Small Finance Bank Deposits Jump 130% in FY2019, But Cost Remains High: Report
Small finance banks (SFBs) will continue to see increased traction in deposits on the back of higher interest rates (1%-2% higher than most banks), focussed marketing strategies, and maturing branches of a fast growing branch network at 40% growth in branches in FY2019, says India Ratings and Research (Ind-Ra) in a note. 
 
According to the research report, during FY2019, total deposits in SFBs jumped 130% leading to an increase in the share of deposits to 59.6% of non-equity liabilities in FY2019 compared with 37.6% in FY2018. "SFBs incrementally mobilised deposits of Rs288.5 billion in FY2019. But SFBs would need to mobilise around Rs600 billion in deposits over FY2020-FY2021 to support an annual growth asset of 30% and to maintain borrowings at 25% of the liabilities," it added.
 
The ratings agency from Fitch group opined that SFBs would need to ramp up deposits quickly to replace grandfathered loans and gradually build granular deposits. This scenario has been playing out since then, it says, adding, "The early depositors were credit societies, co-operative and grameen banks, non-banking finance companies (NBFCs) flush with equity, other small finance banks and mid-sized corporates. We expect the share of granular deposits (current and savings accounts deposits (CASA) and retail term deposits), which accounted for 48% of the total deposits in FY2019 as against 42.5% in FY2018 would continue to increase over the medium term, aided by an increase in branches and banking points to about 3,500 at end-FY2019 and increase in deposit rates."
 
For small finance banks low cost CASA deposits continue to be a challenge, Ind-Ra says.  
 
Although CASA (low-cost deposits) increased 76% to Rs97.6 billion in FY2019, the ratio has seen a decline to 19.2%, as traction in term deposits increased and savings deposits were converted to term deposits owing to the high rates offered by SFBs. 
 
"The building of a CASA franchise depends on factors such as developing long-term customer relationships, ensuring ease of transactions, fostering trust in the brand, having a large branch network etc. Large commercial banks benefit from vintage, resulting in deposits from large corporates, government departments, including all state and local bodies, trusts schools and hospitals, businessmen and customers whose incomes have grown with the banks over many decades. As a result, gathering CASA, especially CA, is a challenge for SFBs," the ratings agency says.
 
For small finance banks, there is limited support for borrowing from policy institutions, while raising money from capital markets post another set of challenges for SFBs.   
 
Over the past two year, total borrowings of SFBs declined steadily to Rs315 billion in FY2019 from Rs340 billion in FY2018, with a substantial, albeit expected, decline in bank borrowings and debenture funding (grandfathered loans). 
 
This decline, Ind-Ra says was accompanied by a rise in refinance by policy institutions. “The share of policy institutions increased to 43% in total borrowings in FY2019 from 15% in FY2017. However, capital market borrowings present a different picture. Given the overall liquidity stress in short-term capital markets, elevated risk perception and risk aversion, especially for credits rated in the 'A' category and below', SFBs might face challenges in tapping the capital markets. On a cumulative basis, SFBs raised about Rs19 billion of CDs from December 2018 to mid-November 2019, with a weighted average tenor of 37 days,” it added.
 
Assets under management (AUM) of SFBs reached Rs700 billion in FY2019, reporting a growth rate of 48% and a compounded annual growth rate (CAGR) of 32% over FY17-FY19. 
 
For SFBs with microfinance vintage (AUM of about Rs447 billion in FY2019), the micro finance loan book grew by 28%, while the non-microfinance book grew 75%. Consequently, the share of the non-microfinance book in the AUM increased to 29% in FY2019 as against 23% in FY2018. 
 
However, Ind-Ra says, microfinance loans still account for a significant proportion of the consolidated loan book of SFBs, exposing them to socioeconomic and political risks, along with natural disaster-related risks on the asset side. It says, “Most SFBs have grown their secured loan portfolio substantially, which partially offsets the overall risk exposure through asset diversification, and therefore, they might suffer lower losses given default. We expect the share of the microfinance loan book to decline gradually in the near-to-medium term to about 60%, as SFBs with microfinance origin would maintain their focus on growing their non-MFI portfolio.”
 
Given SFBs' ability to attract deposits (relative to their cumulative size) and their core competency of assessing the credit profiles of the 'underbanked', Ind-Ra says it believes the prevailing environment provides a significant opportunity to SFBs.  
 
“Considering the general environment of risk aversion, many banks are hesitant to lend to the SMEs, while NBFCs have been facing funding challenges. With the right credit assessment and collection models, SFBs might be able to on-board good assets,” it added. 
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    COMMENTS

    Rajolu Ramam

    3 weeks ago

    In the budget, the insurance cover is increased to 5 lakhs from 1 lakh for the deposits in the banking sector provided the bank pay its premium to DICGC regularly. Now one can
    take a F D of 5 lakhs from these small finance banks.

    Ramesh Poapt

    2 months ago

    few babies will be male after few years, if one catches young ones..

    Rajolu Ramam

    2 months ago

    The deposits in small finance banks will increase still futlrther. Even the 2 or3% increase is attracting many people. The so called public sector banks offer interest is the lowest like 6 to 6.5 % in the history of the country. Even one small finance bank offers 7% on savings bank deposits! After the recent defaults by some NBFCs and PMC BANK etc. People are some what hesitant to invest in SFBs as they are afraid whether they get back their money. Once they are confident, no body will go to public sector banks.


    Why Is Macquarie Capital Even Suggesting Nationalisation of Yes Bank?
    Foreign equity analysts such as Macquarie Capital, who had got their call on Yes Bank spectacularly wrong earlier this year is now raising the possibility of a nationalisation of the bank. This controversial suggestion would mean that the ordinary Indian would not only pay for the massive recapitalisation of public sector banks, but also pay for the blunders of private promoters,  who were not properly selected or adequately supervised by the Reserve Bank of India (RBI).  
     
    Yes Bank’s struggles to raise funds have been making news over the past many weeks with the stock being roiled with every bit of news about possible investors who may help bail it out from the enormous mess left by its founder Rana Kapoor. 
     
    After the board meeting yesterday, when the Yes Bank deferred a decision on a controversial binding bid from the Canadian investor Erwin Singh Briach to the next board meeting. 
     
    Analysts expect more bad loans, higher haircuts due to slower resolutions and uncertainty around equity raising, given the sharp correction in stock price.
     
    However, all of sudden, Macquarie Capital Securities (India) Pvt Ltd has suggested nationalisation of Yes Bank citing 'grave danger the lender may pose to the financial system'.
     
    In a report, Suresh Ganapathy from Macquarie says, "If a collapse of non-banking finance companies (NBFCs) like IL&FS and DHFL could freeze up liquidity, a collapse of a bank could be a far more serious issue as banking is heavily based on trust and any freezing of the clearing system due to a collapse of a bank could choke the system and further jeopardize economic growth which is already in the doldrums."
     
    Moneylife’s popular columnist R Balakrishnan calls this as a scene created by the brokerage, may be to manipulate stock price of Yes Bank. In a tweet, he says, “Why nationalisation? Just let it sink. Will be a good wake up call for people. How long will RBI keep junk in the economy? Sad if it is merged. Yes, let someone buy it if brave enough.”
     
     
    Macquarie cited earlier cases of Global Trust Bank (GTB) and United Western Bank (UWB), which were taken over by Oriental Bank of Commerce (OBC) and IDBI, respectively. "In both cases, the banks were put under moratorium and the Reserve Bank of India (RBI) and the government came forward and did a forced merger," it added.
     
    Apart from the stress in Yes Bank's books, Macquarie also warns about possible run on the bank deposits. It says, "We have already seen the deposit base declining for the past couple of quarters. We are mindful that a former deputy governor of RBI is on the (Yes Bank) board and closely watching the developments and how the situation is playing out."
     
    Yes Bank has been struggling to raise money from markets and investors. Yes Bank’s recent board meeting was inconclusive as they still have not firmed up on who could be the potential investors. It has been close to nine months since the new chief executive (CEO) Ravneet Gill took over and they are yet to raise money. 
     
    "When we had done a roadshow in Hong Kong and Singapore in September this year, we had clearly said that none of the 40 investors whom we met wanted to give Yes Bank capital. The struggle to raise money from quality investors shows us that investor interest in the stock continues to be very low," Macquarie says. 
     
    Yes Bank's net worth is around Rs250 billion below investment grade book (rated BB and below) is around Rs300 billion. Even after factoring in operating profits for the next six quarters, Macquarie says total capital needed by Yes Bank would be at least about $2.5 billion to $3 billion over the next 12 to 18 months. 
    Chartered accountant Ajit Mehta, in a tweet, calls Yes Bank as a directionless lender without any promoter. 
     
     
    Earlier in August 2019, global ratings agency Moody’s Investors Service downgraded Yes Bank’s creditworthiness deeper into ‘junk’ status, citing concerns over lower-than-expected capital raising in recent times and the lender’s ability to raise more funds in the future. 
     
    Moody’s also said that given the ‘negative’ outlook, an upgrade is unlikely in the next 12-18 months. Moody’s had mentioned in its note “Although the bank’s funding and liquidity profile has remained broadly stable, it compares weakly to other rated private sector peers in India. The negative outlook primarily reflects the risk of further deterioration in the bank’s solvency, funding or liquidity, as the bank continues to work through the asset quality issues and rebuilds its loss-absorbing buffers.”
     
    At 12.46pm Wednesday, Yes Bank was trading 13.55% down at Rs43.70 on the BSE, while the 30-share Sensex was flat at 40,275.
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    COMMENTS

    Subramanian S

    2 months ago

    Good article

    m.prabhu.shankar

    2 months ago

    -:)))) Everyone is clear. Its middle class tax payers money that is easy to get. Now its for bailing out private banks. But for farmers a strict no no...--:::)))).

    Harish

    2 months ago

    Macquarie's Indian offices should be nationalised.

    Nishesh Jambudi

    2 months ago

    Can we buy if Yes bank goes below Rs 10 ?

    Ramesh Poapt

    2 months ago

    where is rana kapur, gogias by the way?!

    DHFL Insolvency: FD Holders Queuing Up to Submit Claims, Here is What You Need to Do
    Long queues of harried depositors were see at the Bandra office of Dewan Housing Finance Ltd (DHFL) to submit their claims forms following the glimmer of hope held out to them since the appointment of an administrator by the Reserve Bank of India (RBI). 
     
    As on 6 July 2019, DHFL had public deposits of Rs6,188 crore, which fell from Rs10,166.72 crore at the end of March 2018. There are more than one lakh fixed deposit (FD) holders in DHFL. 
     
    The FD holders of DHFL, many of whom are retirees who had invested their lives’ savings had invested in the company for a steady income and relying on the AAA credit ratings and 25-year history of the company.
     
    Pune bench of Debt Recovery Tribunal (DRT) has restrained any payments to creditors after a petition by Catalyst Trusteeship Ltd, on behalf of DHFL bond-holders, for recovering their dues worth Rs27,000 crore, in what is considered one of the largest failures of any non-banking finance company (NBFC).
     
    Experts have pointed out that since DHFL’s fixed depositors are unsecured creditors, they are behind secured non-convertible debenture holders like some mutual funds.
     
    Last week, R Subramaniakumar, the RBI-appointed administrator had asked all FD holders of DHFL to file their claims before 17 December 2019. This move suggests that FD holders, even though they are unsecured creditors, could hope to get at least a part of the money from the failed housing finance company, whose board was sacked by the banking regulator after over a year of turmoil and controversy.
     
    The National Company Law Tribunal's Mumbai bench had earlier admitted RBI's application for initiating insolvency proceedings against the failed NBFC, and permitted it to go ahead in the matter. 
     
    Mr Subramaniakumar said the insolvency resolution process is expected to be completed within 180 days from the start of the process or by 31 May 2020. DHFL is the first mortgage lender to be referred to the tribunal by the regulator. 
     
    Source: Draft resolution plan formulated by the company and shared on the BSE portal
     
    The RBI said there would be a debt moratorium on the company as long as the insolvency process is pending while filing the application for initiating corporate insolvency resolution process against DHFL.
     
    The cash strapped NBFC has already been hauled to the Bombay High Court by the State Bank of India, Union Bank of India and HDFC Bank for recovery of their dues. 
     
    DHFL had stopped paying all creditors after the Bombay HC order on 10th October put a stay on payments. The company had earlier stopped accepting public deposits and renewals of existing deposits and pre-mature withdrawals of existing deposits on 21st May.
     
    FD holders who have been running from pillar to post for their refunds need to understand the claims process. Many have been crowding the Bandra office merely for information, which is easily available from their website. 
     
    The entire claim process and the forms required to be submitted have been uploaded on the DHFL website. 
     
    The FD holders of DHFL have to submit their claims with proof on or before December 17, 2019, to the administrator at the address as below:
     
    Address: 6th Floor, HDIL Towers, Anant Kanekar Marg, Station Road, Bandra
    (East), Mumbai 400051 ; E-mail id: [email protected]
     
    As a fixed deposit holder, one needs to DHFL FD claim form for which Form CA can be downloaded from:
     
    FAQs for financial creditors in class filing Form CA can be read here:  https://www.dhfl.com/docs/default-source/downloadform/faqs-for-financial-creditors-in-class-filing-form-ca.pdf
     
    There are three names of Insolvency professionals (IRs) identified to act as authorised representative of creditors in a class and as a depositor, one needs to fill the name of any one of them. The three insolvency resolution professionals listed in the notice are Charu Sandeep Desai, Deepak Kumar and Pravin Navandar.
     
    The authorised representative will represent depositors in the meetings of the committee of creditors (CoC) and ensure that their views are communicated. The representative will also facilitate voting by depositors at these meetings
     
    The form CA has to be signed by the depositor at three places and if the depositor holds multiple deposits, only one claim form needs to be submitted with details of all deposits held by the individual.
     
    The following documents need to be attached with the Claim Form:
     
    • Copy of the FD certificate
    • Copy of Identification proof (PAN/ Aadhaar)
    • Copy of cancelled Cheque
    • Copy of death certificate in case the first depositor has passed away along with an affidavit stating the relation of the person submitting the Form with the first deposit holder.
     
    The claim Form CA needs to be scanned, along with the other supporting documents and emailed to [email protected] The last date for submitting the completed claim form along with all required documents is 17 December 2019.
     
    Non-convertible debenture (NCD) holders will be represented in this claims process by Catalyst Trusteeship Ltd — the debenture trustee for the bonds. The debenture trustee has been quite lethargic in its duties and it was only in June 2019, after DHFL first defaulted on a few obligations, that it disclosed the company’s failure to maintain adequate security for its NCDs of 2016-2018 vintage. DHFL had also skipped maintaining the 15 percent Debenture Redemption Reserve required by the Companies Act from last year. It was only after defaults surfaced that the trustee seems to have initiated legal action against DHFL for these slip-ups.
     
    The trustee was not very forthcoming in its communications with bondholders. Writing to DHFL’s retail NCD holders for the first time in August 2019, it sought their written consent for an inter-creditor agreement and a draft resolution plan, offering very sketchy details of what the plan demanded.
     
    Meanwhile, the Insurance Regulatory and Development Authority of India (IRDAI) chairman Subhash Chandra Khuntia said that exposure of insurance companies to the NCDs of debt-ridden DHFL will be written off using due process. While the exact figure is not publicly available, it is estimated that insurers have around Rs50 to Rs70 crore worth DHFL NCDs. But the identity of these insurers is not known. 
     
    From now on, Mr Khuntia has advised insurers to not merely rely on credit rating of such investment instruments and to do an independent review of the company and its financials.
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    COMMENTS

    Jaya Krish

    2 months ago

    I have also invested in NCDs. Do we need to do something in terms of submission of claim to Catalyst trusteeship? Can we expect our investment to be refunded by May 2020?

    Ketan Jinwala

    2 months ago

    Alert me

    Vijay

    2 months ago

    Please give alert to me...

    Ashok Bedia

    2 months ago

    Dear Sir, Mam , I had purchased some DHFL NCDs through icici direct. Could anyone confirm if Catalyst Trustee will file the claim form for me or I need to file myself/ approach someone else? A courteous revert is appreciated .

    REPLY

    Puneet Chugh

    In Reply to Ashok Bedia 2 months ago

    Catalyst Trustee will file for you

    Jaya Krish

    In Reply to Puneet Chugh 2 months ago

    Hi.. Please reply as to if we have to submit any claim to Catalyst. TIA.

    Anthony Gomes

    In Reply to Puneet Chugh 2 months ago

    Do I need to submit any consent form to Catalyst? I am stuck with NCD's as well. How do I stake my claim.

    Anchit Jain

    2 months ago

    Sir, I had purchased some DHFL NCDs through 5paisa.com. Could anyone confirm if Catalyst Trustee will file the claim form for me or I need to file myself/ approach someone else? Thanks very much.

    ozair musa

    2 months ago

    plz update

    Kochar Bipin

    2 months ago

    This is a very positive step - the MCA inspection report which was presented in Parliament already confirms that DHFL loan assets exceed it's declared debt by over 10,000 cr -

    Hence, the DHFL administrator should start honouring the debts in order of priority once list of unsecured creditors is verified.

    Radha

    3 months ago

    Who will come to the rescue of poor equity shareholders who have become heroes to zero by overnight??

    ishan Chakravarthy

    3 months ago

    Very frustrating

    REPLY

    RAVI KUMAR

    In Reply to ishan Chakravarthy 3 months ago

    FD holders should get their full money as it is hard earned

    krishna

    In Reply to RAVI KUMAR 2 months ago

    It is hard earned money for everybody,but I concur that the retail holders who hold the debt whether in secured NCD/ unsecured FD should be given priority over the others...Like weak banks are taken over by stronger banks and their liabilities transferred the same should have happened here but due to fraudulent activity at DHFL the same did not happen,this is a test case and hopefully both the regulator and the investors will learn their lessons because this is not the first and dare I say it may not be the last case of default.

    Dayaldas Parwani

    3 months ago

    [email protected]
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