Saturday, June 8, 2013

SBI chief says new NPA norms will have minimal impact



BL : PTI : 5 June 2013
State Bank of India today said it will have less than 1 per cent impact on its pre-tax balance sheet or around Rs 200 crore annually due to the revised norms on NPAs and restructuring by the RBI.
“Total impact will be around Rs 200 crore a year which will be less than 1 per cent on a PBT (profit before tax) basis,” Chairman Pratip Chaudhuri told reporters on the sidelines of an international banking summit organised by the industry lobby IMC here.
On May 19, the central bank revised the norms on restructuring and NPA accounts, increasing the provisioning percentage on restructured accounts besides making loan recasts tougher by increasing promoters contribution.
Under the new rules, from June 1, banks must set aside provisioning for 5 per cent of the value of a loan that is newly restructured, from 2 per cent previously.
But the regulator said it will not force banks to re-classify loans as NPAs in the event of project delays in the infrastructure and commercial real estate sectors.
To discourage loan recasts, which has more than doubled last fiscal, the RBI had said from April 2015 an account will have to be classified as sub-standard as soon as it is restructured and a standard asset on restructuring would be immediately classified as sub-standard as also non-performing assets.
“All restructured accounts which have been classified as NPAs upon restructuring, would be eligible for upgrade to the standard category after observation of ‘satisfactory performance’ during the ‘specified period’,” the RBI had said.
According to ICRA, banks may have to keep an additional Rs 1,500-2,500 crore as provisions this fiscal for their existing recast loan book.
On the possible impact of reducing deposit rates on retail rates, Chaudhuri said it would depend on what competitors are offering on other instruments.
He also said despite reducing rates on bulk deposits in the recent past, such a possibility on retail rates seems to be remote.
Referring to credit growth in first two months of the current fiscal, Chaudhuri said, “the first half is generally slow. So, it will be unrealistic if we expect higher growth.
We are taking deposits because we think growth will happen in the second half. Growth today is coming from the consumer side.”
On Kingfisher Airlines, Chaudhuri said it will not be possible on his part to comment on a specific account.
He also said it is worrisome to see stagnancy in the industrial sector.
(This article was published on June 5, 2013)
Keywords: RBI, SBI, bad loans, NPA provisioning, restructuring of loans, Reserve Bank of India, 

Independent body likely to review debt recast cases: Takru




BL : June 7,2013


To prevent unfit cases from getting their loans restructured under the corporate debt restructuring (CDR) mechanism, the Finance Ministry plans to set up an independent common oversight body, said Rajiv Takru, Financial Services Secretary.
The body will be a recommendatory unit which will vet CDR cases above a certain threshold.
However, he did not specify what the threshold will be and said it will be decided by the banks.
“When banks get a CDR case above a certain amount, they can send it to the body which can give its view to the banks,” he said.
He said that there would not be any government official or banker on the panel. The members would include experts from legal, investigation and financial fields.
The body will give its opinion to the banks in writing so that the banks cannot later say that they were not sufficiently forewarned about the suitability of the case, he added.
Takru further told that banks cannot afford to waste any time to start the recovery process.
“Whatever the assets (collaterals) are, banks must auction them. If banks do not get the right price for the asset, then banks must buy it out,” he added.
deepa.nair@thehindu.co.in
(This article was published on June 7, 2013)
Keywords: corporate debt restructuring, loans restructured, Finance Ministry plans, Takru

Put loan collaterals through periodic legal audit, RBI tells banks



BL : June  7,2013

To contain fraud, the Reserve Bank of India on Friday asked banks to subject the title deeds and other documents in respect of all credit exposures of Rs 5 crore and above to periodic legal audit. They should also re-verify the title deeds with relevant authorities as part of regular audit exercise till the loan stands fully repaid.
Bankers say such a directive may have been prompted by rising bad loans and the necessity to ensure that collateral are sufficient to make recoveries.
The central bank said banks should furnish a review note to their board/audit committee of the board at quarterly intervals on an ongoing basis.
The review note should contain information in respect of legal audits covering aspects such as the number of loan accounts due for legal audit for the quarter, how many accounts covered, list of deficiencies observed by the auditors, and steps taken to rectify the deficiencies.
The note should also mention the number of accounts in which the rectification could not take place, course of action to safeguard the interest of bank in such cases, action taken on issues pending from earlier quarters.
ramkumar.k@thehindu.co.in
(This article was published on June 7, 2013)
Keywords: title deeds and other documents, loan collaterals, periodic legal audit, RBI

Thursday, June 6, 2013

SBI chief says new NPA norms will have minimal impact



BL :MUMBAI, JUNE 5:2013

State Bank of India today said it will have less than 1 per cent impact on its pre-tax balance sheet or around Rs 200 crore annually due to the revised norms on NPAs and restructuring by the RBI.
“Total impact will be around Rs 200 crore a year which will be less than 1 per cent on a PBT (profit before tax) basis,” Chairman Pratip Chaudhuri told reporters on the sidelines of an international banking summit organised by the industry lobby IMC here.
On May 19, the central bank revised the norms on restructuring and NPA accounts, increasing the provisioning percentage on restructured accounts besides making loan recasts tougher by increasing promoters contribution.
Under the new rules, from June 1, banks must set aside provisioning for 5 per cent of the value of a loan that is newly restructured, from 2 per cent previously.
But the regulator said it will not force banks to re-classify loans as NPAs in the event of project delays in the infrastructure and commercial real estate sectors.
To discourage loan recasts, which has more than doubled last fiscal, the RBI had said from April 2015 an account will have to be classified as sub-standard as soon as it is restructured and a standard asset on restructuring would be immediately classified as sub-standard as also non-performing assets.
“All restructured accounts which have been classified as NPAs upon restructuring, would be eligible for upgrade to the standard category after observation of ‘satisfactory performance’ during the ‘specified period’,” the RBI had said.
According to ICRA, banks may have to keep an additional Rs 1,500-2,500 crore as provisions this fiscal for their existing recast loan book.
On the possible impact of reducing deposit rates on retail rates, Chaudhuri said it would depend on what competitors are offering on other instruments.
He also said despite reducing rates on bulk deposits in the recent past, such a possibility on retail rates seems to be remote.
Referring to credit growth in first two months of the current fiscal, Chaudhuri said, “the first half is generally slow. So, it will be unrealistic if we expect higher growth.
We are taking deposits because we think growth will happen in the second half. Growth today is coming from the consumer side.”
On Kingfisher Airlines, Chaudhuri said it will not be possible on his part to comment on a specific account.
He also said it is worrisome to see stagnancy in the industrial sector.
(This article was published on June 5, 2013)

Keywords: RBI, SBI, bad loans, NPA provisioning, restructuring of loans, Reserve Bank of India,

Monday, June 3, 2013

Indian bankers suit up for war on debt defaulters



Debt image via Shutterstock

B S : Reuters  |  Mumbai  June 3, 2013 Last Updated at 08:14 IST

Weighed down by stressed loans of nearly $150 billion and against a backdrop of slowest economic growth in a decade, Indian banks are bringing an unprecedented intensity to their recovery efforts

Fed up with a profitable textile company's failure to repay its loan, India's UCO Bank has taken its grievance public, placing newspaper ads last month that brand the industrialist owner of S Kumar's Nationwide Ltd a defaulter.
State Bank of India (SBI), Bank of India Ltd and Bank of Baroda are also preparing to name and shame corporate borrowers which are not paying them back, bank executives told Reuters.
This aggressive tactic for dealing with bad debt marks a major departure from the traditional laid-back approach of Indian state lenders.
Weighed down by stressed loans of nearly $150 billion - equivalent to more than 10% of bank assets in the country - and against a backdrop of the slowest economic growth in a decade, Indian banks are bringing an unprecedented intensity to their recovery efforts.
"We are going hammer and tongs to recover loans," said M S Raghavan, executive director at Bank of India, which last year began opening debt recovery branches to pursue defaulting borrowers.
In the banks' arsenal of debt recovery tools are the power to seize and sell assets, take deadbeat borrowers to court, sell loans to investors, and beef up debt recovery teams, although a slow-moving legal system and the lack of a bankruptcy process limit their effectiveness.
Officials at state banks, which account for about three-quarters of lending in India, expect the push will cut bad loan ratios by at least 1 percentage point.
Bank of India's non-performing loan (NPL) ratio improved slightly to 2.99% of total assets at end-March from 3.08% at end-December.
"If we don't intensify, nothing is going to come to us," Raghavan said.
Traditionally, Indian lenders, especially those controlled by the government, have tried to nurse customers through tough times by easing terms or "evergreening" loans - giving new loans to pay old ones - an unlawful practice that many in the industry say is common.
In a country where businesses thrive on personal relationships, Indian banks have typically avoided involving the courts or liquidating assets - time-consuming efforts which often yield only minor results.
Even the so-called "fast-track courts" for banks, formed in the last decade, can take more than two years to resolve a case.
The central bank has called for better management of bad debts, and wants to strengthen oversight by lenders.
Indian banks tried to recover on $10.9 billion in bad loans but managed just a quarter of that through liquidation and lawsuits in the year ended March 2012, the latest data from the central bank shows.
Banks are particularly needled by business chiefs who sit on huge personal fortunes, but whose companies fail to repay loans.
In March, Finance Minister P Chidambaram asked state banks to move against rich "promoters" to recover loans from failing companies after a $1.4 billion default by Kingfisher Airlines Ltd , controlled by liquor baron Vijay Mallya.
Targests and texts
S Kumars and its Reid & Taylor clothing brand, well-known in India thanks to its endorsement by Bollywood superstar Amitabh Bachchan, owes $19 million to UCO Bank, according to the Kolkata-based lender's newspaper ad.
Another lender, SBI, in May sent a liquidation notice to S Kumars and Reid & Taylor, said Soundara Kumar, head of the bank's stressed assets management division.
S Kumars and Reid & Taylor founder Nitin Kasliwal did not respond to several phone calls from Reuters.
S Kumars earned net profit of Rs 86.5 crore in the nine months to December, according to a stock exchange filing.
"What we are now beginning to see is incidents of such prosperous promoters and sick companies are increasing. What we have tried to do is simply send a message across," said a senior executive at UCO in Mumbai, speaking on condition of anonymity because they were not permitted to talk to the media.
There is some evidence that public outing as debt dodgers can goad a company into action.
United Bank of India took out a newspaper ad in April to say pharmaceutical packaging firm Bilcare Ltd'soutstanding Rs 51.5 crore loan was in default. Bilcare later said in a stock exchange statement that it was in touch with lenders and was trying to restructure its loan.
Such methods are likely to become more popular, given the absence of a formal bankruptcy law, and the great time and cost of pursuing collection in court.
"Our legal systems move very slowly. We have such a huge number of pending cases in the courts that we are unable to lay our hands on assets that we can recover from," said Shubhalakshmi Panse, chairwoman of state-run Allahabad Bank .
Bankers say errant borrowers often manage to get stay orders from various courts, slowing down the recovery process, and most cases take over two years to be resolved.
Panse said she has given daily loan recovery targets to bank officers and branch managers across India. They send her a text message each day apprising her of the status of those targets.
If borrowers want to stay out of court, they can try the Corporate Debt Restructuring (CDR) Cell, where banks sought to restructure a record $16.6 billion in loans in the year that ended in March 2013, an increase of 38% year-on-year.
Worried that CDR enables both borrowers and banks to escape from bad loans too lightly, the central bank has asked lenders to set aside more money in reserve against restructured loans and begin classifying them as bad, starting in 2015.
In a rare case, lenders recently rejected a proposal by outsourcing firm Spanco Ltd to restructure a Rs 1,300 crore loan through CDR.
Even the powerful Vijay Mallya could not hold Kingfisher's creditors at bay forever. After threatening to do so for months, banks began liquidating collateral for the airline's loans in March, more than a year after its initial default.
"Trying to be tough is a good step given that whatever they have been doing in the past has not been working," said Ismael Pili, banking analyst at Macquarie Securities in Hong Kong.