“Rise in NPAs, slippages need to be urgently addressed”

Anand Sinha, Deputy Governor, RBI (third from right), releasing an IDRBT’s

book at the valedictory function of BANCON in Chennai on Sunday 

.(From left) B. Sambamoorthy, author of the book and Director,

 IDRBT, M.D. Mallya, Chairman of IBA , M. Narendra, CMD, IOB and

 A.K. Bansal, Executive Director, IOB are in the picture. 

Source :The Hindu:Nov 7,2011 

 Photo Source : The Hindu:R.Ragu

RBI Deputy Governor attributes problem to aggressive lending

Deputy Governor of Reserve Bank of India Anand Sinha on Sunday flagged the steep increase in Non Performance Assets (NPAs) and slippages as two issues that the country's banking sector needed to urgently address.

In his valedictory address at ‘BANCON 2011' hosted by the Indian Overseas Bank and the Indian Banks' Association (IBA), Mr. Sinha said while part of the up-trending of NPAs could be attributed to the fallout of the global financial crisis, the bulk of the problem had its roots in very aggressive lending during the boom period.

While ruling out a systemic issue because of this, Mr. Sinha pointed out that while gross NPAs have been going down — in spite of inching upwards slightly in percentage terms — in absolute terms, the stock of NPAs had been going up in the last four to five years despite the ratio coming down.

In fact, between March 6 and 10, the NPA stock grew by 63 per cent, Mr. Sinha said. While overall profitability had helped peg the net NPAs at a respectable level, this measure of management was more akin to putting a lid on the garbage, he said.

“The fact is that there are a lot of unproductive assets lying underneath and that needs to be resolved,” he said.

The other area of worry was the substantial increase in slippage — from 1.8 per cent during 2007-08 to 2.2 per cent in 2009-10. As a result, slippage outsized recovery despite heavy write-offs, he said. Mr. Sinha urged banks to tone up credit management to contain slippage, mobilise recovery and reduce NPA stock. 

The RBI would be issuing draft guidelines on Basel III capital adequacy norms for the banking system by December and put out a final version by March 31, 2012, Mr. Sinha said. 

Stating that the Basel norms were not a regulatory product, he said the RBI sought a smooth transition to the Basel III norms.

It is important for senior management of banks have to understand the nitty-gritty of specialised niche products as the complexity of products coupled with excessive risk-taking had led to the governance failure that triggered the global financial crisis, Mr. Sinha said.

Mr. Sinha advocated appropriate standardisation of the Know Your Customer (KYC) norms to make them a one-time or single-point procedure. 

While new accounts are largely in adherence with the KYC norms, there is a lot of deficiency with regard to older accounts, he said.

Pointing to projections that the Indian banking system could become the third largest in the world by 2025, Mr. Sinha said the focus should not be on size but on sustaining “excellence in responsible banking”, through an advocacy of corporate governance, higher productivity, product innovation and financial inclusion. 

Responsible banking was no longer a choice as it was an obligation to the nation and the world in a globalised economy and banks should combine their pursuit of profits with a balancing of the interests of all stakeholders, Mr. Sinha said.

 Mr. Sinha also launched a handbook ‘Holistic CRM and Analytics' authored by B. Sambamurthy, director, IDRBT. M. Narendra, IOB chairman and managing director, M. D. Mallya, IBA chairman and A. K. Bansal, IOB executive director, also participated.

Keywords: Non Performance Assets, banking

M/s.Chandragiri construction company & ors V/S Federal Bank & ors

M/s.Chandragiri construction company & ors V/S Federal Bank & ors 
A.IR:891/2011



IA 1369/11 (waiver): The representative of the respondent bank takes notice on behalf of the respondent bank and states that this Tribunal may take note of the requirement under Sec.18 of the SARFAESI Act and pass orders.

Ld.  Counsel Shri Arun Natarajan appearing on behalf of the petitioners states that the petitioners are ready and willing to deposit Rs.3.00 crores into the loan account and prays for time of two months for the purposes of complying with the requirement under Sec.18 of the SARFAESI Act. 


 He adds that the petitioners have already paid a sum of Rs.1.25 crores into the loan account and that the said sum of Rs.1.25 crores may also be taken into account while considering the pre-deposit under Sec.18 of the SARFAESI Act and prays for a sympathetic consideration of the case of the petitioner.  He further states that the petitioners are ready and willing settle the dues in an amicable manner and that it is due to certain reasons beyond the control of the petitioners that the loan could not be repaid in time.

Heard the Ld. Counsel.

In view of the facts and circumstances of the case more particularly in view of the fact that the petitioners are ready and willing to deposit Rs.3.00 crores into the loan account and in view of the fact that the petitioners have already deposited a sum of Rs.1.25 crores into the loan account and that both the sums put together would exceed 25% of the dues it would be appropriate to pass the following order.

“The petitioners are directed to deposit a sum of Rs.3.00 crores into the loan account on or before 1.2.2012. Call this IA on 2.2.2012 for verification of the compliance”

The representative of the respondent bank states that the bank will wait till 2.2.2012 for taking any further action.

IA 1370/11 (stay): Call with IA 1369/11.

43
M.A:554/2010
Integrated Housing Developers ltd V/S R.Premchand & 3 ors 
1.         This appeal impugns the order dated 06.08.2010 passed by the Learned Presiding Officer, DRT Ernakulam in IA No.1941/2010 in OA No.95/2010.

2.         The case of the appellant may be stated as follows:

It is stated that the appellant is the first defendant in OA No.95/2010 filed by the 4th respondent for the recovery of a sum of Rs.4,64,50,839/- and the Respondent Nos.1 to 3 are the defendant Nos.5 to 7 in the said OA.  It is stated that Late Shri K.P. Ramachandran Nair for himself and as power agent of his children viz., the Respondent Nos.1, 2 and 3 vide sale agreement dated 6.3.1992 had agreed to sell the wet agricultural lands admeasuring 12 Acres 27 cents comprised in Survey Nos.1280, 1281, 1282, 1286, 1288, 1279, 1283, 1284 and 1285 and an extent of 30 cents comprised in Survey Nos.1291/1B, 1291/1B-1, 1291/1B-4 and an extent of 48 cents comprised in Survey No.1291/2 and an extent of 2 cents 640 sq. ft. all situated in Kadakampalli Village. Thiruvananthapuram Taluk within the Registration and Sub registration district of Thiruvananthapuram.  It is stated that the said Late Shri K.P. Ramachandran Nair died in the year 1993 leaving behind Respondent Nos.1, 2 and 3 as his legal heirs.  It is stated that the sale consideration had been paid by the appellant to Respondent Nos.1, 2 and 3 in installments and that the said Respondents had handed over the original documents, the physical possession of the property and further that they had also executed a registered power of attorney dated 8.6.1994 in favour of the appellant to deal with the property as its absolute owner alongwith the power for alienation.  It is stated that the appellant had filed for the “Green Zone Exemption” from the Government of Kerala to convert the wet agricultural land into a residential property for the purpose of commencing the housing project after payment of the necessary charges in the year 1995.  It is stated that the appellant had invested a sum of Rs.1 crore on the property for laying a proper approach road by acquiring the adjacent land admeasuring 2 ½ cents and had also developed the interior roads to reach the proposed houses.  It is stated that the appellant had also purchased 28 cents of land  which the Respondent Nos.1 to 3 had sold to a third party.  It is stated that the appellant had mortgaged all the properties in favour of the 4th respondent for the housing project.  It is stated that the appellant is contesting all the cases filed against the property for and on behalf of Respondent Nos.1 to 3 and that the appellant had also filed written statement in the OA.  It is stated that the Respondent Nos.1 to 3 seeing the development of the project and the increase in the value of the property coupled with the changes in the Registration Rules stopped cooperating with the appellant for the completion of the formalities and went to the extent of canceling the power of attorney executed in favour of the appellant with a sole intention to further enrich themselves by defrauding the appellant.  It is stated that the Respondent Nos.1 to 3 had also approached the 4th respondent bank to release the documents deposited by the appellant expressing their willingness to settle the dues of the bank and that the 4th respondent had insisted for the production of a consent letter from the appellant.  It is stated that at this stage the Respondent Nos.1 to 3 filed IA No.1941/201 in OA No.95/2010 against the 4th respondent seeking for a direction to the 4th respondent for the release of the title deeds / Document No 6 in the OA on receipt of the payment as demanded by the bank without impleading the appellant in the said IA.  It is stated that the appellant had already paid the entire sale consideration to Respondent Nos.1 to 3 and that it is in actual physical possession of the property ever since 1994 and it is having an absolute right over the same and that it is a proper and necessary party in the said IA.  It is stated that the IA has been allowed by the Tribunal below and aggrieved by the same the present appeal has been filed.  It is prayed that the appeal be allowed and the order of the Ld. Presiding Officer, DRT Ernakulam dated 6.8.2010 in IA No.1941/2010 in OA No.95/2010 be set aside.

3.         The Ld. Counsel for the appellant stated that one of the grievances of the appellant is that the Ld. Presiding Officer, DRT Ernakulam has passed the order in the IA even without notice to the appellant and prayed that the matter may be remitted to the tribunal below for a fresh consideration of the IA after affording an opportunity to the appellant to put forth its case.  The Ld. Counsel added that the appellant has paid the entire sale consideration to Respondent Nos.1, 2 and 3 and therefore it is not proper on their part to seek the title deeds from the bank and that a fresh hearing of the IA by the Tribunal below is very much necessary in this case.  It is stated that the order of the Ld. Presiding Officer, DRT Ernakulam is liable to be set aside on the question of law as well as on facts. The Ld. Counsel prayed for allowing the appeal.

4.         The Ld. Senior Counsel for Respondent Nos.1 to 3 stated that they had already revoked the General Power of Attorney in favour of the appellant and that therefore Respondent Nos.1 to 3 are entitled to a redemption of the mortgage by the payment of the entire dues to the bank and equally entitled to the return of the original title deeds.  The Ld. Senior Counsel stated that the order of the Ld. Presiding Officer is proper and the Ld. Presiding Officer has rightly held that the Respondent Nos. 1, 2 and 3 are entitled to a redemption of mortgage and drew the attention of this Tribunal to Section 60 of the Transfer of Property Act and added that a reading of the same would drive this Tribunal to conclude that Respondent Nos. 1, 2 and 3 are entitled to the return of the documents of title and relied upon the following decisions in support of the case of Respondent Nos.1 to 3:

(i)                  Corporation Bank, Bangalore Vs. Laitha H. Holla : AIR 1994 KAR 133.
(ii)                T.K. Subramaniya Iyer (Died) and others vs. C. Natarajan and others: AIR 1996 Madras 241
(iii)               Mhadagonda Ramgonda Patil and Others Vs. Shripal Balwant Rainade and Others: (1988) 3 SCC 298
(iv)              Shivdev Singh and Another Vs. Sucha Singh and Anr.: (2000) 4 SCC 326.

5.         The Ld. Counsel for the 4th respondent bank stated that a Debt Recovery Tribunal constituted with the avowed object of recovery of public money cannot restrain any person from paying public money back to the bank.  The Ld. Counsel stated that Respondent Nos.1, 2 and 3 should be given the liberty to pay the dues to the bank.  The Ld. Counsel added that the interse dispute between the appellant and the Respondent Nos.1, 2 and 3 cannot be the subject matter before the DRT in a OA filed under the RDDB & FI Act and that the dispute should be resolved only by the appropriate forum. 

6.         Heard the Ld. Counsel.

7.         A perusal of the IA No.1941/2010 on the file of DRT Ernakulam reveals that the appellant though being the first defendant in the OA filed by the Canara Bank has not been included as a respondent in the said IA.

8.         It is the case of the appellant that it had entered into an agreement with the owners of the Schedule ‘A’ property of the OA for its development as housing sites and that considerable sums of money has been spent for the project and that the appellant has already paid the entire sale consideration to Respondent Nos.1, 2 and 3.

9.         It is seen that the Respondent Nos. 1, 2 and 3 had approached the bank i.e., the 4th respondent for return of the original title deeds on payment of its dues and that the 4th respondent bank had stated that it would not be able to release the title deeds without the consent letter from the developer company, which is the appellant herein.  It is also seen that the title deeds have been deposited with the respondent bank only by the appellant.

10.       From the above it can be seen that attempts have been made by Respondents 1, 2 and 3 for getting back the documents from the bank after obtaining orders from the tribunal below as seen in IA No.1941/2010 in OA No.95/2010 dated 6.8.2010 by keeping out the appellant who according to it has paid the entire sale consideration to the said respondents.  It can also be seen that the appellant has made claims over the property and orders have been passed in the IA No.1941/2010 by the tribunal below without hearing the appellant.  It can also be seen that the 4th respondent bank has also taken a clear stand in its letter dated 12.5.2010 addressed to Respondent Nos.1, 2 and 3 that the documents cannot be returned without the consent of the appellant.

11.       Therefore from the fact that the appellant has claimed the entire property to be its own, from the fact that the appellant had deposited the title deeds of the property with the 4th respondent bank, from the fact that the Respondent Nos. 1, 2 and 3 have not included the appellant as a respondent in IA No. 1941/2010 on the file of DRT Ernakulam, from the fact that the appellant was not afforded an opportunity to place its submissions in IA No.1941/2010. from the fact that the stand of the 4th respondent bank is that the documents cannot be returned to Respondent Nos. 1, 2 and 3 without the consent of the appellant as seen from their letter dated 12.5.2010, from the fact that the rights of the appellant have been decided even without hearing it, from the fact that the principles of natural justice has not been adhered to by the Ld. Presiding Officer of the tribunal below, it would be appropriate if IA No.1941/2010 is remitted to the tribunal below for consideration afresh in accordance with law after due notice to all the parties in the OA.

12.       Accordingly the order dated 6.8.2010 passed by the Ld. Presiding Officer, DRT Ernakulam in IA No.1941/2010 in OA No.95/2010 is hereby set aside and the IA No.1941/2010 is remitted back to the tribunal below for consideration afresh in accordance with law after due notice to all the parties in the OA.  The Ld. Presiding Officer is directed to take up the IA afresh and dispose of the same within a period of one month from the date of receipt of a copy of this order.  The Ld. Counsel for the appellant is directed to file a copy of this order into the tribunal below and seek a date for the hearing of the IA.

13.       The appeal is disposed of accordingly.  


Order  passed by DRAT Chennai on 4th Nov 2011

Banks poised to toothcomb loans

Source :Mahua Venkatesh, Hindustan Times,New Delhi, November 04, 2011



With a surge in the level of bad assets, banks are now setting up specialised cells to assess, document and monitor performance of loans and asset quality even for small-ticket sizes including retail and personal credit.


Until now, banks have primarily monitored the performance of big-ticket loans


However, following the steady increase in the level of bad assets in the banking industry and the downgrade of India's largest lender - State Bank of India (SBI), banks have decided to monitor even small sized loans.


The finance ministry has also asked banks to carry out an immediate assessment of their non-performing asset (NPA), documentation of the same and adherence of banking guidelines.


"We will monitor small retail loans also, until now we have primarily focused on bigger loans," said PK Anand, executive director, Punjab & Sind Bank.


The Reserve Bank of India (RBI) has also asked banks to monitor their asset quality on a regular basis especially since interest rates have steadily inched upward. 


State-owned banks have witnessed a surge in the level of bad assets.


The gross NPA of public sector banks for the period ending March, 2011 stood at Rs 71,047 crore.


Over the last few months, many banks have reported rising instances of irregular loan repayments as equated monthly installments (EMIs) have risen many times.

Banks to assist debt recovery tribunals

DRTS: NUTS & BOLTS

There are 33 DRTs and 5 debt recovery appellate tribunals in India Banks approach DRTs for disputed loans above Rs 10 lakh DRTs are expected to resolve the cases within 6 months Bankers say, Rs 2 lakh crore of loans are stuck in DRTs Of the Rs 2 lakh crore of suits filed, Rs 1.29 lakh-crore loan recovery certificates are yet to be issued

Source :BS:Parnika Sokhi / Mumbai November 3, 2011, 0:01 IST

Public sector banks are busy deputing manpower to under-staffed debt recovery tribunals (DRTs), after the finance ministry asked them to temporarily fill positions vacant since a few months. 

According to bankers, Rs 2 lakh crore of loans are stuck in DRTs, which were once established to provide banks with speedy resolution and recovery of disputed loans.

There are 33 DRTs and five debt recovery appellate tribunals in India. 

Currently, seven DRTs, including one of the three in Mumbai, are functioning without a presiding officer. 

There are vacancies for recovery officers and assistant staff as well.

We are in a process of deputing officers with legal background till the government completes fresh recruitment,” said a senior official of a public sector bank.

The finance ministry had called for a meeting with government-owned banks, after they failed to promptly respond to the directive given at the State Level Bankers Committee a month before, after which the bankers assured the postings would be made without further delay. The meeting was chaired by Financial Services Secretary D K Mittal.




Banks approach DRTs for disputed loans above Rs 10 lakh and for loans for which agricultural land was the underlying security. 
DRTs are expected to resolve the cases within six months. 


However, it takes much longer for them, given the insufficient staff and the rising number of cases.


Bankers who attended the meeting said of the Rs 2 lakh crore of suits filed in DRTs, recovery certificates are yet to be issued for loans worth Rs 1.29 lakh crore.


Lenders are banking heavily on recoveries, since the need for higher provisioning against rising non-performing assets is eating into their profits. Most public sector banks have reported lower net profits in the second quarter of the current financial year.


“We will dedicate this quarter to recoveries and cleaning up the balance sheet,” said M V Tanksale, chairman and managing director, Central Bank of India. The bank recorded a decline of 35 per cent in net profit, owing to high provisioning in the second quarter of the current financial year. Allahabad Bank, which announced its quarterly results today, said it had targeted Rs 1,000 crore of recovery for the current financial year.


“We have started a recovery drive and have collected around Rs 450 crore of dues in the first half of the current financial year,” said J P Dua, chairman and managing director, Allahabad Bank.

Kingfisher seeks switch to foreign currency debt

Source :BL:Nov3,2011

BANGALORE, NOV. 2: 

Debt-ridden private carrier Kingfisher Airlines has sought assistance from its banks to substitute high-cost rupee borrowings with lower-cost foreign currency debt.

The Vijay-Mallya owned airline hopes to support foreign currency debt by its international operations, which would provide with a natural hedge against currency movement, according to Mr Ravi Nedungadi, President and CFO, UB Group, in a press statement issued by the company.

He said that the company has sought the banks' help to release cash deposits held with lessors against maintenance reserves by providing bank guarantees in lieu.

Kingfisher Airlines has a total debt of Rs 7,000 crore, and currently a consortium of 13 banks, including State Bank of India and ICICI Bank, hold about 23 per cent stake in the company as part of the debt restructuring plans implemented last fiscal.

Mr Nedungadi also said that the company would seek banks' help to “appraise working capital requirements in the usual course to account for changes in the international prices of fuel and the change in rupee-dollar parity”.

He added that the banks were actively considering these requests, and ruled out another debt recast plan.

With the Government favouring 25 per cent foreign direct investment in private airlines, Kingfisher Airlines expects to reduce its debt burden. However, an aviation analyst with a domestic brokerage firm said that even if the company managed to raise funds through stake-sale to foreign investors it would find it difficult to repay its debt.

“Its first priority would be to make payments to employees and towards fuel, and the funds would be insufficient to repay its debt,” he pointed out. With the third quarter, which is supposed to be a good period for the aviation industry, not looking too bright for Kingfisher Airlines, the company could be faced with mounting losses in the coming months, he added.

Lenders reject Kingfisher Airlines debt recast plan

Source :Sidhartha, TNN | Nov 2, 2011, 03.08AM IST


NEW DELHI: Vijay Mallya-promoted Kingfisher Airlines is back with a debt restructuring plea but banks are unwilling to take a fresh haircut this time citing the company's weak finances and the loss they incurred on converting a part of their loans into equity. In addition, they fear that a fresh recast will force them to treat the loans as a non-performing asset (NPA), in line with the Reserve Bank of India norms. 

Further, they pointed out that Kingfisher was yet to fulfill a part of its commitment which included filing of the assignment agreement for the brand. This agreement with the Registrar of Trademarks would transfer the ownership of the brand to the lenders which will help banks trigger the default clause. 

While Kingfisher has not formally approached lenders with a proposal, bankers said the private airline which has been incurring losses, is looking to raise additional short-term loans, issue lines of credit in lieu of cash deposits lying interest free with lessors, substituting high-cost rupee debt with low-cost foreign currency loans and also raise Rs 2,000 crore via a rights issue. 


Airline executives have, however, raised the issue with government functionaries who have swung into action to see if fresh support from lenders is possible. Kingfisher Airlines CFO A Raghunathan did not respond to a text message and calls. UB Group's head of finance Ravi Nedungadi said he could not speak as he was tied up in meetings. 

Lenders said the biggest stumbling block will be RBI since loans have been restructured more than once and the regulator will now demand downgrading of the asset to NPA category if banks provide fresh succour. In the absence of compliance with earlier stipulated conditions, the task is going to get tougher, they added. Further, they pointed to the loss incurred on conversion of debt into equity. Against the prevailing market price of Rs 40 a share, on March 31 this year, there was preferential allotment to SBI and ICICI Bank due to conversion of compulsorily convertible preference shares into equity shares at a price of Rs 64.48 each, which represented a 60% premium over the prevailing market price. Since the end of March, Kingfisher's share price has declined 40% and closed at Rs 24.10 on Tuesday. "Given the impaired financial position and low security cover, taking additional exposure in the airline is not advisable," said a bank chief. "It is going to be very difficult to convince my board once again," added the head of another bank.