Monthly collections from securitised retail loans up to 50% in June: Crisil

 The monthly collection ratio for securitised retail loans like microfinance, commercial vehicles and mortgages have risen to above 50 per cent after falling to near-zero in many pools in April 2020, according to Crisil.

The median monthly collection ratio represents all collections excluding prepayments as a percentage of estimated pre-moratorium billing for the month. Collections for pools of microfinance and commercial vehicle loan receivables, which had seen the sharpest drop after the lockdown, clawed back above 50 per cent in June.

In line with expectations, mortgage receivables, with property as collateral, were the most resilient with median collection ratio over 70 per cent, despite a dip in July, Crisil said in a statement.

Rohit Inamdar, Senior Director, Crisil Ratings, “While there is a clear improvement in collection ratios, they still remain way off pre-Covid-19 levels of over 95 per cent.

In the near term, nascent recovery could come under threat because of the flood situation in some parts of the country and imposition of localised lockdowns to contain the infection rate, Inamdar said.

ALSO READ: SIP investments up 143%, monthly registration doubled in FY20: Paytm Money Krishnan Sitaraman, Senior Director, Crisil Ratings, with the gradual restart of economic activity from June, cash flows of borrowers have been improving, enabling more of them to move out of the moratorium.

The uptick in collections has also been supported by the relative buoyancy of the rural economy. Further, proactive steps by many originators through leveraging of newer technological platforms aided overall collections, he added.

Non-banking financial companies (NBFCs), many of which were dependent on cash collected by field staff, sharpened focus on digital modes of collections.

Additionally, many NBFCs are now offering a wider array of payment channels to ensure that physical distances do not materially impede collection activities. Physical collections, wherever permissible within the restrictions, continue as a channel, albeit with reduced frequency and length of meetings and added social distancing norms, it added.

Despite collections from securitised pools being lower than in the past, ratings on pass-through certificates (PTCs) have been resilient till now due to sizeable credit enhancements in the structures, Crisil said.

CRISIL cuts India's FY21 growth forecast to 3.5% amid coronavirus outbreak

The severe dent in the economic activity due to the coronavirus pandemic led rating agency Crisil to sharply cut its growth estimate for 2020-21 to 3.5 per cent, on Thursday.
Earlier, the agency had predicted an economic growth of 5.2 per cent for the next financial year.
The agency welcomed the Rs 1.70-trillion package announced by Finance Minister Nirmala Sitharaman earlier in the day but said more measures like loan forbearances for small businesses and households are necessary.
The country has been placed in a 21-day lockdown since Wednesday as authorities try to restrict the spread of coronavirus and minimise the number of infected cases. Currently, 13 people have succumbed to the virus and over 650 infected.
ALSO READ: Coronavirus impact: GDP likely to fall to a three-decade low, say analysts
"The pandemic in India and the consequent lockdown for 21 days pose a material risk to our India economic outlook. The adverse effects that will follow can dwarf the gains from the sharp drop in crude oil prices, and the anticipated monetary and fiscal stimuli," it said.
The agency said the pandemic's cost is not only restricted to financial one like the post-Lehman Brothers crisis of 2008, but it also involves enormous human suffering that has not been witnessed in decades.
Crisil Chief Economist Dharmakirti Joshi said the estimate of 3.5 per cent growth in 2020-21 assumes a normal monsoon and also a subsidising of the pandemic's economic impact in the June quarter.
"The slump in growth will be concentrated in the first half of the next fiscal, while the second half should see a mild recovery," he said.
Social distancing and discretionary spends will be hit in the June quarter, it said adding that sluggish growth in advance economies will also hit Indian exports.

ALSO READ: Coronavirus LIVE: Global cases cross 500,000 mark; India death toll 16
Even though services, which account for 41 per cent of the total exports, have been resilient so far, the impact in advance economies will hit indian IT and tourism sectors and dent export earnings, it said.
The ongoing lockdown is affecting manufacturing activity and also services and, in turn, affecting the domestic supply chains, the agency said adding that daily wage earners will be in the firing line.
"The non-linearity and complexity of what's unfolding creates uncertainties not only for businesses but for all mankind, and weighs heavily on sentiment and outlook, with risks tilted to the downside. Inability to control the pandemic and extension of the lockdown will aggravate supply and demand shocks," Crisil Chief Executive and Managing Director Ashu Suyash said.
ALSO READ: G20 nations pledge $5 trn to boost world economy stung by coronavirus
She also conceded that this is the reason why it is hard to quantify the downside at the present moment.
On inflation, it said even though there can be a spike in the near term because of panic buying, price rise will eventually soften in the next financial year.
A slew of analysts have been cutting their growth estimates in the light of the coronavirus impact, with some reports also saying that there will be a shrinking of the economy in the first quarter of the next financial year when the impact of the virus will be the highest.
In a report earlier in the day, Singaporean bank DBS cut its 2020-21 growth forecast to 4 per cent.

State-run banks need Rs 1.2 trillion in urgent capital, says CRISIL

State-run lenders require an urgent Rs 1.2 trillion in capital in the next five months and government will have to take a bulk of the tab due to the weak market valuations of these NPA-saddled banks, says report.
This is a little more than the double its budgeted Rs 530 billion of capital infusion, Crisil senior director Krishnan Sitaraman said in a report on Tuesday.

If government decides to meet this need, this will put further pressure on the fiscal maths, thus its ability to meet the 3.3 percent fiscal deficit target for the current fiscal year. Already government has used up over 95 per cent of the deficit target or the market borrowings as of October end.
The report comes even as government is asking the Reserve Bank to lower the minimum capital requirements by getting it at par with global practices-something the central bank is uncomfortable to meet.
It has also reported to have turned down the finance ministry demand to transfer Rs 3.6 trillion of its over Rs 9.5 trillion reserves, which government wants to use to recapitalise the bleeding banks.
The Rs 1.2-trillion capital requirement to meet the Basel-III norms is Rs 210 billion more than the Rs 2.11 trillion estimate announced by government in October 2017, the report said.
Till now, only Rs 1.12 trillion have been infused into these lenders since October 2017, it said, adding only Rs 120 billion has come from the markets, it said.
Most of the required capital has to be infused into the 11 lenders which are under the prompt corrective action (PCA) framework of the RBI, wherein depletion in capital and return on assets, combined with a surge in non-performing assets, has resulted in the severe restrictions on normal operations, it said.
"Given their weak performance and low valuations, state-run banks have little ability to tap the market, which means government will have to provide most of the requirement," it said.
Sitaraman said the Rs 1.5 trillion infused by government in the last three financial years has only helped them cover the losses of Rs 1.3 trillion incurred during the same period.
Profitability of state-run banks has been under pressure because of higher credit costs after the RBI tightened norms for recognition of stressed assets and their resolution, the report explained.
Most of the 21 state-owned banks have reported huge losses in recent years and a good number of them will be in the red this fiscal as well which will put a strain on the capital, notes the report.
As per the norms, the banks ought to have their tier-I capital at 9.5 per cent, including a capital of conservation buffer (CCB) of 2.5 percent, it said, adding if the CCB were to be excluded, the capital requirement will fall to Rs 400 billion from Rs 1.2 trillion.
Meeting the CCB requirement, introduced following the 2008 global financial crisis, is becoming onerous for many state-run banks and those under PCA have had to recall their additional tier-1 bonds in recent times impacting their capital adequacy, it said.
Thirteen of the 21 state-owned banks had their tier-I ratio below the regulatory norm as of the June quarter, the report noted.
Moves like the consolidation of weaker banks with stronger ones like the tri-merger between Bank of Baroda, Dena Bank and Andhra Bank will help reduce the additional capital required, its associate director Vydianathan Ramaswamy said.
Listing other imperatives, he said the quantum of capital infusion has to increase, risk-weighted assets need to be brought down, and better-performing banks have to be nudged towards the market for capital.

Airlines' FY19 losses may be steepest in 10 yrs on ATF, rupee woes: Crisil

Domestic airlines are projected to post the steepest losses in a decade in the current fiscal year owing to higher aviation fuel costs and falling rupee, rating agency Crisil said in a report Thursday.
Pitching for a 12 per cent hike in airfares to offset the increased costs, the report also forecast debt liability of three listed airlines to go up by 10 per cent by FY19.
At present, full-service carriers Jet Airways and budget airlines SpiceJet and IndiGo are listed on bourses. They account for 71 per cent of the total passenger traffic.
Aviation turbine fuel (ATF) accounts for 35-40 per cent of the total cost of airlines, while aircraft, engine rentals and maintenance costs, which are denominated in US dollars, together account for another 30-35 per cent of the costs, as per Crisil.
"At an estimated Rs 93 billion, the industry's losses at EBIT (earnings before interest and tax) level would surpass the Rs 73.48 billion blow it was dealt in fiscal 2014. That was followed by three good years through fiscal 2018 when carriers reeled in an aggregate profit of Rs 40 billion on average at the EBIT level," the report said.
ALSO READ: No end to Jet Airways' free fall: Will the airline go Kingfisher's way?
Noting that the ATF prices are expected to average 28 per cent higher on-year compared with FY18, the report said such a hike will have a significant impact on the airlines' balance sheets.
The government has taken some measures to support the industry by lowering the excise duty levied on ATF by 300 basis points to 11 per cent, but this will not materially curb the losses, it said.
On the other side, the rupee has depreciated 13 per cent against the dollar since March, which is expected to deal a severe blow to the domestic airlines' financials, Crisil said.
ALSO READ: IndiGo's profitability takes back seat amid high fuel costs, weak rupee
"Almost two-thirds of an airline's cost, and therefore profitability, is susceptible to fluctuations in forex rates and ATF prices," said Sachin Gupta, senior director, Crisil Ratings.
He said to offset the increase in operating cost, the industry will have to hike average fares by 12 per cent, assuming there is no change in the passenger load factor (PLF) or seat factor.
"But the aggressive expansion plans of carriers and the race to maintain high PLFs will keep competitive intensity high and limit their ability to increase fares," he added.
Observing that the PLFs are highly sensitive to fares, the report said that in the past three fiscals, benign ATF prices helped airlines keep fares stable.
"Despite annual capacity growth of 15 per cent in the past three fiscals, PLFs increased because passenger growth was faster at 18 per cent," the agency said.

ALSO READ: Jayant Sinha asks FM to bring ATF under GST as rupee, oil woes hit airlines
Another headwind to fare hike is the significant fleet addition planned in the near-term, which will lead to capacity addition of over 20 per cent, as per the report.
Such a sharp increase in supply will keep the competitive intensity high and will constrain the ability of carriers to undertake fare hikes to pass on the increase in operating costs fully, the report said.
This was evident in the first quarter of FY19 when despite a 12 per cent rise in ATF prices, only one of the three listed players was able to increase yields, and that, too, by just 4 per cent, it added.
Furthermore, the depreciation in the rupee will translate into higher debt liability.
ALSO READ: ATF excise cut unlikely to give airlines relief, reduce customers' airfares
"Airlines have sizeable foreign currency debt, while their revenues are largely earned in rupees. With around 73 per cent of their debt denominated in foreign currency, the debt liability of the three listed airlines will go up by 10 per cent this fiscal," said Nitesh Jain, director, Crisil.
The agency in its report also said that the profiles of airlines will remain under pressure over near-to-medium term on account of significant increase in operating cost and limited ability to pass on cost increases to customers because of intense competition.

Besides import curb, farm exports to China key to India cutting deficit

India requires more than just import curbs to narrow its current-account deficit. It needs to tap a new crop of measures, literally.
Expanding agricultural exports such as soybeans and cotton to China by exploiting opportunities from a global trade war will help cut the deficit, economists at CRISIL Ltd. said.

Soybeans are at the heart of the trade war between the U.S. and China and cotton isn’t far behind. It puts India in a position to step up and fill the gap left by the U.S., according to economists Dharmakirti Joshi and Pankhuri Tandon.
China is already the top market for India’s overall export growth in recent months. Between April and August, India’s exports to China have grown an average 52.9 per cent year-on-year, compared with 14.7 per cent to the U.S., 11.9 per cent to the UAE and 12.6 per cent to Europe, they wrote in a column in the Mint newspaper.
The rise in exports to China has seen India’s trade deficit with the Asian giant shrink, although the gap widened on an overall basis. That, along with a slowdown in foreign capital inflows, has led to concerns that the current-account deficit will widen, has prompted Finance Minister Arun Jaitley to hint at more measures to curtail the gap.
While a slew of import duties on air-conditioners to footwear have been announced, economists say India needs to take measures to boost exports too. While a sharp drop in the rupee is helping at the margins, more policy incentives might be needed, especially if India wants to take advantage from rising trade tensions.
“Indeed, cotton on which China has imposed tariffs on the U.S. was among the top three contributors to India’s exports to China," Joshi and Tandon wrote.
Soybeans are by far China’s top agricultural imports from the U.S. The oilseed, used to make cooking oil and animal feed, accounted for about 60 per cent of the U.S.’s $20 billion agricultural exports to China before the Asian country imposed additional tariffs in July.
The CRISIL economists also called to abolish domestic constraints on coal production and mining as a shortage was leading to a spurt in imports.

Bank recap: CRISIL upgrades outlook on 18 PSBs from negative to stable

Rating agency CRISIL has revised its outlook on 18 public sector banks (PSBs) from “negative” to “stable” after the government announced bank-wise capital infusion and reform plans.
It has reaffirmed ratings on various financial instruments issued by public sector banks.
The revision in outlook is primarily driven by the government’s PSB recapitalisation programme for this fiscal (2017-18). This will improve the financial risk profile of these banks and help them meet Basel-III regulatory capital norms.
It also provides a cushion against an expected rise in provisioning for non-performing assets (NPAs), CRISIL said in a statement.
For ratings assigned to Basel III tier I bonds, CRISIL said they have been reaffirmed for nine PSBs and the outlook has been retained as ‘Negative’.
The rating agency is evaluating the flexibility with banks to set off any accumulated losses with the bank’s balance in share premium account and its implication on the availability of eligible reserves to service AT1 coupon payments. “We will revisit our ratings on AT1 instruments once there is clarity”. CRISIL said.
On October 24, 2017, after the government announced its Rs 2.11 trillion (Rs 2.11 lakh crore) recapitalisation plan. On Wednesday, the government announced details of bank-wise infusion of Rs 880 billion (Rs 88,000 crore) capital this fiscal.
CRISIL has assessed the impact. PSBs are now adequately placed to meet Basel III capital norms and are also better prepared to absorb the hit from provisioning on stressed assets. They will also be in position to absorb hit on account of migration to Ind AS (Indian Accounting Standards).
The government has also outlined its banking reforms agenda. The strengthening of prudent lending practices through responsible banking – banking based on core strengths, sharper pre- and post-disbursal monitoring for large exposures, and improving NPA resolution mechanisms (including separate asset management verticals). This will structurally improve credit culture at PSBs.

NPAs to rise to Rs 9.5 trillion by March-end: Assocham-Crisil report

India's banking sector will be saddled with gross non-performing assets (GNPAs) worth a staggering Rs 9.5 trillion by March-end, up from Rs 8 trillion in the year-ago period, a report said today.
The high level of stressed assets in the banking system however provide enormous opportunity for asset reconstruction companies (ARCs) which are important stakeholders in the NPA resolution process, said the Assocham-Crisil study.
At the same time, it said, the growth of ARCs is expected to come down significantly owing to capital constraints.
"While growth (of ARCs) is expected to fall to around 12 per cent by June 2019, the AUM (assets under management) are expected to reach Rs 1 trillion, and that is fairly sizable," said the report.
It said the GNPAs will increase to "Rs 9.5 trillion as on March 31, 2018 i.e. about 10.5 per cent of total advances, while stressed assets are expected to be at Rs 11.5 trillion".
Separately, Minister of State for Finance Shiv Pratap Shukla had said in Parliament earlier that GNPAs of banks crossed Rs 8.5 trillion at the end of September 2017.
The report further said that with banks expected to make higher provisioning over and above the provisions made for stressed assets, they may sell the assets at lower discounts, thus increasing the capital requirement.
Since the existing capital base of ARCs will not support in absorbing stressed assets available in the market, they are expected to be a part of the multi-platform business model with co-investors/large funds to bring in capital and stay relevant, it said.
According to the report, recovery prospects are likely to improve with these structural changes.
"The recovery rate, which is a good indicator of the effectiveness of ARCs is expected to rise from 38 per cent earlier to about 44-48 per cent," it said.
The analysis of 50 stressed assets -- forming nearly 40 per cent of the total -- revealed that sectors like metal, construction and power account for nearly 30 per cent, 25 per cent and 15 per cent of the stressed assets respectively, while other sectors contribute to the remaining 30 per cent.
The study also said that effective implementation of the Insolvency and Bankruptcy Code (IBC) would be a remedy to the challenge of prolonged litigation and it can help improve the recovery rate of stressed assets' industry further.
The report stated that 2018 would see a structural shift in the stressed assets' space as increased stringency in banks' provisioning norms for investments in security receipts is likely to result in more cash purchases.