Gold Price Fall Not Much Worry for NBFCs, But Banks Need to be Watchful, Warns CRISIL
Moneylife Digital Team
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The correction in gold prices in recent months is not expected to materially impact the asset quality of non-banking financial companies (NBFCs) lending against gold. While NBFCs have maintained disbursement loan-to-value (LTV) below 75%, banks have higher incremental-disbursement LTV at 78-82%, and thus needs to be more watchful and focus on timely collection of interest and follow LTV discipline, warns a research report.
In the report, ratings agency CRISIL says, Disbursement LTV and timely interest collection have a significant bearing on the cushion available with lenders (see table below) in terms of value of gold given as collateral compared with the loan outstanding. This, in turn, impacts asset quality. Therefore, robust risk management systems and timely auctions are crucial to offset volatility in gold prices and ultimate credit loss.
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Systemic risk facing banks in India is likely to remain high in the wake of the second wave of COVID-19 infections and a high proportion of weak loans. This is even though India s economic recovery and steps by the central bank and the government to cushion the effects of the economic crisis will continue to limit stress on the balance sheets of these banks, says S&P Global Ratings.
In a report, the ratings agency says, We estimate the Indian banking system s weak loans are at 11%-12% of gross loans. We forecast credit losses will decline to 2.2% of total loans in the year ending 31 March 2022, (fiscal 2022) and 1.8% in fiscal 2023, after staying elevated at an average of 2.8% in fiscals 2016-2021. Our expected credit costs for banks in India are in line with those for banks in other emerging countries such as China and Thailand. However, provisioning coverage in China and Thailand is much higher than in India.
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Well, the government seems to think so, and not just the present government, earlier ones too. Particularly, if a non-government organisation (NGO) champions a controversial cause, plus takes foreign donations, it is seen to be an agent of outsiders who want to create ‘trouble’ in India. Governments hate such NGOs.
A few months ago, the union government tightened the screws on NGOs by introducing an amended Foreign Currency Remittances Act (FCRA) law, which governs the receipt and utilisation of donations that NGOs receive from abroad.
Some aspects of this law are quirky, to say the least. For example, repairs of premises have been put under administrative expenses on which there is a cap. If the principal activity of an NGO is running a residential school for destitute children, it may have to spend quite a bit on keeping its dorms and classrooms in good condition. How is this an administrative expense, and not an essential ‘running expense’ for this NGO?
Live Streaming Viewed by Over 9,000 People As Gujarat HC Says Not Satisfied with Govt’s Action on COVID19
Moneylife Digital Team
The live streaming of Gujarat High Court s
suo motu public interest litigation (PIL) expressing concern about the COVID situation in the state has been viewed by more than 94,000 people so far. During the hearing, about 9,000 people were watching the court proceedings, making this a pathbreaking development in bringing the judicial process closer to people and letting them follow a life-and-death issue that affects them. Chief justice Vikram Nath expressed dissatisfaction with how the State government had handled the Covid situation and directed the Gujarat government to submit a detailed affidavit by 14th April based on today s hearing. Earlier, the chief justice had asked the chief secretary and principal secretary to join the online hearing.
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A new study by IIT Bombay has revealed that several banks, including State Bank of India (SBI), have been imposing excessive service charges on zero-balance or basic savings bank deposit accounts (BSBDA). In fact, SBI alone collected almost Rs300 crore over the past five years from these zero-balance or basic accounts.
The study observed that the SBI’s decision to levy a charge of Rs17.70 for every debit transaction beyond four by the BSBDA account-holders cannot be considered as reasonable. It is usually the poorer people and students who are fleeced and this continues even now in a year-long COVID situation when things have been rough and the poorer sections have borne the worst brunt of lock-downs and restrictions.