Specialist in Indian Banking and Economic Research

Hemindra Hazari

Thematic (Sector/Industry)

Even though non-bank finance companies (NBFCs) dedicated to providing loans against gold ornaments are highly profitable and enjoy significant net interest margins (NIMs), stakeholders should be concerned about the vulnerability of their branches to robberies. The spate of robberies indicates that thieves are specifically targeting branches because they follow inadequate security protocols for the substantial gold ornaments they hold in custody for their customers. Examining the robberies reported in the media indicates that each of the targeted branches held gold valued at a minimum of Rs 100 mn (equivalent to atleast 25 kgs of gold ornaments). The fact that a robbery of a single branch can yield so much, and that they have poor security protocols in place, makes them an attractive target for thieves. The average metropolitan bank branches (excluding currency chests), in contrast, have superior security protocols, while normally holding far less amounts of cash in their branches (as excess cash is immediately transferred to currency chests).While the gold ornaments held in NBFC branches are insured, robberies are a law and order issue, especially when staff and members of the public are injured or killed during such robberies. If such robberies continue because NBFCs do not want to improve the security arrangements (for cost reasons), the police will be compelled to intervene and insist NBFCs invest in the necessary security protocols (strongrooms, armed guards, CCTVs being operational 24x7, technology) failing which the police will close branches to maintain law and order.In general, in the business of loans against gold, the credit, market and liquidity risks are taken care of by the nature of the commodity gold, and management therefore are to focus on operational risk management. The spate of robberies and the poor state of security protocols indicate that managements, for cost reasons, are ignoring these critical issues as they believe insurance will cover the risk. Stakeholders in NBFCs specialising in gold lending should be cognizant of the poor operational risk management, especially the poor security arrangements in the branches, which are attracting robberies. They must insist that these companies invest in the necessary protocols before the state decides to intervene.

Even though non-bank finance companies (NBFCs) dedicated to providing loans against gold ornaments are highly profitable and enjoy significant net interest margins (NIMs), stakeholders should be concerned about the vulnerability of their branches to robberies. The spate of robberies indicates that thieves are specifically targeting branches because they follow inadequate security protocols for the substantial gold ornaments they hold in custody for their customers. Examining the robberies reported in the media indicates that each of the targeted branches held gold valued at a minimum of Rs 100 mn (equivalent to atleast 25 kgs of gold ornaments). The fact that a robbery of a single branch can yield so much, and that they have poor security protocols in place, makes them an attractive target for thieves. The average metropolitan bank branches (excluding currency chests), in contrast, have superior security protocols, while normally holding far less amounts of cash in their branches (as excess cash is immediately transferred to currency chests).While the gold ornaments held in NBFC branches are insured, robberies are a law and order issue, especially when staff and members of the public are injured or killed during such robberies. If such robberies continue because NBFCs do not want to improve the security arrangements (for cost reasons), the police will be compelled to intervene and insist NBFCs invest in the necessary security protocols (strongrooms, armed guards, CCTVs being operational 24x7, technology) failing which the police will close branches to maintain law and order.In general, in the business of loans against gold, the credit, market and liquidity risks are taken care of by the nature of the commodity gold, and management therefore are to focus on operational risk management. The spate of robberies and the poor state of security protocols indicate that managements, for cost reasons, are ignoring these critical issues as they believe insurance will cover the risk. Stakeholders in NBFCs specialising in gold lending should be cognizant of the poor operational risk management, especially the poor security arrangements in the branches, which are attracting robberies. They must insist that these companies invest in the necessary protocols before the state decides to intervene.

Why Have Gold Loan NBFCs Become Low Hanging Fruit for Robbers?

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

* RBI Failure To Think Through Moratorium Leads To Continued Uncertainty for India: On September 3, 2020, the Supreme Court of India held a hearing on interest rate waivers for loans under moratorium granted by the Reserve Bank of India (RBI). On September 10th, the Supreme Court clarified: a) the matter under discussion is related to interest on interest payments and not on the interest payments themselves; and b) that banks should not classify loans as NPL for another two month period, if they were not classified NPLs on August 31st.; and   *Dissatisfied Borrowers: The Supreme Court has now disposed of the 'interest on interest waiver' related petitions where borrowers were satisfied with the interest on interest waiver measures implemented by the RBI and the financial sector. However, there remain other borrowers (ie. power companies) who aren’t satisfied and have proposed further modifications to the RBI’s restructuring scheme.

* RBI Failure To Think Through Moratorium Leads To Continued Uncertainty for India: On September 3, 2020, the Supreme Court of India held a hearing on interest rate waivers for loans under moratorium granted by the Reserve Bank of India (RBI). On September 10th, the Supreme Court clarified: a) the matter under discussion is related to interest on interest payments and not on the interest payments themselves; and b) that banks should not classify loans as NPL for another two month period, if they were not classified NPLs on August 31st.; and   *Dissatisfied Borrowers: The Supreme Court has now disposed of the 'interest on interest waiver' related petitions where borrowers were satisfied with the interest on interest waiver measures implemented by the RBI and the financial sector. However, there remain other borrowers (ie. power companies) who aren’t satisfied and have proposed further modifications to the RBI’s restructuring scheme. 

Reserve Bank of India – The Fun Never Stops

*HFC Harmonization With NBFCs: The Reserve Bank of India (RBI) had initially published a draft proposal for changes in regulations for Housing Finance Companies (HFC) in June 2020, seeking commentary from stakeholders by July 15, 2020; and*Final Regulatory Changes: After stakeholder review, there is essentially one key change to the draft proposal mandating a higher 60% of total assets be “qualifying housing finance assets” and that a minimum of 50% of total assets be housing loans. The RBI has indicated that other differences between HFC and NBFC regulations will be eliminated over a period of two years.

*HFC Harmonization With NBFCs: The Reserve Bank of India (RBI) had initially published a draft proposal for changes in regulations for Housing Finance Companies (HFC) in June 2020, seeking commentary from stakeholders by July 15, 2020; and*Final Regulatory Changes: After stakeholder review, there is essentially one key change to the draft proposal mandating a higher 60% of total assets be “qualifying housing finance assets” and that a minimum of 50% of total assets be housing loans. The RBI has indicated that other differences between HFC and NBFC regulations will be eliminated over a period of two years.

Reserve Bank of India  - Final HFC Changes

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

We wonder if those banks that saw radical growth of impairment costs during FY20 will see the most improvement in the current year? We can look to some, with reported first quarter data to see if there is any sign of this occurring already. While India moved into shutdown while in its own banking and economic crisis, there can be some relief for banks and specialty finance companies with re-opening and with an improving economy, especially where impairment costs were very high. And it may be the type of credit that each company emphasizes that is key to differentiate amongst India’s lenders.

We wonder if those banks that saw radical growth of impairment costs during FY20 will see the most improvement in the current year? We can look to some, with reported first quarter data to see if there is any sign of this occurring already. While India moved into shutdown while in its own banking and economic crisis, there can be some relief for banks and specialty finance companies with re-opening and with an improving economy, especially where impairment costs were very high. And it may be the type of credit that each company emphasizes that is key to differentiate amongst India’s lenders.

Forensic Analyst, Trudence Capital Advisors

Nitin Mangal

Forensic Analyst

Macroeconomics

Covid 19 pandemic proved to be as troublesome a financial crisis as a humanitarian one. In <a href="https://www.smartkarma.com/insights/covid-19-rbi-has-gone-all-out-attack" target="_blank" data-smartkarma-citation="insights:37873" rel="noopener">Covid-19: RBI Has Gone All-Out-Attack</a> we spoke about some bold and drastic measures the central bank has taken to curb the crisis back in March/April.The respite from the central bank was just the beginning that needed a spot on execution. Fast forward few months, while the broad macro indicators still gasp for a speedy recovery, the financial stress on both lenders and borrowers had been soaring aggravatingly especially on the MSMEs. This insight deals with the latest mode of action on the regulatory side that the RBI has taken in its MPC meet Aug'20, which will bring a breathing space to the borrowers.

Covid 19 pandemic proved to be as troublesome a financial crisis as a humanitarian one. In Covid-19: RBI Has Gone All-Out-Attack we spoke about some bold and drastic measures the central bank has taken to curb the crisis back in March/April.The respite from the central bank was just the beginning that needed a spot on execution. Fast forward few months, while the broad macro indicators still gasp for a speedy recovery, the financial stress on both lenders and borrowers had been soaring aggravatingly especially on the MSMEs. This insight deals with the latest mode of action on the regulatory side that the RBI has taken in its MPC meet Aug'20, which will bring a breathing space to the borrowers.

RBI MPC Meet: Can New Policies Really Curb the Covid-19 Impact?

India

Manappuram Finance Limited is an Indian non-banking financial company (NBFC) specializing primarily in gold loans. The company has diversified its portfolio to include microfinance, home loans, vehicle loans, and SME lending. It was founded in 1949 and is headquartered in Valapad, Thrissur, Kerala, India.

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Manappuram Finance (MGFL IN)

Why Have Gold Loan NBFCs Become Low Hanging Fruit for Robbers?

The spate of robberies indicates that thieves are specifically targeting branches because they follow inadequate security protocols for the gold...

Hemindra Hazari

Reserve Bank of India – The Fun Never Stops

RESERVE BANK OF INDIA: Certain Borrowers Are Dis-Satisfied With "Interest On Interest Waiver" And Proposed Additional Modifications To RBI...

Thomas J. Monaco

Reserve Bank of India - Final HFC Changes

RESERVE BANK OF INDIA - Final Housing Finance and Non-Bank Financial Company Rule Harmonization Regulations Now Set With Stricter Rules.

Thomas J. Monaco

India Banks – Weak Turn Strong?

We wonder if those banks that saw radical growth of impairment costs during FY20 will see the most improvement in the current year? We have the...

Daniel Tabbush

RBI MPC Meet: Can New Policies Really Curb the Covid-19 Impact?

Covid 19 pandemic proved to be as troublesome a financial crisis as a humanitarian one. In Covid-19: RBI Has Gone All-Out-Attack we spoke about...

Nitin Mangal

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