Loan sale volumes touch Rs 47,000 crore in Dec quarter, says Icra

Finance companies and housing finance companies (HFCs) had a predominant share in Rs 47,000 crore worth loans sold in the third quarter ended December 2019 (Q3FY20) as some of them continued to face liquidity challenges.

Abhishek Dafria, Vice President and Head - Structured Finance Ratings at ICRA, said the volume in Q3FY20 were low compared to estimated Rs 77,800 crore in Q3FY19. But, Q3 last year was quite different as financial system faced liquidity squeeze, reeling under effect of IL&FS defaults. Some large players (like DHFL) were in the market then (Q3FY19) to raise substantial amounts. Now, the situation has improved (liquidity) for NBFCs and HFCs. Yet, it is still an uphill task for some finance companies also banks prefer to buy-out loan portfolios than give fresh money.

IBC rules for NBFC resolution credit positive for banks, says Moody's

Rating agency Moody's on Monday said the amendments to India’s bankruptcy code enabling the resolution of finance companies are credit positive for banks.

India's banks are largest lenders to non banking finance Institutions (NBFI). The provisions in the IBC provide for the orderly resolution of a stressed company. Until now, the only resolution framework for NBFIs was through liquidation.

"We expect an orderly resolution process via the IBC will help limit losses for creditors as compared with liquidation," Moody's said in a statement.

On November 18, 2019, the government (Baa2 negative) amended the country’s Insolvency and Bankruptcy Code (IBC) 2016. It allows for the resolution of NBFIs, including housing finance companies, with asset sizes greater than Rs 500 crore via the IBC.

Under the amended law, the resolution process can only be initiated by the regulator, the Reserve Bank of India (RBI), which is India's central bank. This is a departure from key aspects of the IBC which allows any creditor to a company to initiate the insolvency process as long as they can prove that there has been a default by the company.

RBI's close involvement indicates the NBFI sector's importance for overall financial stability, including the direct effect of systemically important NBFI's failure on banks and other credit providers. RBI can appoint an administrator and advisory committee to oversee the resolution process, rating agency said.

Moody's said it expected the RBI to selectively approach the IBC to resolve NBFIs with severe liquidity or solvency issues. The central bank can also use a provisio to resolve companies whose weak corporate governance is deterring potential buyers. "We also expect banks and the RBI to utilize other debt restructuring options before approaching the IBC," it added.

On November 20, 2019, following the change in the IBC law, RBI initiated the resolution process of Dewan Housing Finance Limited, a stressed housing financing company. RBI superseded Dewan's board because of corporate governance issues and defaults by the company to its creditors.

RBI has also appointed an administrator and an advisory committee to the administrator, who will oversea the resolution process. Since July 2019, banks and other creditors to Dewan have been unsuccessful in trying to restructure the company's liabilities.

Finance, IT lead in job creation, capital-intensive sectors in cuts: CARE

A CARE report shows that banks, finance, and software firms led in job creation in the last four years. Labour- and capital-intensive sectors cut jobs most rapidly. This suggests that though the financial situation of banks deteriorated and credit growth turned tepid, employment was still on track. In the sample of nearly 1,900 firms analysed by CARE, as many as 6.2 million people are employed. The jobs in these listed firms grew at a compound annual growth rate of 3.3% in the last four years. The report shows that job growth, which had picked up by 2016-17, slumped in the two succeeding years — 2017-18 and 2018-19. Slowdown has aggravated further in 2019-20.

RBI rejects merger of lndiabulls Housing Finance with Lakshmi Vilas Bank

The Reserve Bank of India has rejected amalgamation of lndiabulls Housing Finance Limited (IBHFL) and lndiabulls Commercial Credit Limited (ICCL) with Lakshmi Vilas Bank Limited (LVB).

"...this is to inform that RBI vide their letter dated October 9, 2019, informed that the application for voluntary amalgamation of lndiabulls Housing Finance Limited and lndiabulls Commercial Credit Limited with the Lakshmi Vilas Bank (LVB) cannot be approved," the bank said in a stock exchange filing.

The development comes two weeks after the bank was placed under Prompt Corrective Action (PCA) due to high level of bad loans, lack of sufficient capital to manage risks and negative return on assets for two consecutive years.

RBI said that the application for voluntary amalgamation of lndiabulls Housing Finance Limited and its subsidiary with LVB cannot be approved. Reasons were not disclosed and LVB officials declined to comment further on the matter immediately.

The decision also comes at a time when the Economic Offences Wing, Delhi has registered a First Information Report (FIR) against LVB Board members on a complaint, filed by Religare Finvest Limited (RFL), alleging cheating and misappropriation of funds. The bank denied the allegations and said that RFL has been filing false and frivolous proceedings. It also said that it is considering appropriate legal measures to counter the same.

In June 2019, the Competition Commission of India (CCI) had given a green light to the proposed merger.

The housing finance company said that to ensure continuity, the board of directors had recommended that Sameer Gehlaut should be proposed as the non-executive chairman and Gagan Banga as the MD and CEO of the amalgamated bank.

The proposed plan was to merge Indiabulls Housing Finance Ltd (IHFL) and its wholly owned subsidiary, Indiabulls Commercial Credit Ltd., (ICCL) into and with LVB. As per the plan IBHFL was supposed to hold around 90.5 per cent of the post-merger enhanced equity capital of the merged entity, while shareholders of LVB would hold around 9.5 per cent.

The banking regulator has advised the bank on restrictions put in place and the actions it needs to take. LVB said that it had taken note and would report progress on a monthly basis to RBI.

Loan camps by public sector banks, NBFCs in 200 districts from October 3

From October 3, loan camps are going to be held in 200 districts across the country for consumers who may want a loan. Public sector banks, non-banking financial companies (NBFCs) and micro-finance institutions are gearing up to act on Finance Minister Nirmala Sitharaman’s promise to distribute loans.

The loan camps are being held later than the scheduled date of September 24-29 as lenders will be involved in finalising their balance sheets during this period for the second quarter of this financial year — a period when public sector bank unions will also be on a two day protest.

Four bank unions have threatened to go on strike between September 25 and 27 to protest against the government’s decision last month to merge 10 public sector banks into four.

Each bank participating in the loan camps has been given a certain number of districts to cover. The State Bank of India is expected to hold the most — in 50 districts. Syndicate Bank will operate in 25 districts.

Bank executives prefer to refer to the exercise as a customer awareness programme rather than the public distribution of loans.

“This is different from a loan mela as it will involve harnessing the partnership of banks and NBFCs instead of them competing against each other to gain customers. The huge customer network of public sector banks will benefit from the superior collection and originating ground-level capabilities of NBFC field officers who use direct selling and other such models to reach customers,” said Syndicate Bank MD and CEO Mrutyunjay Mahapatra.

ChartAshok Kumar Pradhan, managing director and chief executive officer of United Bank of India, said “The event is an effort to convey the message that banks continue to lend. The banks are not constrained by resources.”

The Kolkata-based bank is running a home and car loan campaign under which it has waived the processing fee. According to Pradhan, the bank has invited customers who have been sanctioned loans between September 20 and 30 to the event across districts in West Bengal to give them a surprise. The loans will be disbursed there and then.

Sitharaman has said that banks will look to give loans to five new borrowers for every customer they reach out to.

With Durga Puja festivities to start from October 4, banks in Kolkata are in a hurry to organise the loan camps beforehand because business transactions will grind to a standstill during the peak of festival time.

The Union Bank of India and Punjab National Bank executives said they are identifying the districts and the town halls (or tents depending on the scale) where the event can be held.

“Banks have lent to NBFCs in the past but post-IL&FS crisis, they have utilised the funds for correcting their balance sheets. New bank borrowing was affected which the programme intends to rejuvenate,” said Mahapatra.

Minister of State for Finance Anurag Thakur will be in charge of the loan camp programme and ministers and MPs will also participate.

Finance will need people who can work with robots as AI takes a 3rd of jobs

Today, it’s not just humans competing for work in banking. Machines are becoming a threat to warm-blooded number crunchers worldwide. Indeed, almost one-third of financial-services jobs could be displaced by automation by the mid-2030s, according to a report by PricewaterhouseCoopers LLP last year.

Despite those stark forecasts, some optimists argue that the rise of machines at banks isn’t simply taking away jobs, but rather changing their definition and adding some roles.

Job seekers with expertise in artificial intelligence, machine learning, and data science are among the most in-demand candidates in finance, according to hiring sites Glassdoor, LinkedIn, Hired, and ZipRecruiter. It’s not only disrupters such as Square Inc or Stripe Inc hiring this talent; legacy financial companies such as JPMorgan Chase, Capital One, and Morgan Stanley are scooping these people up as well. In the US financial sector alone, job postings that list these big data skills as requirements increased almost 60% in the 12-month period ending in July, according to LinkedIn.

Business and finance professors who are preparing students for future banking careers are also seeing the trend. Data scientist is the “hottest job function” now for employers, says Andrew Lo, director of the MIT Laboratory for Financial Engineering in Cambridge, Mass.

Lo says data portfolio managers, who are charged with maintaining and maximising the value of a company’s data assets, also are gaining importance. “We already have that happening informally because chief technology officers are playing that role,” he says. “But this has become a much more business-oriented set of challenges that the typical CTO might not be equipped for, so I think that’s going to evolve over time.”

While machine learning has the ability to “augment” jobs and enhance the performance of organisations, it will also present risks and the need for “AI auditors” at banks, says Theodoros Evgeniou, a professor of decision sciences and technology management at Insead in Fontainebleau, France. As machines make more decisions in banking, he says, ethical and legal concerns will be raised that need to be addressed at the board level.

“Let’s say you’re a bank and you’re giving credit based on credit scoring and machine learning, and your models are discriminating certain populations of people,” Evgeniou says. “If you’re then sued for being discriminatory, who is liable for this? If [the models] discriminate, you are liable.”

There are also ways machine learning may indirectly create jobs. For instance, automating tasks previously done by humans in the asset management industry should theoretically reduce costs. Lower fees will likely increase demand for financial services and, subsequently, the need for more staff to service new customers, according to Guo Bai, a lecturer of strategy at China Europe International Business School in Shanghai.

“It will probably be easier to serve clients that were previously excluded from financial services,” she says. These new clients may require a more human touch, Bai says, meaning more client relationship managers will be needed.

Machine learning may also provide an opportunity to reinvent a career. While it’s not easy or affordable in all cases to go back to school, some financial sector employees who find themselves displaced by technology could be in a position to reskill. “Certainly in the financial sector people are already pretty highly trained, so I do believe they can be retrained to focus on data science and all of the job functions that are required to support data science analytics,” says MIT’s Lo. “That’s not true in all industries.”

Help wanted

AI expertise is becoming one of the most desired skills in finance. Think you have what it takes to automate the banking industry? Here’s a glance at some of the jobs requiring experience with AI, machine learning, or deep learning. Descriptions are based on ads on company sites and online job boards as of Aug. 5. Median base salaries for the roles are estimates from Glassdoor, as pay information wasn’t provided by the companies.

Artificial Intelligence Platform Support Engineer

Estimated median base pay: $116,760 Main duties: One of the world’s largest banks is seeking an engineer capable of managing the massive server farms that are essential for its AI platform. The work can be fast-paced and high-demand. Expect to be on call. Must-have: Several years’ experience with middleware products and open-source operating systems, as well as a history of application development and implementation.

Based on a job advertisement on Wells Fargo & Co’s website.

Artificial Intelligence Manager/Architect

Estimated median base pay: $96,898 Main duties: One of the “Big Four” accounting organisations needs “architects” with creative ideas for developing and deploying AI components at large companies. The job could involve working on anything from chatbots and virtual assistants to vision and language processing. Must-have: Among other things, the company is looking for at least a couple of years’ experience working with cognitive computing technology, IBM Watson, neural networks, augmented intelligence software for financial services, and cloud platforms.

Based on a Deloitte job advertisement posted on LinkedIn.

Senior Python Engineer—Machine Learning Platform

Estimated median base pay: $113,827 Main duties: This bulge-bracket bank seeks an engineer fluent in high-level programming languages. The role comes with many responsibilities, but you’ll be on a team in charge of building pipelines that feed massive data into machine learning models for real-time predictions. Must-have: The bank cites lots of required technical experience, including a track record of developing distributed systems using Python.

Based on a job advertisement on JPMorgan Chase & Co.’s website.

Conversational AI Content Strategist

Estimated median base pay: $59,306 Main duties: If anyone has ever said you’re a great conversationalist, this job might be your next career move. You’ll be working on an AI-powered, voice/text digital assistant and “the hub” of the bank’s conversational commerce strategy. The strategist will drive the assistant’s “conversation design with brand flair.” Must-have: A background in writing and editing with some work in conversational user interfaces, AI, and chat or interactive voice responses.

Based on a job advertisement on Bank of America Corp.’s website.

Artificial Intelligence—Senior Digital Product Consultant

Estimated median base pay: $75,265 Main duties: This role is part of this bank’s expansion plans for its virtual-assistant technology. It’s seeking someone to work on “future state” integration of its AI agent. The product consultant will lead its development during all stages, which include building, testing and acceptance, quality assurance, and reporting. Must-have: An interest in emerging technology trends and several years in a management role in a financial-services organisation.

Based on a job advertisement on Bank of America’s website.

Machine Learning Platform Web Specialist

Estimated median base pay: $57,054 Main duties: A love for data visualisation might help in this role. The specialist will be tasked with creating web-based user interfaces for the bank and have a multitude of responsibilities, including constructing “visualisations that are able to depict vast amounts of data.” Must-have: A bachelor’s degree in computer science or a similar field and a strong understanding of machine learning algorithms, high-level programming languages, and neural networks. Experience with HTML, cascading style sheets, and web standards is required.

Based on a job advertisement on JPMorgan’s website.

Quantitative Analytics Consultant—Decision Science and Artificial Intelligence Financial Crimes

Model Validator

Estimated median base pay: $105,804 Main duties: This bank is advertising a heavy-duty-sounding role with responsibilities to match. The hired candidate will work on a team responsible for validating and approving the machine learning and AI models behind marketing, credit scoring, financial-crimes detection, and fair-lending practices. Must-have: Several years’ experience in an advanced scientific or mathematical field. A background in sanctions screening and anti-money-laundering analysis will also help.

Based on a job advertisement on Wells Fargo’s website.

Note: Glassdoor uses a proprietary machine learning algorithm to approximate median base pay by job title, industry, and employer size.

Govt's steps to ease NBFC liquidity crisis too short-term: Fitch report

The government measures to provide partial credit guarantee to public sector bank on their asset purchases from NBFCs can ease funding pressure only for the short-term, says a report.

In the budget, the government had said for purchase of high-rated pooled assets of financially-sound NBFCs, amounting to Rs 1 trillion during the current financial year, it will provide a one-time six months' partial credit guarantee to public sector banks for their first loss of up to 10 percent.

The step, however, does not address investors' long- term concerns about the exposure of NBFCs' to stressed real estate, rating agency Fitch said in a report Thursday.

"The guarantee is more than enough to cover typical losses. The government will cover up to Rs 1 trillion of issuance. We estimate that this will cover their liquidity needs for about six months," the agency said.

The provision refers only to financially-sound NBFCs, which suggests that weaker entities in need of funds may still have to fend for themselves, it noted.

The funding stress has been most severe for wholesale financiers, smaller NBFCs and fintechs, which have struggled to get even bank funds, while large NBFCs still have good access to funding, albeit at a rising cost, the report said.

The government has referred to a six-month period but it is not clear whether this relates just to how long the scheme is open for or also to the duration of coverage for each transaction, it said.

"A guarantee for only the first six months following a transaction would do little to encourage buyers and we therefore assume that the guarantee will apply for the full life of the assets purchased," the agency said.

The report however said NBFCs will benefit more from the Rs 70,000 crore recapitalisation of state-owned banks, which will increase their capacity to lend more.

Investor confidence in the NBFC sector could also be boosted by a potential asset-quality review of wholesale non- banking lenders, leading to greater transparency and more robust capital requirements.

"However, if an asset-quality review uncovers large under-reporting of NPAs, like in the case of banks, it might end up bringing things to a head by making clear to investors which entities have the biggest issues," it said.

No review has been confirmed, but market speculation about the possibility of one has increased with housing finance companies moving under the regulatory ambit of the RBI, the report noted.