0

0

0

0

0

0

0

0

0

IBC to LGBTQIA, in banking this week

Mini

From auto-debit bounce rates lowest since COVID-19 to Axis Bank's inclusive policies for LGBTQIA+ employees & customers, here's what went down in the banking industry this week.

IBC to LGBTQIA, in banking this week
Auto-debit bounce rates lowest since COVID-19
Auto-debit bounce rates for the month of August in value terms are at the lowest level they have been since the pandemic began. Bounce rates show the auto-debit transactions that did not clear. These are captured by the National Automated Clearing House or NACH debit platform—which processes recurring payments like EMIs—which is the largest chunk, and utility bill payments, insurance premiums etc.
The latest data from the National Payments Corporation of India (NPCI) shows that bounce rates stood at 33 percent by volume and 26.8 percent by value in August. These are even better than the levels seen during January-March 2021 which was the best quarter last year in terms of recovery for the economy and overall performance for the financials. This is in line with the trend report by banks, which have seen better recoveries since July and August after the COVID-19 second wave.
MonthBounce Rate (Volume Terms)Bounce Rate (Value Terms)
Aug-2133%26.80%
Jul-2133.20%27.40%
Jun-2136.51%30.30%
May-2135.90%30.70%
Apr-2134.05%27.90%
Mar-2132.76%27.50%
Feb-2136.65%27.50%
Jan-2136.21%27.40%
Dec-2038.09%29.20%
Nov-2040.50%31.10%
Oct-2040.09%32.30%
Sep-2040.83%31.70%
Aug-2040.30%32.20%
Jul-2041.92%33%
Jun-2045.37%38.10%
May-2036.39%30.30%
Apr-2037.99%36.70%
Mar-2033.80%27.60%
While this is encouraging data, bounce rates are still not at the levels we had pre-Covid. So transaction failures still remain high. The average bounce rate for the month of August in pre-Covid years between 2017-19 was around 24 percent by volume and 20 percent by value. So the current rates are still 700-800 bps higher, which is a reflection of the stress in the system.
IBC, to amend or not to amend?
The five-year-old Insolvency and Bankruptcy Code (IBC), hailed as a game-changer for the bad loan resolution landscape in India has faced criticism for the large haircuts banks have had to take recently. The cumulative recovery by financial creditors under IBC fell to about 36 percent as of June 30, 2021, compared to about 39 percent in the previous quarter, the latest data from the Insolvency and Bankruptcy Board showed. This is far lower than the 45 percent cumulative recovery seen as of March 31, 2020.
IBC Recovery vsClaims (Realisation as of date)
Dec-1943.15%
Mar-2045.96%
Jun-2030.19%
Sep-2043.56%
Dec-2039.80%
Mar-2139.26%
Jun-2136%
So does it still remain the best tool for recovery? It certainly seems so when compared to other forms like Lok Adalat, SARFAESI, DRT.
Recovery via IBC vs others (Between FY15-20)
Lok Adalat: 5 percent
DRT: 6 percent
SARFAESI: 20 percent
IBC: 36 percent
Data Source: RBI Gov Speech
Care Ratings compiled some other interesting facts. Of the total 4,541 cases admitted into CIRP at the end of June 2021:
  • 37  percent of the cases continue to remain in the resolution process against 39 percent as of the end of March 2021, with the manufacturing sector accounting for a majority, followed by real estate and the construction segment.
  • 1,349 cases have ended into liquidation (i.e., 30 percent of the total cases admitted, higher compared with the last quarter). However, 75 percent of the cases ending in liquidation (1,011 out of 1,349) were either BIFR cases and/or defunct.
  • Around 14 percent (653 cases) of the cases have been closed on appeal or review or settled which is the same as the last quarter.
  • 10 percent of the cases have been withdrawn under Section 12A: A significant number of such cases (50 percent) were less than Rs 1 crore. The primary reason has been either the full settlement with the applicant which has increased to 39 percent against 37 percent as at end of March 2021 or other settlement with creditors (22 percent ).
  • Only 9 percent of the total cases have ended in approval of resolution plans (an increase by only 1 percent compared with March-2021).
  • The other problem area has been the seemingly endless litigation-related delays, which have caused cases to stretch far beyond the ideal timeline of 180 days. Insolvency and Bankruptcy Board of India (IBBI) data again shows that of the 1,682 ongoing cases, there has been a delay by more than 270 days for the completion of the process of 75 percent of ongoing cases in June 2021 which is lower as compared to 79 percent in March 2021. Of the cases that have been resolved, the average time taken was 419 days, compared to a maximum period of 330 days allowed under the code.
    On one hand, we had the chairperson of IBBI, MS Sahoo recently telling CNBC-TV18 in an interview that it was not the code that needed amendments or any redesign, but the participants who needed to play by the provisions of the code for it to function better. Reserve Bank of India governor Shaktikanta Das, on the other hand, admitted that the code needed improvements, especially to ensure a more speedy resolution. "I agree there is scope for improvement in the functioning of the IBC and framework. There is perhaps need for legislative amendments also," he said on Thursday.
    Yes, the code leaves a lot to be desired, but it is still evolving. Experts argue that it has improved credit discipline, even though recoveries have been poor due to various reasons. But if not IBC, then what?
    Axis Bank, the real inclusion we need
    Axis Bank announced a new charter of policies and practices for its employees as well as customers, called #ComeAsYouAre to promote diversity, equality and inclusion. Under this, account holders from the LGBTQIA+ community will now be able to nominate their partners in their bank accounts, open joint accounts with their same-sex partners. Its employees will be allowed to list their partners for medical aim benefits, irrespective of gender, or marital status.
    Bravo, Axis Bank! We hope others will follow
    Have a good weekend folks!