Tag - Finance

Banks not giving moratorium should not lead to Asset Liability Management (ALM) mismatch: Mr Ramesh Iyer, Mahindra Finance

Update on the Indian Equity Market:

On Tuesday, Indian indices ended on positive note for the second consecutive day. NIFTY ended up 98 pts (+1.1%) at 9380 level.
Among the sectoral indices, PVTBANK (3.6%), BANK (2.9%) and FIN SERVICE (3.4%) were among the top gainers while PHARMA (-2.3%), FMCG (-0.9%) and METAL (-0.3%) were the losers. INDUSINDBK (17.1%), BAJFINANCE (+9.3%) and HDFC (+8.3%) were the top gainers. SUNPHARMA (-3.0%), IOC (-2.3%) and NTPC (-2.1%) were the top losers.

Banks not giving moratorium should not lead to Asset Liability Management (ALM) mismatch: Mr Ramesh Iyer, Mahindra Finance
Over 75% retail borrowers have opted for loan moratorium
Edited excerpts of an interview with Mr Ramesh Iyer, Vice Chairman (VC) and Managing Director of Mahindra Finance dated 27th April 2020:

• When asked about the collection efficiency after Non-Banking Finance Companies’ (NBFC) operations being partially resumed, he replied that April was not expected to be good for collections because the moratorium was just announced and he is sure that most of the NBFCs would have made some collections.
• Mahindra Finance had about 15-20% collection efficiency but that largely came from the farming community. He is of the opinion that April and May both where the moratorium has been given, no one will want to come and pay.

• He informed that more than 75% of the customers have opted for the moratorium. Initially it was only about 60-65%. Then subsequently they would have reviewed their own situation and would have felt opting for moratorium. He believes that the 25% who are not asking for it, there would be about 4-5% or maybe little more who are fearing the interest that is going to be charged for the moratorium period and therefore they would have made the payment. They might not have the money to pay but fearing the interest, they would have made the payment. But they would come back and possibly negotiate on the interest and take the moratorium.
• When asked about the Asset Liability Management (ALM) mismatch due to the moratorium, Mr Iyer stated that it will depend from NBFC to NBFC. Mahindra Finance in particular always had a good match of ALM. So, banks not giving moratorium should not lead to ALM mismatch because he expects that the disbursements to not be there. Therefore, if the collections are not there to that extent that disbursements are not there, it should kind of offset each other to an extent. But again, it depends on each NBFC independently but the large ones should not have a mismatch.
• He further clarified that some of the banks are giving moratorium on the term loan. The Banks have not announced that but most of the private banks are giving moratorium on the term loans to NBFCs also.
• When asked his opinion on the Franklin Templeton issue is going to further tighten the liquidity in the system, he said that clarifications have been given. Even Templeton has put out some notes. So, this is a one-off case but definitely, whenever something like this happens, it does build up pressure in the system. But in any case, mutual funds were not actively providing funds to NBFCs in the recent past given their own redemption and inflow being a little low. Really what we are looking for is liquidity from the banking system and with so much action already taken by the RBI to provide liquidity in the system, he personally believes if the banks do open up to NBFCs and start providing them funds, then liquidity by itself should not be a problem.
• When asked about his outlook on rural economy and impact on rural cash flows, he said that it is not the farmers who are hugely impacted because it is not across the country that everyone is impacted. After analysis it is found about 65-70% of the districts do remain free from this problem but, the fact is because of the lockdown, the activities are low. But what is important and interesting is that the harvest has been good; wheat output is good, sugarcane is good, potato, onion is good, pulses are good and the government will buy and they will warehouse these products. So surely the farm cash flows should improve and the collections seen in April are coming from the farming community. So, he is not of the opinion that the farmers are impacted.
• He also informed that there is a demand for tractors. The dealerships in some of the locations have opened up. But because of the lockdown there has been a slowdown in the activities. If two months of activity is lost, there would be pressure in the collections and the consumers even if they have the money would like to hold it back and wait and what next happens. So, to that extent, the overdues will go and with three months moratorium provided by the Reserve Bank, if things were to regularise if not from immediate June but even in August, things should settle down well and we should not see increase in NPAs.
• But yes, if this was to get extended and not stop at May and was to continue to go longer then, one will need to relook at the situation and what happens next. But he believes that post August, things would start to look better and definitely rural is not as badly impacted as urban is.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of Mahindra Finance was ₹ 155/- as of 27-April-20. It traded at 0.76x/ 0.70x the consensus BVPS estimate of ₹ 189/205 for FY20E/ FY21E respectively.
• Consensus target price of ₹ 305/- implies a PBV multiple of 1.5x on FY21E BVPS of ₹ 205/-

Union Bank likely to recover ₹30,000 mn in 4QFY20: Rajkiran Rai G. Chief Executive Officer (CEO), Union Bank of India

On Tuesday, Sensex ended up 236 pts higher and Nifty settled 76 pts higher at 12,108 level ahead of Delhi Assembly Elections outcome.  Last week of earnings season and macroeconomic data-points due to be released during the week including CPI/ WPI Inflation and IIP data expected to keep the markets volatile.
Among the sectors, Media (+1.6%), Metal (+0.9%), Bank (+0.8%) were the top-performing indices. All the key indices settled in the positive territory except FMCG index. Among stocks, Nestle India, Bharti Airtel, M&M and TCS were the top laggards, while gainers were NTPC, Maruti Suzuki, Power Grid, and IndusInd Bank.
Union Bank likely to recover ₹30,000 mn in 4QFY20: Rajkiran Rai G. Chief Executive Officer (CEO), Union Bank of India
Edited excerpts of an interview with Mr Rai, Chief Executive Officer (CEO), Union Bank; dated 11th February 2020:
  • Public sector lender Union Bank of India is expecting to recover and upgrade loans worth ₹30,000 mn in the March quarter, the bank’s chief executive officer (CEO) Rajkiran Rai G. said, taking its total recoveries in FY20 to ₹80,000 mn.
  • Mr Rai informed that total recoveries and upgradations for 9MFY20 have been ₹49,100 mn and are expecting another ₹30,000 mn in 4QFY20 both from the National Company Law Tribunal (NCLT) and non-NCLT accounts. So, the Bank can close the year at about ₹80,000 mn.
  • Of the expected ₹30,000 mn, Rai expects ₹10,000 mn from large accounts where resolutions have been already sanctioned and the rest from upgradations of bad loans into standard.
  • He is banking on the fact that settlements by defaulting borrowers tend to peak in the fourth quarter of every fiscal year. He is expecting one big steel account to close to resolution and that should give ~ ₹7000-8000 mn of recoveries.
  • In the December quarter, the bank recovered bad loans worth ₹25,830 mn, including ₹3,280 mn from written-off accounts. Banks write off loans from their books after fully providing for them when chances of recoveries seem bleak. However, recovery efforts are continued and whatever comes back is shown as other income.
  • Meanwhile, the bank said its 3QFY20 profit rose nearly four-fold to ₹5,750 mn from a year earlier, helped by better recoveries and higher interest income. The state-run bank had reported a profit of ₹1,530 mn in the year-ago period.
  • Mr Rai said that the Bank was helped by some good recoveries of ~₹20,000 mn which came from Essar Steel, Ruchi Soya Industries and Prayagraj Power Generation Co. Ltd.
  • According to him, in the Essar Steel loan, the bank had provided 50%, and it booked an interest income of ₹2,390 mn. On Ruchi Soya, it had 100% provisioning and the recoveries came from the written-off account.
  • Rai said the bank has not factored in “harmonization provisions” in this quarter and even the quantification has not happened. This category of provisions was recently reported by Punjab National Bank which set aside ₹15,000 crores in 3QFY20. These provisions apply to loans which were so far classified differently at different banks that are set to be merged. Union Bank of India will be merged with Corporation Bank and Andhra Bank.
  • Mr Rai explained that it is too premature to talk about that number (harmonization provision) and the RBI has not asked about it as well.

Consensus Estimate: (Source: market screener, investing.com website)

  • The closing price of Union Bank of India was ₹ 49/- as of 11 th February 2020. It traded at 0.4x/ 0.4x/ 0.3x the consensus BVPS for FY20E/ FY21E/ FY22E of ₹ 124/132/157 respectively.
  • Consensus target price of ₹ 69/- implies a Price to Book multiple of 0.4x on FY22E Book Value of ₹ 157/-.

Sundaram Finance – Grabbing little pockets of opportunities available

Update on the Indian Equity market:

On Monday, NIFTY closed +0.22% higher. Among sectoral indices NIFTY Realty (+1.64%), NIFTY Auto (+1.47%), NIFTY Pharma (+1.19%) closed higher while NIFTY PSU Bank (-0.53%), NIFTY IT (-0.32%) ended on a negative note. The biggest gainers were ONGC (+5.50%), TATA Motors (+5.03%), Bharti Airtel (+2.62%) whereas Infosys (-3.50), Bajaj Finance (-2.65%), Bajaj FinServ (-1.22%) closed with high losses.

Excerpts from an interview with T.T Srinivasaraghavan, managing director, Sundaram Finance with CNBC- tv18

  • Talking about prevailing scenario in NBFC space Mr Srinivasaraghavan says NBFCs is probably the lousiest coinage that you could have for any industry, this is because it is as heterogeneous as anything could be.
  • However, he says, that clubbing everything together and saying NBFC is stressed sector will probably will be overstatement
  • Speaking about on ground situation he says, it is not looking much different and there are no signs on reviewal in short term.
  • There is overcapacity and nothing has happened much on the manufacturing side to soak up this additional capacity. Plus, the uncertainty about BS VI continues.
  • Right now, growth is not a priority from company’s point of view, because in a market which is tanking, it is not appropriate to swim against the tide and growing topline in an aggressive way is certainly not a part of the Sundaram Finance DNA.  
  •  The focus is making asset quality robust and grabbing coming opportunities.
  • Speaking about further quarters he says, higher delinquencies cannot rule that out, because in many states, there have been local issues where governments have either held back on payments to contractors or governments have rescinded contracts.
  • So, these local issues will certainly affect the cash flows.
  • Speaking about government purchases or the State Transport Undertaking (STU) purchases, he says, it is not really going to feed into business for banks and NBFCs but it will be a benefit for original equipment manufacturers’ (OEMs).
  • Mr Srinivasaraghavan says, now that interest rates have come down, corporate tax Is reduced. Corporates should come up and take some responsibility and do something that will help in near future instead of cribbing.
  • Mr srinivasaraghavan says the overcapacity is cyclical but this the longest one. He says, we should not worry about it in long term.
  • Scrappage is a welcome thing but it wont act as a magical wand. It has to accompanied by several other things.
  • He says, monsoon have been a great positive news in a gloomy horizon. At least we can hear about people enquiring, people may be looking at perhaps some buying, so post Diwali perhaps there could be some buying taking place.
  • He adds, that this time we will have a ‘pa’ shaped recovery, which is a Tamil alphabet. It is a flat line at the bottom, it is neither a U nor a V. It is two vertical lines on the side and a horizontal line connects both of them.

Consensus Estimate (Source: market screener website)

  • The closing price of Sundaram Finance was ₹ 1,610/- as of 14-October-19. It traded at 24.5x/ 21.5x/ 21.0x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 65.6/ 74.7/ 76.5 respectively.
  • It trades as P/B 3.1x/2.8x/2.6x the consensus Book value per share for FY20E/FY 21E/FY22 of 507/568/607.