had either more or the same level of inventory in Q2 July-September 2022-23, which is the same as compared to that of the previous quarter, where around 86.19 per cent of respondents expected either more or the same level of inventory. Exports: The outlook for exports seems to be positive as over 42 per cent of the respondents expect a high increase in exports in Q2 2022-23 as compared to the Q2 July-September of FY 2021-22. Hiring: Hiring through positive remains below potential as 36 per cent of the respondents in Q2 2022-23 were looking at hiring additional workforce in the next three months. Interest Rate: Overall, the average interest rate paid by the manufacturers has decreased to 8.37 per cent per annum as against 9.3 per cent during the last quarter and the highest rate at which a loan has been raised is 13.5 per cent. High lending rates were reported by around 62 per cent of the respondents. Production Cost: The cost of production as a percentage of sales for manufacturers in the survey has risen for 94 per cent of respondents in the quarter. Reduced availability and high raw material prices especially that of steel, increased transportation, logistics, and freight cost, and a rise in the prices of crude oil and fuel have been the main contributors to the increasing cost of production. Other factors responsible for escalating production costs include enhanced labour costs, high cost of carrying inventory, and fluctuation in the foreign exchange rate. Workforce Availability: Most sectors have a sufficient labour force engaged in their operations and are not facing a labour shortage at factories. While 81 per cent of the respondents mentioned that they do not have any issues with workforce availability, the remaining 19 per cent feel that there is still a lack of skilled workforce available in their sector. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/news/indian-e-rupee-to-boost-digital-payments-sans-bank-accounts-say-industry-stakeholders/articleshow/95332849.cms">Indian e-rupee to boost digital payments sans bank accounts, say industry stakeholders</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/stock-market/news/sensex-rises-over-360-pts-to-scale-61k-level-in-early-trade-nifty-above-18220/articleshow/95348184.cms">Sensex rises over 360 pts to scale 61k-level in early trade; Nifty above 18,220</a>

Manufacturing sector's growth momentum to sustain for 6-9 months: FICCI

<ul><li>The economic distress from the recent <keyword id="48088" type="COMPANY" weightage="20" keywordseo="floods">floods</keyword> in <keyword id="28504" type="LOCATION" weightage="20" keywordseo="Kerala">Kerala</keyword> is mounting. Total losses have been pegged at ₹210 billion. </li><li>A recent report by India Ratings predicts that two-Kerala based banks, <keyword id="6356495" type="UNKNOWN" weightage="20" keywordseo="federal-bank">Federal Bank</keyword> and South India Bank, could see a 20-25% surge in their <keyword id="142154" type="PERSON" weightage="20" keywordseo="bad-loans">bad loans</keyword> as a result of the floods. </li><li>Most of the banks in the region focus their lending on the two sectors that have been adversely impacted by the floods - SMEs and <keyword id="6355165" type="UNKNOWN" weightage="20" keywordseo="agriculture">agriculture</keyword>. </li></ul>The economic distress from the recent floods in Kerala is mounting. Total losses have been pegged at ₹210 billion. The state’s GDP for the current financial year is expected to fall by 1 percentage point. Insurers are readying a payout of ₹13 billion for motor and property claims alone. The national production of rubber and coffee is also expected to take a huge hit. And now, the balance sheets and financial strength of banks in the region are predicted to deteriorate significantly. Around five banks, including Federal Bank and <keyword id="125585" type="COMPANY" weightage="20" keywordseo="South-Indian-Bank">South Indian Bank</keyword>, are based in Kerala with a quarter of their loan book concentrated on the state. Infact, a recent report by India Ratings, predicts that Federal and South India could see a <a href="https://www.indiaratings.co.in/PressRelease?pressReleaseID=33662&amp;title=Market-Wire%3A-Lenders-with-Exposure-to-Kerala-Brace-for-a-Jolt-Amid-Floods">20-25% surge</a> in their bad loans as a result of the floods. Even microfinance institutions will see their operations affected owing to defaults. Last week, the CEO of Federal Bank, Shyam Srinivasan, said that the bank’s non-performing loans could rise by <a href="https://www.business-standard.com/article/markets/federal-bank-expects-bad-loans-from-kerala-to-go-up-20-30-says-md-ceo-118082200060_1.html">as much as 30%</a> within the next few quarters owing to its high level of exposure to the rubber and tourism industries. Most of the banks in the region focus their lending on the two sectors that have been adversely impacted by the floods - small and medium-sized enterprises (SMEs) and agriculture. While agricultural output in Kerala will most definitely take a hit in the near term, even small businesses will suffer due to the loss of inventory, property damage and irregularity in cash flows. This in turn, will inevitably affect the ability of farmers, agricultural collectives and small business owners to pay back their loans. To soften the blow to creditors in the agricultural sector, the government has allowed a one-year grace period for interest and five-year grace period for principal payments on these loans. So banks will not have to immediately recognise these accounts as stressed. In the short term, banks could see a windfall in deposits as a result of a spike in remittances to the state. The floods are expected to unleash a wave of payments from Indian diaspora to their families. The absolute value of remittances will also be given a boost due to the weak rupee.

Kerala floods could lead to a surge in bad loans at India’s regional banks

(Image source- Reuters) <ul><li>The Reserve Bank of India (<keyword id="30067" type="ORGANIZATION" weightage="20" keywordseo="RBI">RBI</keyword>) has moved a step closer to establishing the country’s first <keyword id="4735636" type="PERSON" weightage="20" keywordseo="Public-Credit-Registry">public credit registry</keyword> by zeroing in on six potential firms to set up the infrastructure for a digital <keyword id="140601" type="COMPANY" weightage="20" keywordseo="database">database</keyword>. </li><li>The public credit registry will contain all the relevant details and build a comprehensive profile on debtors and wilful defaulters. It is envisioned as a one-stop shop for all loan information and borrower history. </li><li>The RBI already has a credit database, the Central Repository of Information on Large Credits (CRILC), but this only pertains to loans worth ₹50 million and above. </li></ul>The Reserve Bank of India (RBI) has moved a step closer to establishing the country’s first public credit registry by zeroing in on six potential firms to set up the infrastructure for the digital database, according to the Press Trust of India. The <a href="https://rbidocs.rbi.org.in/rdocs/content/pdfs/EOI27102018_A1.pdf">expression of interest</a>, which was released at the end of October, specified that only entities with a turnover of ₹1 billion or above in the three preceding financial years would be eligible to bid. The companies that have been shortlisted include tech incumbents Tata Consultancy Services, WIPRO and the Indian subsidiary of IBM as well as Mindtree and Capgemini. The RBI’s next step is to seek proposals from all six vendors and decide on a specific one. The public credit registry will contain all the relevant details and build a comprehensive profile on debtors and wilful defaulters. It will do this by combining information sourced from a variety of repositories run by regulators such as the Securities and Exchange Board of India (SEBI), Insolvency and Bankruptcy Board, Goods and Services Tax Network, the Ministry of Corporate Affairs as well as private and public lenders. On 7 June, the RBI <a href="https://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=895">announced plans</a> to set up India’s first credit scoring database following the submission of a report by a high-level committee tasked with a number of things, such as examining credit information gaps in the economy and assessing the best approach for setting up a registry. The RBI already has a credit database, the Central Repository of Information on Large Credits (CRILC), but this only pertains to loans worth ₹50 million and above. The public credit registry is envisioned as a one-stop shop for all loan information and borrower history. There are already four private credit information companies operating in India, but each have disparate data and objectives. Not only will the public credit registry make it easier for small businesses to access loans at cheaper rates, it will also prevent lenders from extending funds to borrowers with a questionable credit history. Hence, it could go a long way in preventing the further build-up of non-performing loans while increasing India’s ratio of private-credit to GDP. If a bank has the knowledge of spending and income flows of a borrower, it can structure a more customised repayment plan. The project is expected to be implemented in a phased manner. The first phase will involve the registration and compilation of information from of all non-banking financial lenders (NBFCs) and scheduled commercial banks. SEE ALSO: <a href="https://www.businessinsider.in/the-resignation-of-the-governor-of-indias-central-bank-sends-a-clear-indication-about-the-erosion-of-institutional-autonomy-under-the-modi-administration/articleshow/67040287.cms">The resignation of the governor of India’s central bank sends a clear indication about the erosion of institutional autonomy under the Modi administration</a> <a href="https://www.businessinsider.in/indias-central-bank-chooses-to-keep-interest-rates-on-hold-unveils-a-new-pricing-policy-for-retail-and-small-business-loans/articleshow/66968094.cms">India’s central bank chooses to keep interest rates on hold, unveils a new pricing policy for retail and small business loans</a> <a href="https://www.businessinsider.in/indias-central-bank-has-scrapped-the-licenses-of-nearly-400-nbfcs-so-far-this-year/articleshow/65698193.cms">India’s central bank has scrapped the licenses of nearly 400 NBFCs so far this year</a>

India’s central bank is moving ahead with plans to set up the country’s first public credit registry

<ul><li>The <keyword id="26362" type="ORGANIZATION" weightage="20" keywordseo="Government">government</keyword> has been insistent that the <keyword id="30067" type="ORGANIZATION" weightage="20" keywordseo="RBI">RBI</keyword> ease the restrictions of its Prompt Corrective Action framework so as to increase the flow of credit to small-and-medium-sized enterprises. </li><li>There are currently 11 out of India’s 21 public-sector banks placed under the <keyword id="6383105" type="UNKNOWN" weightage="20" keywordseo="pca">PCA</keyword> programme, which imposes limits on the extension of loans, branch expansion and issue of dividends. </li><li>At a board meeting last week, the RBI rejected a plan to dilute the framework, saying that the banks would need at least two to three years before reaching an adequate level of financial strength. </li></ul>The Reserve Bank of India (RBI) and the central government are in the midst of a very public confrontation with one another over the autonomy and corrective programmes of the former. The government has been insistent that the RBI ease the policies of its <a href="https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&amp;Id=10921">Prompt Corrective Action Framework</a>, which restricts the operations of struggling banks, so as to give <a href="https://indianexpress.com/article/india/govt-versus-rbi-pressure-on-rbi-to-ease-credit-to-small-firms-relax-lending-norms-5422590/">small-and-medium-sized enterprises </a>in stressed sectors easier access to financing. There are currently 11 out of India’s 21 public-sector banks and one private sector bank that have been placed under the PCA programme. They were put on the watchlist owing to their high level of non-performing loans. As a result, they have not been allowed to extend loans and/or add branches and issue dividends to shareholders for the time being. Furthermore, extending loans to risky sectors could risk derailing the turnaround process. In order to be taken off the list, banks need to effectively provision for their bad loans and turn a profit for two consecutive years. At a board meeting<a href="https://economictimes.indiatimes.com/markets/stocks/news/rbi-rejects-government-proposal-to-ease-pca-norms-for-banks/articleshow/66371622.cms"> last week</a>, the RBI rejected a plan to dilute the framework, saying that the banks that had been placed under the programme weren’t in the clear yet and that they would need at least two to three years before reaching an adequate level of financial strength and being able to resume their normal business operations. However, the government has been adamant that the framework be eased to prevent a liquidity crunch in India’s financial system and stimulate the economy. In response to the government’s proposals, <keyword id="6374379" type="PERSON" weightage="20" keywordseo="viral-acharya">Viral Acharya</keyword>, the deputy governor of the RBI <a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/here-is-the-full-text-of-rbis-deputy-governor-viral-v-acharyas-speech-in-mumbai/articleshow/66384553.cms">decried</a> what he felt was the government’s interference in the operations of the central bank. Speaking in Mumbai on 26 October, Acharya said that the short-term focus of the current Modi administration was at odds with the RBI’s long-term approach to economic growth and financial stability. This was likely a reference to the government’s proposal to dilute the RBI’s policies and ease the PCA framework, thereby allowing a greater flow of credit to small businesses; which while a stimulus for the economy in the short term, risks exacerbating the <keyword id="6378277" type="UNKNOWN" weightage="20" keywordseo="bad-loan">bad loan</keyword> problem in the medium-to-long term. He added that the government’s attempt at curtailing the autonomy of the central bank could come at a “terrible price”. The move came a few days after the RBI and government publicly butted heads over a proposal for the establishment of <a href="https://www.businessinsider.in/the-rbi-is-butting-heads-with-the-central-government-over-a-proposal-to-establish-an-independent-payments-regulator/articleshow/66312681.cms">an independent payments regulator</a>. The central bank released a “dissent note” wherein it explained that payments systems should be regulated by the central bank, since it was a currency regulator and monetary authority. The public conflict between the RBI and the central government is a cause for concern and does not bode well for markets in the short-term. However, it is long overdue. In order to effectively regulate the banking sector and ensure the stability of the economy, the RBI needs independent decision-making powers bereft of short-term government targets. The PCA programme is part of a larger plan to clean up the banking sector. The dilution of the programme would put banks at the risk of a continued build-up in bad loans and undo all the progress that has been made so far in helping them recover.

India’s government wants to dilute an important corrective programme for the nation’s struggling lenders — and the central bank is having none of it

In line with the RBI guidelines, <keyword id="6357149" type="COMPANY" weightage="20" keywordseo="hdfc-bank">HDFC Bank</keyword> is offering its customers EMI moratorium and credit card outstanding moratorium as a relief measure. We understand in this current situation there may be disruptions in business leading to low cash flows or the earnings of individuals and self-employed professionals may have been impacted. Our aim through implementing this relief package is to ensure that you can continue to take care of your family, your business and your own self and tide over this temporary situation,” the bank said in a statement. Here are the FAQs and complete details of the EMI moratorium package and ways to avail of it. 1. What is the EMI moratorium provided for loans under COVID 19 - regulatory package? The prevailing situation may pose a huge challenge for people at large. As a measure of solidarity, RBI permitted all Indian banks and financial Institutions to offer its customers up to 3 months moratorium on their EMI payments falling due between Mar 1st, 2020 to May 31st, 2020. 2. Who is eligible? All HDFC Bank customers who have availed of retail instalment loan or any other retail credit facilities prior to 1st March 2020 are eligible. Customers having overdues prior to 1st March 2020 may also opt for the moratorium, and their requests shall be considered by the bank based on its merits. All Agri Loans (Kisan Gold Card) and Microfinance customers under the Bank’s Sustainable Livelihood Initiative are also eligible. All Corporate as well as SME customers are also eligible. The bank’s relationship managers will get in touch with you or you can contact them to get further details. 3. What will happen if I choose the EMI Moratorium? Bank will not ask for any EMI Payment till May 31st 2020. Interest will continue to accrue on the principal outstanding for the period of the moratorium at the contracted rate of the loan.The loan tenure will get extended by the corresponding period for which the moratorium has been availed. For example, if the EMI for the month of Mar’2020 has been paid and moratorium for April and May’2020 has been availed, then the loan tenure will be extended by 2 months. 4. If I do not want the EMI moratorium, what should I do? If you do not want the EMI moratorium, no further action is required from your side. We will continue to bank your repayment instructions. We encourage customers with adequate funds to continue paying during this period to avoid the extra interest charges and tenor extension. However, if you skip your EMI payment during this period, it is understood that you require EMI moratorium till May 2020. 5. Why was my account debited when the RBI has announced a moratorium? Opting for the moratorium is entirely the customers’ choice. We understand that all our customers may not opt for the moratorium given that there is an additional levy of interest payable under the terms of the moratorium. If you wish to opt for the moratorium, banks can refund the EMI debited and register your loan account under the moratorium process. 6. What charges will I pay, if I avail of this EMI moratorium? If you avail the EMI moratorium, there will be a levy of interest at the contracted rate of the loan for the period of EMI moratorium on the loan outstanding. Such interest will be collected by extending the original tenor of the loan accordingly. 7. How do I get this EMI moratorium? You will have to provide your consent to the bank through any of the following ways:- Call on this number and follow the instructions – 022-50042333, 022-50042211 , 8. I have more than one loan from HDFC Bank (Eg. Personal Loan &amp; Car Loan). Can I get EMI moratorium for both the loans? Yes, you can opt for an EMI moratorium for each loan that you have availed from us. Please remember that additional interest for the EMI moratorium period will be applicable for each loan separately. 9. What if I have already paid my EMIs and would like to avail the moratorium till 31st May 2020? You can avail of the moratorium benefits for the unpaid EMIs. Please follow the process given above for availing the moratorium 10. Does the moratorium affect my Credit Rating? No. Opting for the EMI moratorium will not affect your Credit Rating or Score. 11. Does this moratorium apply for Credit Card outstanding and Loans on Credit Cards? Yes, the moratorium is available on Credit Card outstanding and Loans availed on Credit Cards for payments due from 01 Mar 2020 till 31 May 2020. The moratorium allows you to defer the payment till 31 May 2020. You are required to pay the minimum amount due or total outstanding and accrued interest charges on the due date after 31st May 2020. 12. Are all credit card customers eligible for this moratorium? Yes. All retail credit card customers will be deemed eligible for the moratorium if they are regular with their payments on or before 01st March'20 on their credit card outstanding and loans taken on the credit card 13. How do I avail the credit card moratorium? To avail the credit card moratorium, (a) voluntarily defer paying the outstanding during this period i.e. make NIL payment (b) turn off Auto Pay (in case the same is currently availed) through net banking / mobile banking to avail the benefit of the moratorium and reactivate the same post the end of moratorium period. 14. Will interest be levied for the moratorium period on my credit card outstanding and loan on credit cards? Yes, interest will be levied as per the contracted rate on the card. Opting for a 3-month moratorium allows you to defer the payment of your credit card dues and loan instalments taken on credit cards till 31st May 2020. We encourage customers to make full payments towards the outstanding wherever possible to avoid / minimise levy of interest charges for this period. Kindly note that the moratorium is a deferment of payment and not a waiver of interest. You are required to pay the minimum amount due or total outstanding along with accrued interest charges on the due date after 31st May 2020. The moratorium is applicable for credit facilities availed in India. See Also - <a href="https://www.businessinsider.in/india/news/how-to-avail-three-month-moratorium-for-icici-bank-emi-and-credit-cards/articleshow/74941936.cms">How to avail three-month moratorium for ICICI Bank EMI and credit cards</a>

Can I defer my credit card payments and FAQs on HDFC Bank’s moratorium process answered

The world loves jargon. In this case, it’s the latest one and much touted new kid on the block in the lending segment -- ‘Buy Now Pay Later’ (<keyword id="9522245" type="General" weightage="80" keywordseo="bnpl" source="Orion">BNPL</keyword>). It sure is not a coincidence that almost every Indian business media has written about this topic in the past few weeks, accelerated by the PR [public relations] blitzkrieg of the lending players, and some of their (potential) advertising spends being a motivator too. Is BNPL much ado about nothing ? Is this lending practice contemporary or is it just the newly coined terminology ? Isn’t the practice the same as the credit system we saw even as early as a few decades ago; the one that our old-fashioned uneducated mom-n-pop kirana store owner gave us as an option -- to buy through the month, and pay as a lump sum later in the subsequent month? His cost of such funding-the-customer was built into expenses (from his sales margins). He did not have any calculator or computer to store CRM [customer relationship management] or any customer database. The only cloud he knew and that existed then was the one above in the skies. There were not even landlines available (easily), let alone the PoS [point of sale] solutions. And more importantly, his customers rarely defaulted in repayments. So why is this sudden chatter about BNPL now? Why is so much private-capital chasing fintech BNPL players globally? Why are the banks, which loved their own credit cards, suddenly pushing for BNPL products too? Why is merchant acquisition becoming the hottest skill in the financial services sector? For a country with over 1.3 billion population, there are only 30 million unique credit card holders in <keyword id="3658" type="General" weightage="20" keywordseo="india" source="Orion">India</keyword> (about 3% of total banked population). This huge gap is the actual business opportunity to provide BNPL solutions for various consumer segments. More importantly, the younger consumers seem to prefer BNPL, instead of credit cards (their high interest charges are seen as a deterrent). It’s then no-guess why apart from the purely digitally-led fintech players in India, traditional banks too have entered this vertical. The success of BNPL in the Indian context can be attributed to the fact that it offers formal credit in an easy-to-access way. It is also known as point-of-sale loans. In general, the retailer/merchant pays the BNPL provider a low single-digit percentage of the transaction value. This is equally a product promotion push to increase revenues. The banks and highly-funded fintechs have an advantage with cost of funding, while the banks have that historic funding-cost-advantage, techfins and fintechs (which have large capital to sign off) use the might of their large capital to acquire consumers; and to change consumer behaviour over a long period of time, by using their capital, even if debt markets are as shallow and as conflicted as our market (structurally in absence of deep domestic debt market, banks being a large proportion lender as well as provider of debt to non-banks is the conflict of interest). Hopefully the regulator would indicate their view on this subject, just to align the industry players in terms of regulatory thinking, before this segment grows fast, so that any business model steering could be done by the industry in time, saving precious capital, consumption trends and regulatory worries, if any. Can BNPL be inclusive ? With more keypad literate Indians than literate Indians now, wide availability of mobile services along the length and breadth of the country and lower-priced internet access, digital finance has never looked better before. The pioneering efforts by India with its <keyword id="6367533" type="General" weightage="20" keywordseo="jam" source="Orion">JAM</keyword> trinity [JanDhan-Aadhaar-Mobile] to bring banking access with secured identity and digital to every citizen is a global first. The initiatives such as ‘Digital India’, ‘Make in India’, ‘Startup India’ have inspired many youngsters to develop innovative ideas to solve real-life-consumer-issues. The basics of financial inclusion is to make sure that the consumers have access and choice of products that suit their needs. The brick and mortar distribution of conventional finance has not reached the nook and corner of the country. Digital channels have started making access to finance, especially credit, as easy as searching for something on Google and language no bar. The COVID lockdown fast-paced the digital adoption in almost all consumer segments, including those who were not digitally-led before. Online banking, app usage, and online commerce increased at a rapid pace. Many of these consumer behaviour would have become a habit and won’t make consumers go back to non-digital pre-covid behaviour. All these also helped in the BNPL growth in the past few months, spurred by a plethora of merchant offers across product categories. The larger opportunity set could be using BNPL products for livelihood-enhancing business-productivity needs. This could mean looking at business users like the gig economy and small and medium-sized enterprises (SMEs) stakeholders. Will we see lending players offering BNPL to <keyword id="12386350" type="General" weightage="20" keywordseo="sme-/-msme-/-psl" source="Orion">SME / MSME / PSL</keyword> segments with a win-win proposition ? It is only about “ity”s If extending credit is filtered on the basis of consumption, the risk parameters and its consequent lending would differ. Consumption itself is not a bad aspect. Responsible consumption is an ideal expectation from lenders. But lenders can’t judge consumer behaviour, but can very well decide if they want to lend to such consumers’ consumption patterns. <ul><li>Vanity consumption : Financing done for products bought or services used to give instant gratification. (Eg: Botox facial uplift treatment, bridal makeup. ) The challenge for this category of purchase is that the end-use is for “wants” and not “needs”. Absolute critics would even call it “unwanted wants”! </li><li>Sanity consumption : Financing done for products or service acquisition now, by customers who anyways have that affordability-capability but using it more for cash-flow management. (Eg: Consumer electronics, holidays, etc.) While these purchases using BNPL could be well within the budget of the buyer, studies have shown that the objectivity to stick to a financial wellness goal could be shaken, if the BNPL offers are tempting enough to buy yet another product or service. It would be beneficial for the industry at large to come together to build-in the concept of financial wellness assistance for its users. This would help the users conform to their financial plan and not to have any undue credit exposure that hurts their credit scores. And such hand-holding would go a long way in building consumer trust and to reposition BNPL as a safe practice. </li><li>Reality consumption : Anything that can add value to the real economy borrowers, be it for individuals or businesses, and done with responsible finance framework and responsible-credit behaviour would be long-term positive-trust-accretion to the overall industry. (Eg: business or livelihood enhancement loans) </li></ul>Not eating itself for lunch While BNPL surely is the flavour of the season, rational product development and prudent growth would build consumer trust. Valuations alone can’t drive up consumer trust, while they might drive up short-term public hype. Industry players have to build a profitable business model and sustainable service delivery (expectations), as they launch and/or scale BNPL products. If lending is driven well with adequate technology to understand risks, coupled with relevant merchant-partnerships on-the-ground, this can be a good source of financing for the consumers. Reckless lending through BNPL just to grow the AUM [assets under management] or to showcase the business pass-through that could drive-up potential valuations, will ensure that at some point that music will stop. Then that silence will be eerie. With so many conversations and coverage, hopefully BNPL should not become the next four-letter foul-word in the financial world. The better 4-letter-words that the financial sector does well to remember: “Lend”, “tech”, “risk”, “care”. If the industry does not offer improved socio-economic impact with BNPL, it might as well be called ‘Banal Nouveau Product (for) Lending’. After all, there is no free lunch. Someone has to pay for it! SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/corporates/news/tech-mahindras-attrition-rate-is-nearly-twice-that-of-tcs/articleshow/87259727.cms">Tech Mahindra's attrition rate is nearly twice that of TCS</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/investment/news/all-bitcoin-price-estimates-for-2021/articleshow/87259108.cms">Bitcoin’s rally is far from over — these analysts are betting on the world’s largest cryptocurrency to more than double in value by the end of year</a>

OPINION: The next four-letter word taking the world of finance by storm

<ul><li>The government’s Credit Guarantee Scheme for MSMEs is “a growing contingent liability” that needs an urgent evaluation, he said. </li><li>Both MUDRA loans as well as the Kisan Credit Card need to be examined closely for potential risk </li><li>Over-optimism of 2006-2008 marked by risky bets combined with slow government decision making led to bad loan problem </li></ul>In his reply to the <keyword id="3658" type="LOCATION" weightage="20" keywordseo="India">India</keyword>n <keyword id="6354721" type="ORGANIZATION" weightage="20" keywordseo="parliament">Parliament</keyword>, Former Reserve Bank of India governor <keyword id="6358908" type="PERSON" weightage="20" keywordseo="raghuram-rajan">Raghuram Rajan</keyword> has warned India should take a <a href="https://www.thehindu.com/business/Economy/raghuram-rajan-blames-over-optimistic-bankers-growth-slowdown-for-bad-loans/article24925803.ece">closer look</a> at the risks of small loans, saying the next <keyword id="142154" type="PERSON" weightage="20" keywordseo="bad-loans">bad loans</keyword> crisis could potentially come from setting unrealistic credit targets or granting loan waivers. “Both MUDRA loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk,” Rajan said in his 17-page official response to India’s Parliamentary committee which had sought his views on the country’s rising bad loans menace. He highlighted the government’s Credit Guarantee Scheme for MSMEs is “a growing contingent liability” that needs an urgent evaluation. This scheme, also called Udaan, was launched in 2000 has <a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/raghuram-rajan-has-a-word-of-caution-on-msme-lending/articleshow/65765097.cms">posted </a>more than 2.5 million in cumulative guarantee approvals with loan amounts of over ₹1.2 trillion ($17 billion) in FY 2016-17. Under the Mudra scheme, a total of ₹6.4 trillion ($85 billion) of loans is <a href="https://www.thehindu.com/business/Economy/raghuram-rajan-blames-over-optimistic-bankers-growth-slowdown-for-bad-loans/article24925803.ece">estimated</a> to have been disbursed to date. Over-optimism of boom years Rajan <a href="https://indianexpress.com/article/explained/raghuram-rajan-bad-loans-npa-indian-banking-system-economy-5351347/">noted </a>that in the boom years of 2006-2008, a number of banks extended loans based on over-optimistic estimates that eventually soured due to a slowdown in the government’s decision making and slowing economic growth. “Clearly, bankers were overconfident and probably did too little due-diligence for some of these loans. Many did no independent analysis, and placed excessive reliance on <keyword id="13222" type="DOMAIN" weightage="20" keywordseo="SBI">SBI</keyword> Caps and IDBI to do the necessary due-diligence. Such outsourcing of analysis multiplied the possibilities for undue influence,” he reportedly said. In a moment of “irrational exuberance” similar to mistakes made in many economies in the phase of high economic growth, Indian banks took risky bets of high leverage with lower levels of promoters equity with little due diligence. Hit by economic slowdown and project cost overruns, infrastructure companies were unable to service their debt obligations. Governance issues were also to blame. “A variety of governance problems such as the suspect allocation of coal mines coupled with the fear of investigation slowed down government decision making in Delhi, both in the UPA and the subsequent NDA governments,” he said. RBI did not create NPAs Taking on recent criticism from the Indian government that Rajan <a href="https://timesofindia.indiatimes.com/business/india-business/economy-slowed-down-due-to-raghuram-rajans-policies-not-demonetisation-niti-aayog-vc/articleshow/65655402.cms">created </a>the bad loans crisis resulting in an economic slowdown, he reminded the committee that bankers, promoters, or their backers in government sometimes turn around and accuse regulators of creating the bad loan problem when the regulator only acts as a “referee” and isn’t a player in the lending process. “The truth is bankers, promoters, and circumstances create the bad loan problem. The regulator cannot substitute for the banker’s commercial decisions or micromanage them or even investigate them when they are being made,” he said.

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