Today’s News
01 April 2020
Contents
Govt slashes small savings rates by up to 140 basis pts
TNN
TOI, 01/04/20
New Delhi:
The government on Tuesday
announced one of the steepest-ever cuts in small savings rates, which will see returns
on the popular public provident fund deposits fall by 80 basis points to 7.1%,
starting Wednesday, while the Senior Citizens Savings Scheme will see the
annual interest rate drop by more than a percentage point.
Similarly, rates on post
office term deposits have also been slashed by as much as 140 basis points with
one- to three-year deposits now fetching 5.5% instead of 6.9% earlier. The rate
on five-year term deposits has been pared by a percentage point to 6.7%. These
deposits come with quarterly compounding of rates.
Even at the revised rates
– which will be applicable for the April-June quarter – the returns will be
higher than what you will earn through a fixed deposit in a bank. For instance,
for a five-year FD, State Bank of India is currently offering 5.7%.
Besides, some of the
schemes such as PPF have the added tax benefit which results in higher returns.
For instance, someone in the 30% bracket will earn a post-tax return of over
9%, apart from the tax benefit on investment of up to Rs 1.5 lakh.
In a post-budget interview,
economic affairs secretary Atanu Chakraborty had indicated to TOI last month,
that rates will be lowered at the end of March.
Although the announcement
move is in line with the falling interest rate regime, the government had earlier
ignored its own policy and refused to align the returns with market rates. Even
this time, it has done so due to repeated prodding by the Reserve Bank of India
as the lower policy rates were not translating into a commensurate fall in
deposit and lending rates.
While RBI has lowered
policy rates by over 2 percentage points during the last couple of years, PPF
rates have come down by 90 basis points since October 2016.
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Missing 2 instalments may add 10 mths to loan
It
Could Also Hike Your EMI Outgo By 1.5%
Babar
Zaidi
TOI, 01/04/20
Hit by the lockdown and faced with uncertainty, many
people are looking to avail of the repayment relief that banks are offering.
Although banks are yet to announce the details of the relief package and how it
will work out, we do know that this is only a grace period and they are likely
to charge interest for the unpaid amount.
Missing two instalments could extend your loan by
6-10 months, or increase the EMI amount by 1.5%. The borrower may be given
three options by the lender:
Option I: One-time payment in June of the interest
that accrues in April and May
Option II: Add the interest to the outstanding loan
and increase EMI for remaining months
Option III: Keep the EMI unchanged but extend the
loan tenure. The number of additional EMIs will depend on the age of the loan
Let us assume a borrower took a home loan of Rs 50 lakh at 9% for 20 years. The
EMI comes to Rs 44,986. If he wants to skip the next two EMIs (April and May),
the table given here (see graphic) shows how the moratorium will impact his
repayment schedule.
Clearly, the longer the remaining tenure, the bigger
is the impact. This is because the interest accounts for a larger portion of
the EMI in the early years and progressively comes down. Even after the first
year, the interest accounts for almost 80% of the EMI. But in the 19th year,
the interest portion is less than 10% in the EMI.
So, people with older loans taken 10-15 years ago
will not feel the burden as much as someone with a new loan taken 2-3 years
ago. Ironically, people with older loans may not really need the moratorium as
much as those with younger loans.
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Banks to roll out EMI waiver options soon
Say
It Takes Time To Change Systems, Promise Moratorium For Mar 1-May 31
Mayur.Shetty@timesgroup.com
TOI,
01/04/20
Mumbai:
Banks will soon come out with the operational
procedure for retail borrowers to avail a three-month moratorium on their
loans. Most lenders plan to send out text messages and emails allowing
borrowers to avail the facility, while some have already done so.
State Bank of India said that its technical team was
working on the RBI circular and giving an option may take some time as this
requires changes in current systems and procedures. The bank told customers
that if an EMI was debited and they wish to avail the moratorium, they can
contact the branch to initiate the refund process. ICICI Bank sources said that
it was working late into the night to create a channel to give an option to
customers. On Monday, banks had a video-conference under the Indian Banks
Association, where it was decided that the option has to be rolled out to all
borrowers. HDFC, the country’s largest housing finance company, said that it
would start sending out options to borrowers on whether to avail of the
moratorium or not.
Lenders across the board stressed the point that the
moratorium was not a waiver of interest and that the interest for the three
months would be recovered from the borrower. They also stressed that borrowers
whose cash flows were unaffected should continue to repay their instalments as
always.
Meanwhile, to reassure borrowers, a host of public
sector banks took to social media to say that a moratorium would be made
available. Bank of Baroda said that it was providing the moratorium on all
instalments falling due between March 1 to May 31 for all term loans, including
corporate, medium and small enterprises.
“EMIs of housing loans, vehicle loans, MSME loans
and payment of all other term loans falling due after March 1and up to May
31have been deferred by 3 months,” Syndicate Bank said. UCO Bank told borrowers
that it has granted moratorium of three instalments of term loans up to May 31.
“The next instalment is now payable in June 2020. Your repayment schedule will
be extended accordingly,” the bank said.
Central Bank of India indicated in a tweet that the
moratorium will be given to all. “Three months deferment is automatic &
customers need not approach bank for the same,” the bank said. “However,
customers may approach the bank to change the standing instructions or any
other mandate given by them for payment of their loan instalment. Interest will
accrue in loan accounts but no penal interest. March 20 instalment already paid
will be automatically appropriated towards next EMI due, that is for June 20,”
the tweet said.
Banking sources said that the RBI
circular was not a directive to lenders to grant a moratorium to borrowers but a
permission in case they wanted to grant relief. “It is up to each individual
bank to take a view according to their credit policy,” he said.
Lenders said that it was taking long as
some of the matters had to be referred to board-level committees to enforce.
Lenders said that they were seeking clarification from the RBI on whether it
was necessary to recover interest from business immediately at the end of three
months as mentioned in the central bank’s circular. “If we postpone for only
three months and seek recovery immediately after that, it would be a burden on
the borrower,” said a bank chief.
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Compounded interest to be charged from borrowers during 3-month moratorium: IBA
For
corporate borrowers, IBA clarified that NBFCs, micro-finance institutions
(MFIs) and housing finance companies (HFCs) are not eligible for working
capital relaxation provided.
Ankur
Mishra
FE,
01/04/20
Borrowers opting for the three-month moratorium granted
by their lenders will have to pay compounded interest at the end of the period,
Sunil Mehta, chief executive, Indian Banks’ Association (IBA), clarified in a
frequently asked questions (FAQ) document reviewed by FE. Banks have
individually started announcing Covid-19 regulatory package in a response to
RBI’s announcement of three months moratorium on term loans including
corporate, MSME, agriculture, retail, housing, auto and personal loans. Bank of
Baroda, Central Bank of India, Canara Bank and Punjab & Sind Bank detailed
three-month moratorium on term loan instalments as part of package, among other
reliefs.
The organisation of banks has urged borrowers to
avail relaxations only if there is a disruption in cash flows or loss of income
due to Covid-19. Explaining the moratorium on term loans, Sunil Mehta said:
“You must take into account that the interest on the loans, though not
mandatorily payable immediately and gets postponed by 3 months, continues to
accrue on your account and results in higher cost.” By giving an example of a
borrower who has taken 100,000 term loan with 12% interest, he said: “Every
month you are liable to pay Rs 1,000 as interest. In case you opt not to
service the interest every month, you are liable to pay interest at 12% p.a.
and accordingly you will pay Rs 3030.10 at the end of 3rd month.”
Similarly, in case of credit card, the interest will
be charged by the issuer on unpaid amount in three months from March 1, 2020.
Although no penal interest will be charged during this period, he clarified.
In the case of borrowers where (EMI) automatically
got deducted by the bank using electronic clearing service (ECS) and the
customer seeks refund, Mehta said such borrowers need to get in touch with the
bank for the revised mandate.
For corporate borrowers, IBA clarified that NBFCs,
micro-finance institutions (MFIs) and housing finance companies (HFCs) are not
eligible for working capital relaxation provided. RBI on March 27 allowed banks
to recalculate drawing power by reducing margins and reassessing the working
capital cycle for the borrowers in case of working capital. However, RBI has
made provision for sufficient liquidity support to these financial
intermediaries under recently-introduced targeted longer-term refinancing
operations (TLTRO), Mehta added.
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RBI Moratorium: NBFCs stare at asset liability management challenges
Managing
liability outflows will be a tightrope walk for NBFCs in the near term
Hamsini
Karthik
BS,
01/04/20
Mumbai:
The instant reaction to Friday’s
decision by the Reserve Bank of India (RBI) of granting a three-month
moratorium on all term loans was welcomed by lenders. But with non-banking
financial companies (NBFCs) faced with retiring their short-term liabilities,
it appears the joy could be short-lived.
Even as lenders may record the interest
accrued (from customers) during this period as income (which would not impact
their profit and loss statement), the corresponding cash receipt will not flow
through as a result of the moratorium. This, in turn, will affect the cash
flows of NBFCs, putting further pressure on their asset-liability management
(ALM). The most affected would be the one-three month ALM bucket. Some experts
believe ALM for up to six months could be affected if cash flows remain
impacted.
“While the moratorium provides some
relief on the assets side, it is on the liabilities side that challenges emerge
for NBFCs with a high share of capital market borrowing,” says Ajit Velonie,
director, CRISIL Ratings.
NBFCs such as Bajaj Finance and HDFC
fund 45–47 per cent of their liabilities through money market instruments.
Those like L&T Finance, Shriram Transport, and Mahindra & Mahindra
Financial Services dip into bonds and non-convertible debentures to meet 48–53
per cent of their funding needs. Since these instruments have no forbearance,
they have to be retired as and when the liability is due for repayment.
Anticipating an ALM mismatch, the RBI has opened up
the targeted long-term repo operations of Rs 1 trillion aimed at increasing
banks/institutions’ investment appetite for NBFC debt instruments. However,
according to a fixed-income head of an AMC, MFs aren’t subscribing to money
market instruments of NBFCs in the light of recent crash in the value of liquid
funds. “We are seeing increased redemption pressure in this category. This
limits us from taking exposure to NBFCs’ money market instruments,” he adds.
Fund managers say over the past nine months, their appetite for such capital market
instruments have fallen.
Another senior executive, who heads the treasury
operations of a private bank, says banks would be on a capital conservation
mode. “Now isn’t the time they would want to buy NBFCs’ money market
instruments,” he adds. However, for any meaningful participation, he says it’s
critical bankers get back on their feet.
Whether the TLTRO will indeed help NBFCs address the
ALM mismatch effectively remains questionable.
Unlike 2018’s liquidity crunch, Ananth Narayan,
associate professor-finance at SPJIMR, says NBFCs are now facing a problem of
perception. “It’s not just a question of liquidity,” he adds. Also in 2018,
growth wasn’t as much an issue for NBFCs as it is now. “Back then, NBFCs
moderated their growth rate to conserve capital. There was still genuine
appetite for loans,” says an analyst tracking NBFCs.
In the current scenario, experts say even if NBFCs
slash their lending rates, there aren’t many takers for loans, given the
pressure on revenues (of customers).
“If NBFCs cannot offer growth potential, who will
give them capital support?” the analyst quoted above questions. Therefore,
despite the cost of funds plunging and TLTRO aimed at addressing NBFCs’
short-term ALM mismatch, experts warn that the next three months will be a tough
ride for the sector.
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