Aritra Roy Chowdhury’s Post

🏦 RBI's Draft Norms look like "A Tightrope Walk for Banks and NBFCs" The RBI, in its efforts to prevent excessive lending and the accumulation of risky loans, has plan to introduce a new guidelines for project finance loans. These loans, typically worth hundreds of crores of rupees, are provided to large corporations for infrastructure projects such as roads, railways, bridges, ports, and airports. Unlike retail loans, project finance loans have unique characteristics. Given the extended timelines for project completion and revenue generation, lenders must carefully assess the project's viability and potential income streams. Repayments for these loans commence only when the project becomes operational.   According to the draft norms, when a project is in the construction phase, the lenders would have to set aside a provision of five percent of the loan amount. This will reduce to 2.5 percent once a project is operational. The required provisions will further be cut to one percent after the project has adequate cash flow to repay current obligations. The lenders are required to make a five percent provision in a phased manner: two percent in FY25, 3.5 percent in FY26 and five percent by FY27. Currently, lenders are required to have a provision of 0.4 percent on project loans that are not overdue or stressed. The bad loans of public sector banks were at 4.4 per cent in March 2014 compared with 2.09 per cent in 2008-09, it said, adding, the gross NPA increased by almost four times from March 2010 (Rs 59,972 crore) to March 2014 (Rs 2,04,249 crore). 50% of the all stressed loans(NPA) are from the infrastructure sector. It took years for the central bank to try to clean up things and bring banks back on track. And that’s probably what the RBI wants to avoid, even if things look pretty good right now. see the below NPAs ratio over the years. #RBI #NBFC #Banks 😊

The Reserve Bank of India's new lending rules for projects under construction can change how banks finance projects! Let me simplify this for you. So currently, when banks lend money to these types of projects, they only need to set aside a small portion i.e. 0.4% of the loan amount as a provision, which is a kind of safety buffer in case the project faces difficulties in repaying the loan. However, the RBI had noticed that in the past, many project loans have become stressed, which means the borrowers have struggled to repay the loans. This caused problems for the banks. To address this issue, the RBI has proposed that banks and financial institutions should set aside a much larger portion i.e. 5% of the loan amount as a general provision for all new and existing project loans that are still under construction. This means that for every ₹100 lent to a project under construction, the lender must set aside ₹5 as a provision, which is significantly higher than the current requirement of ₹0.40. The RBI believes that this higher provision will help lenders better manage the risks associated with project loans and protect them from potential losses if the projects face difficulties in the future. However, once the projects become operational and start generating revenue, the lenders can gradually reduce the provision amount to 2.5% and eventually to 1%, provided the projects meet certain performance criteria. The RBI has proposed a phased implementation of these new rules, with the 5% provision requirement coming into full effect by March 2027. The draft regulations also include guidelines for stress resolution, criteria for upgrading loan accounts, and requirements for lenders to maintain project-specific data in an easily accessible format. The public has been given time until June 15 to provide their feedback and comments on these proposed regulations. The RBI aims to ensure that banks and financial institutions are better equipped to handle the risks associated with project loans and to prevent a build-up of stress on their loan books, which can have broader implications for the financial system. Like and share it if you found it insightful :) #RBI #Banks #Newrule

Loan disbursements to the Kingdom’s construction and real estate sectors by domestic banking institutions have risen significantly during the first semester of 2024 compared to previous periods with real estate loans up around 25 percent, and construction loans up 15 percent, compared to the first half of 2023. https://smpl.is/9fjqv

PSBs Recalibrate Focus on Infrastructure Loans After Finance Minister’s Guidance Public sector banks (PSBs) are expected to slow down on infrastructure lending following a nudge from Finance Minister Nirmala Sitharaman, who emphasized focusing on core areas like deposit mobilization and medium-term lending. This shift aims to prevent potential asset-liability mismatches that can arise from high exposure to long-term infrastructure projects. Key Highlights: 🔹 Focus Shift: FM’s remarks prompt PSBs to reassess involvement in long-term infra financing, encouraging greater reliance on government-backed specialized infra finance institutions like NaBFID. 🔹 Lending Data: Infrastructure lending by banks grew to ₹13.06 lakh crore by August 2023, a rise of ₹46,359 crore year-on-year (RBI data). 🔹 Interest Rates: With interest rate cuts on the horizon, even minor reductions could impact large infra projects, potentially increasing credit demand. 🔹 Risk Management: PSBs are cautious as RBI’s proposal could require setting aside 5% of project exposure during construction, impacting profitability. 🔹 Industry View: Experts believe that infrastructure finance institutions with long-term liabilities are better suited to handle such projects without creating asset-liability mismatches. #BFSI #FEBFSI #ModernBFSI #InfrastructureFinance #PublicSectorBanks #FinanceStrategy #NaBFID #BankingSector #CreditRisk #AssetLiabilityManagement #EconomicGrowth #Finance Reserve Bank of India (RBI) | Axis Bank | State Bank of India | ICICI Bank | Kotak Mahindra Bank | Bank of Baroda | Canara Bank | Central Bank of India | Union Bank of India | UCO Bank | Indian Bank | PUNJAB & SIND BANK | Bank of India| IDFC FIRST Bank | Bank of Maharashtra | Sachin Kumar| Tanya Krishna | Sumana Sarkar| Sakshi Kuchroo | E Kumar Sharma | Roshun Povaiah | Financial Express (India)

🚀 UCO Bank Targets Rs 25,000 Crore in Corporate Loans 🚀 UCO Bank's MD ASHWANI KUMAR reveals a robust Rs 20,000-25,000 crore corporate loan pipeline, with a strong focus on sectors like steel, renewable energy, and textiles. The bank's advances surged 18% YoY, hitting Rs 1.93 trillion in June 2024. Key Highlights: 1. Stable Asset Quality: Gross NPA at 2.88%, net NPA at 0.69%. 2. Credit Cost: Reduced to 0.47%. 3. Liquidity Coverage Ratio: 138%, expected to moderate by 12-15% due to RBI guidelines. 5. Capital Adequacy: 16.82%, planning to raise Rs 7,500 crore via debt. 6. Growth: Advances up 8%, deposits up 9%. 7. New Initiatives: Expanding tap banking and launching new branches. RBI’s draft guidelines might impact UCO Bank’s liquidity coverage ratio by 5-10%, currently at 130%. The bank aims to sustain a strong CASA ratio and lower NPA ratios by FY25. #UCOBank #CorporateLoans #BankingNews #FinancialGrowth #LoanPipeline #RBI #LiquidityCoverage #BankingSector #DigitalBanking #FinancialStability #BankingUpdates #PSUBanks #BFSI #ModernBFSI #FEBFSI #InvestmentOpportunities #FinancialInclusion #BusinessGrowth https://lnkd.in/gwPgYBNk

Non-Bank Financial Institutions (NBFIs) defaulted loans rose to a record 33.15% of all disbursed loans in the recently concluded FY2023-24 driven by pervasive loan irregularities and scams. According to the Bangladesh Bank (BB), the total amount of defaulted loans in NBFIs surged to Tk247.11 billion in June 2024, up from Tk199.51 billion in the same month of 2023. The total disbursed loan of the NBFIs was Tk745.33 billion at the end of June 2024. However, in March 2024, the Non-Performing Loans (NPLs) in the NBFIs amounted to Tk239.00 billion. Notably, the defaulted loans in People’s Leasing and Financial Services, Bangladesh Industrial Finance Company, Fareast Finance, International Leasing and Finance, and First Finance surpassed 90% of their total loan disbursements. According to a circular issued by the Bangladesh Bank, the SMART (Six Month Moving Average Rate of Treasury Bill) formula for the Non-Bank Financial Institutions (NBFIs) has been abolished to establish fully market-based interest rates. This decision comes after the SMART formula was removed from the banking system in May of this year. Additionally, the central bank has also set conditions for finance companies to publish interest rates on their websites, avoid exceeding market rates, specify fixed or floating rates in loan approval documents, permitting a 1% variation based on clients down from the previously charged 3.0% and penalty charge must be approved by the board has been lowered to 0.50% in addition to the regular rate compared to the current practice of 2.0%. Nevertheless, the authorities within the NBFI sector must address issues such as the higher rate of loan defaults, inadequate internal governance, shortcomings in risk management, and the lack of long-term liquidity sources to revitalize the sector.

A province near Hanoi has an incredibly low non-performing loan ratio of only 5 million VND for every 1 billion VND loaned by banks. On February 22, at the headquarters of the Provincial Party Committee of Hoa Binh, Governor of the State Bank Nguyen Thi Hong had a meeting and working session with the Provincial Party Committee, People’s Council, and People’s Committee of Hoa Binh province. During the working session, Mr. Nguyen Phi Long, Secretary of the Provincial Party Committee of Hoa Binh province, discussed some information about the economic, political, cultural, and social situation in the province. He informed that in the banking sector, the banking industry has created favorable conditions for the development of the province’s rural economy, with the non-performing loan ratio accounting for only 0.49% of the total outstanding loans. This is a favorable condition for the province to achieve its growth targets as well as an encouragement for credit institutions in the province to continue contributing to the province’s overall results in the near future. According to the report at the working session, the total loan outstanding balance of credit institutions in Hoa Binh province as of December 31, 2023 reached 40,061 billion VND, an increase of 5,710 billion VND (16.6%) compared to the same period last year. Of which, short-term debt accounted for 45.2%; long-term debt accounted for 54.8%. In the first 2 months of 2024, the total loan outstanding balance and total capital of banks and credit institutions in the area tended to decrease slightly by 1-2%. Loans for credit programs for policy beneficiaries, ethnic minorities, and priority sectors continue to be implemented… In general, the credit growth of credit institutions in the province is higher than the general credit growth of the whole economy in 2023 (13.5%). The non-performing loan ratio of credit institutions in Hoa Binh province is also much lower than the national average. Updating the non-performing loan situation at the “Implementation of the banking tasks in 2024” press conference earlier this year, leaders of the State Bank of Vietnam (SBV) said that due to the difficult economic conditions, the non-performing loan ratio in the banking system increased to 4.95%… In order to support businesses in overcoming difficulties in production and business, improving access to loans with reasonable interest rates, commercial banks in Hoa Binh province have implemented a policy of supporting an interest rate of 2% per year for loans with a loan amount of 475.4 billion VND/20 customers, with a total support amount above 2 billion VND; restructuring debt for 80 customers (including 51 business customers and 29 individual customers); implementing the 120,000 billion VND loan program according to Resolution 33/NQ-CP… In addition, the Hoa Binh Social Policy Bank (SPB) has supplemented capital, disbursed timely capital for policy credit programs; creating favorable conditi...

RECOVERY OF BANK’S LOAN AND NPA MANAGEMENT Recovery of bank’s loan has now become a burning problem to Indian banks. The problem is more acute in public sector banks than private banks. During the period from 2004 to 2014, surge in bank's credit was noticed in almost all sectors for economic development. But recovery process of loans had been gradually declining resulting in mounting NPA burden on the banks. Gradually the health of the banks is slowly declining and turn into loss making banks. The small banks were mainly affected due to fall in repayment rate mainly in personal banking segment and corporate loans like steel, mining, cement, oil refinery, infrastructure sectors and micro loans in agricultural sector. The lack of proper credit appraisal and poor loan management and monitoring system are responsible for the rise in NPAs. Natural calamities, high inflation, poor income generation and recently occurred Covid pandemic further aggravated the problem. Mounting NPA has been weakening the financial stability and profitability of banks. It has been creating barriers in recycling of funds, capital adequacy, imposing high interest on loans to compensate loss of assets and squeezing flow of fresh credits to the borrowers. Banks with high NPAs face problems in maintaining statutory BASEL II norms of minimum 9% but Government has fixed it to 12%. In India, Government and RBI have already taken effective measures to reduce the NPA burden of the commercial banks by reforming the monetary policy as well as restructuring the banking management. With the recent initiatives launched in various levels, net NPA levels of majority of commercial banks have been reduced and, in some cases, it has come down to 3% to 4%. Still this area is a cause of concern to the banking management. In order to improve the health of the banking sector, the following steps need to be taken phase by phase: 1.Recovery progress of the banks need to be monitored on daily basis and recovery cells to be opened at the regional levels. 2. Banks should consider restructuring of loans of viable units and rehabilitation package should be offered to the eligible units. 3.Loan monitoring system need to be highly effective with the help of modern technology and efficient officials. 4. Banks should float compromise proposals to speed up the recovery process. 5. Write-off and loan waiver are effective weapons to clean up the balance sheet of banks.   6. Calling up of advances and filing law suits in the civil counts or in Debt Recovery Tribunals need to be examined to protect the bank’s assets. 7. The problem of NPAs can only be tackled with proper credit assessment and risk management mechanism. 8. The merger process of some loss making banks has already been started and this initiative will sure make the health of the small banks strong and more competitive.      

Why are Mudra loan disbursements falling? The decline is attributed to a high base effect, as the first half of the previous fiscal year saw a record 40% growth in disbursals. #ETBFSI #BFSI #MudraLoans #LoanDisbursement #FinancialGrowth #EconomicTrends #IndianEconomy #BusinessFinance #LoanTrends #FiscalPolicy https://lnkd.in/g9ZbHPpE

Draft for comments on Provision norms for infrastructure loans The RBI is suggesting tougher rules for lending money to ongoing projects. They want banks to keep aside a certain percentage of the total loan amount as a safety net, in case borrowers can't pay back. Right now, this safety net is only 0.4%, but the RBI wants to raise it to 5%. They're doing this because in the past, loans for projects have caused a lot of problems for banks when borrowers couldn't pay them back. These rules will affect all types of lenders, including banks and non-banking financial companies (NBFCs). The RBI's plan is to gradually introduce this new rule over time. They'll start by making banks set aside 2% of the loan amount from March 2025, then increase it to 3.5% by March 2026, and finally reach the full 5% by March 2027. This increase will happen gradually, spread out over each financial year. You can find more details about these changes on the RBI's website. https://lnkd.in/gk6NDNZr