Centre in Talks with RBI for Loan Restructuring
As the economy goes through a severe slowdown, which is likely to impact businesses further, finance minister (FM) Nirmala Sitharaman on Friday said that the government's focus is now on loan restructuring and talks are underway with the Reserve Bank of India (RBI) on this.
 
"The focus is on restructuring. The finance ministry is actively engaged with the RBI on this. In principle, the idea that restructuring may be required is well taken," Sitharaman said at a FICCI webinar.
 
Of late, several industry players and associations have sought a one-time restructuring of loans in the wake of the economic slowdown caused by the COVID-19 pandemic, and the probability of companies not being in a position to repay their dues.
 
The FM said that every step taken by the government to deal with the current situation has been undertaken after exhaustive consultation with the stakeholders and industry experts.
 
She also noted the requirement of extension of the moratorium or a restructuring for the hospitality sector and said that the government is working with the RBI on that front.
 
"I fully understand the requirements of the hospitality sector on extension of the moratorium or restructuring. We are working with RBI on this," Ms Sitharaman said.
 
On the ECLGS scheme for MSMEs, she said that banks cannot refuse credit to MSMEs covered under emergency credit facility and in case of any refusal, such instances must be reported which she would look into.
 
On the trade front, she said that reciprocal arrangements are being considered with other countries for which India has opened up its markets. "Reciprocity is a very critical point in our trade negotiations," she said.
 
India is in the midst of talks for a trade deal with the US and also regarding FTAs (free trade agreements) with other countries.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    NBFC AUMs to De-Grow for the 1st Time in Nearly 2 Decades: CRISIL
    Assets under management (AUM) of non-banking financial companies (NBFCs) are expected to de-grow 1-3% in the current fiscal as fresh disbursements drop sharply. Disbursements would halve but moratorium, capitalisation of interest to limit AUM de-growth, while incremental funding remains the key monitorable for NBFCs, says ratings agency CRISIL.
     
    In a note, it says, "Excluding the top five NBFCs, the degrowth is expected to be even sharper at 7-9%. Lower repayments during the loan moratorium period (March to 31 August 2020), and capitalisation of interest accumulated will, however, help limit the de-growth."
     
     
    As for disbursements, CRISIL says, there are four factors at play. One, the challenging macroeconomic environment, which would curb underlying asset sales, especially in the two biggest segments of housing and vehicle finance; two, sharper focus on liquidity as incremental funding is not easy to come by for many players in a confidence-sensitive scenario; three, stiff competition from banks as funding costs for many NBFCs remain relatively high; and, four, tightening of underwriting standards by NBFCs amid weak economic activity and expectations of increasing delinquencies.  
     
    Krishnan Sitaraman, senior director of CRISIL Ratings says, "While disbursements across segments are expected to fall 50-60%, AUM trajectory will differ by segment. CRISIL's analysis of the largest segments of the NBFC AUM pie shows that most segments could witness contraction in the current fiscal. The silver lining, however, would be gold loans, which constitute about 5% of the AUM.  Growth here is seen to be relatively higher as more individuals and micro enterprises go for it to meet immediate funding needs." 
     
     
    While each segment will show its own characteristics, CRISIL sees the moratorium to support all. For example, it says, the rundown in home loans is expected to be lower because of longer tenure and 20-30% of the book being under moratorium. That, along with some incremental disbursements in the latter half of this fiscal, and capitalisation of interest accumulated would support AUM levels, it added. 
     
    For wholesale finance, about 40% of the book is seen under moratorium in a business-as-usual scenario, with the addition of the Covid-19-related moratorium, 80-90% of the total book is estimated to be under moratorium.
     
    In the current environment, CRISIL says, competition from banks, especially in the traditional asset classes such as home loans and vehicle finance, is expected to be substantially higher given that banks have surplus liquidity and their focus will be on these asset classes in the retail space. 
     
    "But in real estate and structured finance, NBFCs have been catering to borrowers at the project stage, where banks do not have a major presence. As for micro, small and medium enterprises (MSMEs), especially loan against property, and the unsecured segments, even banks are expected to be cautious. As a result, NBFCs could still find a footing in the second half of the current fiscal," the ratings agency added.
     
    Despite intensifying competition from banks, CRISIL says, NBFCs are expected to tighten their underwriting standards because of worries over asset quality deterioration. Such circumspection may limit disbursements to real estate, structured finance, MSME finance, and unsecured loans.
     
    "But access to incremental funding will be the bigger challenge, as reflected in corporate bond and commercial paper issuances of NBFCs over the past 20 months or so. Redemption issues and risk aversion at mutual funds, a key investor in this segment, are compounding the woes. Securitisation, too, has seen very few transactions after the onset of the Covid-19 pandemic because of asset-quality fears and lack of granular data on collection efficiency," it added.
     
    According to Ajit Velonie, director of CRISIL Ratings despite the decline in interest rates over the past six months, the funding cost for NBFCs has remained relatively high because of risk aversion among investors and lenders. On the other hand, he says, "public sector banks (PSBs) and leading private banks have surplus liquidity, marked by improving low-cost funding such as current and savings account deposits. With banks sharpening focus on retail loan products, NBFCs are expected to lose share, especially in the housing and vehicle finance segments."
     
    The ratings agency says, some green shoots were visible in June when NBFC fund-raising from banks improved because of the long-term repo operations (LTRO) window opened by the Reserve Bank of India (RBI). However, LTRO is a one-time facility so the pace of fund raising via traditional routes bears watching.
     
    "NBFCs with strong parentage or those that are part of large corporate groups (accounting for about 70% of sectoral AUM) should continue to fare relatively better on the fund-raising and disbursement fronts. Further, NBFCs have navigated extended stress periods in the past and that experience, along with their core strengths of customer relationships, adaptability, local knowledge, innovation and responsiveness will be supportive as they attempt to tide over the current challenges," the ratings agency concludes.
     
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    Why Did Aditya Puri Sell Shares of HDFC Bank Worth Over Rs840 crore?

    Updated on 4 August 2020 at 7.10pm to include details of Mr Puri stake sale from a conference all with analysts...

    Last week, Aditya Puri, managing director (MD) and chief executive of HDFC Bank sold nearly 95% of his stake valued at Rs842.7 crore. Nothing new in this. In fact, several times, top executives of banks have sold stocks granted to them through the employee stock option plans (ESOP). However, according to market buzz, Mr Puri may have sold the stake to fund ESOPs in HDFC Bank. According to market sources, his ESOPs will amount to several times the size of his stake sale.

    Mr Puri held 0.14% stake or about 7.8 million shares in HDFC Bank. Out of this, he sold 7.42 million shares through open market between 21st and 23 July 2020. Through the stake sale he has apparently raised more than Rs840 crore as per market reports.

    Speaking with CNBCTV18, Macquarie Capital Securities’ banking analyst Suresh Ganapathy says, “One can definitely question the timing of (Aditya Puri’s) exit. A lot of people have argued that why can’t he sell after the moratorium period expires but we believe that a part of the selling could be attributed to the requirement for funds for the ESOPs. We have double-checked on this matter. Last time also the part of the selling was done for funding the ESOPs. Having said that, the guy who has built in Rs6 trillion of market capitalisation (for the bank) definitely deserves a couple of $100 million. Even Jeff Bezos of Amazon keeps selling shares time and again. So, I do not think there is too much negative for HDFC Bank from this particular aspect.”
     

    Mr Puri has been MD of HDFC Bank since September 1994, which makes him the longest-serving MD at a private bank in India.

    In FY2020, Mr Puri was granted 6,81,600 shares under ESOP. During the same period, he also sold shares worth Rs200 crore in the bank's subsidiary HDB Financial Services.

     
     

    As per the annual report of HDFC Bank for FY2020, Mr Puri exercised stock options worth Rs161.56 crore. Besides this, he received an annual salary of Rs18.92 crore during the fiscal year.

    Regulatory filing by HDFC Bank shows that between October 2015 and July 2020, Mr Puri had exercised about 3.42 million stock options at an acquisition cost of Rs158. Including his last week stock sale, Mr Puri during this period has sold around 9.65 million shares for about Rs1,165 crore.

     
     

    Mr Puri is set to retire from HDFC Bank in October this year and the lender is searching for his successor.

    As per details of ESOP scheme shared by HDFC Bank with the US SEC, "In case the employee, including a director to whom the options are granted retires, or vacates his/ her office upon reaching the age of supper annuation as per the bank's rules or upon expiry of any extension thereof or on account of any directives, statutory provisions, clarifications or guidelines of the RBI, then in such case all granted options shall forthwith vest in such employee. However, the employee shall exercise the options within a period of six months from the date of such retirement / vacating of the office, failing which the said options shall lapse."

    "On exercise of the options the employee shall forthwith pay to the bank the price which includes the grant price plus the fringe benefit tax (FBT) amount or any other amount which the bank has an option to recover from its past and present employees. The bank shall be entitled to recover the price by debiting the salary, saving, other account of the employees with the bank. The employee shall issue necessary authorisations to the bank in this regard," HDFC Bank says in its regulatory filing.

    Information shared by HDFC Bank shows that during FY2020, many employees exercised their ESOPs at a price ranging from Rs340 to Rs1,229 per share. Maximum number of shares at 8.17 crore were exercised at an average price of Rs1,139.82.

     
    As on 31 March 2020, HDFC Bank had about 14.29 crore options in force while during the fiscal year, it collected Rs2,818.45 crore from the options exercised.
     
    UPDATE
    Speaking with analysts during a conference call on 3 August 2020, Mr Puri mentioned that he was being advised by a couple of top executives from the bank, including the new MD and CEO designate Sashidhar Jagdishan.

    Responding to a query on his stake sale, Mr Puri told the analyst that Sashidhar Jagdishan will give detailed answer.

    The new MD and CEO designate says, "Couple of us have been advising Mr Puri on this. We started in December. When retirement happens there is the scheme under which a lot of options, would vest at the time of retirement. So, you need to provide a fair amount of liquidity for this. (In Mr Puri's case) this was going to be a substantial amount of liquidity, which needed to be there to exercise these options. We thought of selling some portion around March-April to provide liquidity needed around October. But due to the COVID situation, we saw the market step back by almost 30-40%. So we waited for some time for market correction. But then instead of waiting any further, we sold some stake in February...Almost about 70% of what he is going to get back in to acquiring these particular options has got exercised in October when he retires."

    "(Mr Puri) is a manager of managers but, I would say he have not looked at his own financial wealth well... We saw a higher proportion of equity risks in that and for a person who is reaching 70 years of age, we need to advise him on lessening the proportion of equity... that is why the balance 30% he is going to de-risk and put it in more, lesser riskier financial assets," Sashidhar Jagdishan says.

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    COMMENTS

    soundararajanmk

    3 days ago

    Allotment of Rs. 160 crores worth of HDFC Bank shares to its MD under ESOP during 2020 is very much on the higher side, while the profits are the result of public money, though through its efficient management. Selling of huge number of shares by the MD of Bank, while relinquishing charge creates a fear in the minds of share holders, customers and FD holders as to the status of the Bank, after he leaves the Bank. He should have issued a statement in this regard clearing doubts that would arise in the minds of public and investors at large, in this regard. Mr. Adithya Puri has failed in his bounden duty to the Bank which he nurtured for so long a period.

    ssk.pab

    7 days ago

    Aditya Puri is perhaps being regarded as Poster Boy of Banking; but who knows what rules he has tweaked and how many stone walls he has created for his depositors in the process of running his Bank. Much of it later-in a different Forum and on a different Platform......

    suketu

    1 week ago

    HDFC Bank wl continue to grow same way without Mr Puri.However the next HDFC Bank is Kotak from stock point of view.

    Prasad DN

    1 week ago

    The question is not, why Mr.Puri sold his ESOP,


    now, who is next, can he be the same as Mr.Puri ?????

    Or better??

    s5rwav

    1 week ago

    HDFC Bank Limited Must Publish Advertisement in Newspapers Inviting Applications for the Successor of Mr Aditya Puri to Avoid Secret Hand Picking of his Successor. I am Babubhai Vaghela from Ahmedabad an Investor of HDFC Bank Limited. Thanks.....

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