Wednesday, August 7, 2013

Rs 5.6 lakh fine on SBI for violation of norms




BS : PTI :7 AUG 2013

Penalty levied in connection with deficiencies and lapses in the operation and maintenance of the currency chest at Secunderabad branch


The Reserve Bank today said it imposed a fine of about Rs 5.6 lakh on State Bank of India (SBI) for violation of currency chest norms.

"The Reserve Bank of India has imposed a penalty of Rs 5,62,555 on July 12, 2013 on SBI for violation of the terms of agreement with RBI for opening and maintaining currency chests," the central bank said in a statement.

The penalty was levied in connection with deficiencies and lapses in the operation and maintenance of the currency chest at the Secunderabad branch of SBI, it said.


Last month, the RBI had imposed a penalty of Rs 3 crore on SBI for violating know your customer (KYC)/anti-money laundering norms.

The penal action by RBI was taken after an online portal alleged violation of KYC norms and money laundering by banks and financial institutions.

"After considering the facts of each case...Reserve Bank came to conclusion that some of the violations were substantiated and warranted imposition of monetary penalty..." the central bank had said in a statement.

Cobrapost alleged that the financial sector entities had offered to open bank accounts and lockers for customers without following KYC norms, convert their black money into white and obtain fictitious PAN cards.


Those named in the expose include SBI, LIC, Punjab National Bank, Bank of Baroda, Canara Bank, Reliance Life, Tata AIA, Yes Bank, Indian Bank, Indian Overseas Bank, IDBI Bank, Oriental Bank of Commerce, Dena Bank, Corporation Bank, Allahabad Bank, Central Bank of India, Dhanlaxmi Bank, Federal Bank, DCB Bank and Birla Sun 

State-run banks’ bad loans mount in June quarter

Rising bad loan levels have taken a toll on the shares of banks with bankex, or the index of major bank stocks, falling by 23% so far this year in comparison with a 3.72% decline in the Sensex.
Rising bad loan levels have taken a toll on the shares of banks with bankex, 
or the index of major bank stocks, falling by 23% so far this year in comparis
on with a 3.72% decline in the Sensex.

Mint :Dinesh Unnikrishnan :Tue, Aug 06 2013. 11 09 PM IST

Incremental addition of gross NPAs touches 3.5% of loan assets;
 gross NPAs increase by 51% to Rs1.2 trillion.

Mumbai: Fresh additions to the pile of bad loans at India’s state-run banks reached the highest level in a decade in the three months ended June, as slower economic growth, high interest rates and project delays impared the ability of borrowers to repay loans.
The incremental addition of gross non-performing assets (NPAs) in the June quarter was 3.5% of loan assets, compared with 2.8% in the same quarter last year. Such levels were last seen in the fiscal year 2003-04, when fresh additions stood at 2.7%, said Vaibhav Agarwal, vice-president of research at Mumbai-based brokerage Angel Broking Ltd.
According to a Mint analysis of the earnings of 35 listed banks, which have so far reported their first quarter earnings, the gross NPAs of 22 public sector banks grew by 51% to Rs.1.2 trillion in the June quarter from the year-ago quarter. Compared with the March quarter, state-run banks’ gross NPAs rose by 15%.
photo
The country’s largest lender, State Bank of India(SBI), is yet to announce June quarter results.
India’s economy grew 5% in the year ended 31 March, the slowest pace in a decade, as high borrowing costs forced companies to put fresh investments on hold and consumers to cut spending. Delays in securing mandatory government approvals and problems in land acquisition have stalled many big ticket projects, stopping the cash flows of companies and denting their ability to repay debt.
New additions to gross NPAs at private sector lenders was muted relative to state-run lenders, Gross NPAs of 13 private banks rose 12% in the three months to June compared with the year-ago quarter and 7% over the March quarter. “There is no catalyst for improvement. We expect the second quarter to be even worse,” Agarwal of Angel Broking said.The five banks that rank top among the state-run lenders in terms of gross NPAs are Central Bank of India(6.03%), State Bank of Mysore (5.61%) UCO Bank (5.58%) Punjab National Bank (4.84%) and Allahabad Bank (4.78%).
Rising bad loan levels have taken a toll on the shares of banks with bankex, or the index of major bank stocks, falling by 23% so far this year in comparison with a 3.72% decline in the Sensex, the BSE’s benchmark index.
“Bad loan recovery will be entirely dependent on the economic recovery,” said B.A. Prabhakar, chairman and managing director of Andhra Bank.
Growth concerns
Many lenders have restructured corporate debt, lengthening loan maturity periods and cutting rates, to prevent the loans from turning bad. Banks have to set aside more money to cover non-performing loans than for restructured loans. “Bad loans are rising because the overall economy is not doing well. We are financiers to the real economy,” said Hemant Contractor, managing director of SBI. “The government has taken steps to revive the economic momentum. We are hopeful that things will improve.”
For a majority of the state-run banks, a modest jump in their net profit during the quarter has come from gains in treasury income in the June quarter, analysts said. “Without that component, the hit would have been much sharper,” Agarwal of Angel broking said.
But that cushion will not be available for the banks in the current quarter as bond yields have gone up by 85 basis points (bps) after the Reserve Bank of India (RBI) began tightening liquidity in the banking system to shore up a weak rupee. One bps is one hundredth of a percentage point.
RBI capped individual bank borrowing limits at 0.5% of deposits. To tighten liquidity even further, RBI also made it mandatory for banks to maintain 99% of the cash reserve ratio (CRR), or the portion of deposits that they are required keep with the central bank, on a daily basis, against the earlier 70%.
Rising bond yields eat into the profits of banks because they have to set aside more money in the form of mark-to-market provisions on such investments. Besides the bad loans, restructured advances pose a bigger threat to the banking system as a major chunk of these loans are likely to turn bad in the absence of a significant recovery in the economy, experts warned.
Indian banks have cumulatively restructured more than Rs.2.5 trillion of loans under the so-called corporate debt restructuring (CDR) mechanism, with a significant portion of this being done by the public-sector banks in recent quarters.
The actual figure of restructured loans will be much higher because banks enter into bilateral restructuring agreements with individual clients. Although an aggregate figure isn’t available, the money involved in such bilateral recasts is estimated to be equal to the CDR figure, taking the total restructured loans to over Rs.4 trillion. Analysts expect 25-30% of these loans to turn bad.
In the June quarter, banks restructured the debt of 12 companies, totalling Rs.20,000 crore, including some of the larger cases such as the Rs.13,500 crore debt recast of engineering and construction firmGammon India Ltd and Rs.3,000 crore debt recast of logistics company Arshiya International Ltd.
Notably, the momentum of restructuring increased even as companies are now required to make provisions for such loans. Under new RBI rules, banks need to set aside 5% of the fresh restructured loans as provisions. If the loans turn bad, the provisioning goes up to at least 15%. Higher provisioning affects the profitability of banks.
In 2012-13, banks restructured Rs.75,000 crore of loans under the CDR mechanism, nearly double the level in 2011-12.
Analysts estimate that between a fourth and fifth of such restructured loans turn bad. “The earlier assumptions that banks will be able to recover money from the restructured loans and an improvement in the bad loan situation has somewhat gone wrong due to a persistent slowdown in the economy,” Agarwal of Angel said.

Tuesday, August 6, 2013

RBI pulls Dhanlaxmi Bank for rise in bad loans, appoints Manoranjan Dash as director on bank's board


The lender's net non-performing assets had increased to 261 crore at the end March 2013 as against Rs 42 crore at the end of March 2010.


MUMBAI: RBI has pulled up private sector lender Dhanlaxmi Bank for the rise in bad loans, and has appointedManoranjan Dash, who was the general manager of RBI Hyderabad, as an additional director on the bank's board. 

The Kerala-based bank, grappling with bad loans, has stepped up its recovery initiatives to get back on track. 

But this effort took a knock when the recovery head of Dhanlaxmi Bank sounded another warning, and in an email to employees, expressed concern over fresh slippages worth Rs 161 crore in the June quarter. 
"During the first quarter of the current financial year ended June 2013, the performance in recovery of NPAs as well as collection from Finnone Retail and Flexcube and corporate assets were disappointing with recovery reaching just 3% of the NPAs as on March 2013," said the recovery head. 

He added that fresh advances amounting to Rs 161 crore have slipped into NPA, terming the situation as "alarming". 

MD and CEO of the bank, PG Jayakumar, also expressed his worries. "The NPAs were mostly from the advances sanctioned during the previous 2-3 years. Some of the corporate advances sanctioned during the period turned into NPAs which resulted in the spike in the ratio to 4.82% (gross) and 3.36% (net)," he said. 

"In FY13, gross slippage to NPA was Rs 504.78 crore. But the bank could recover Rs 228.78 crore during the period, which was much higher than the outstanding figure at the beginning of the year," he added. 

Jayakumar, however, assured that the bank has a good recovery and monitoring mechanism supported by technology. 

Talking of Dash's appointment, he said that this was nothing new. "It may be noted that the appointment of Dash is not a new measure taken by RBI, but only as a replacement of Rohit Jain who was the RBI observer on the board. There has been representation of RBI on the board for quite a long time now," said Jayakumar. 

What have added to the bank's discomfiture are installments due for more than 90 days and fresh bad loans in the form of vehicle and construction equipment loans worth around Rs 34 crore. The employees have been instructed not to allow any account to drag payments till the quarter end. 

"As the borderline accounts will be normally having two EMI arrears, payments dragged up to the quarter end will have almost 5 EMI arrears, and it will be a difficult proposition for borrowers to pay off so much arrear together," he said.
RBI pulls Dhanlaxmi Bank for rise in bad loans, appoints Manoranjan Dash as director on bank's board


Mortgage loans  inof Rs 27 crore,cluding construction finance/ loans Rs 15.26 crore, housing loans worth 3 crore and loan against properties amounting to Rs 8.74 crore have also led to the rise in bad loans. Gold loans worth 14 crore have already turned into NPAs. 

The lender's net non-performing assets had increased to 261 crore at the end March 2013 as against Rs 42 crore at the end of March 2010.

Saturday, August 3, 2013

Loan quality will be under stress this fiscal: Exim Bank




BL :2 Aug 2013

Export-Import (Exim) Bank of India sees stress on asset quality to continue during this fiscal.
The Government-owned bank expects its non-performing assets (NPA) to be slightly higher this fiscal, as compared to last year.

“Asset quality stress has not peaked as yet. We are likely to add some more (accounts slipping into NPS) this year. However, starting next year, the stress on asset quality should be largely out,” David Rasquinha, Executive Director of Exim Bank said.

Rasquinha was talking to newspersons after an interactive session on ‘Financing options for project exports’ here on Friday.

As on March 31, 2013, Exim Bank’s net NPA grew to 0.47 per cent as against 0.29 per cent as in FY12.

Its restructured account portfolio stood at Rs 3,000 crore last fiscal. Exim Bank is likely to restructure some more accounts this fiscal.

With asset quality continuing to be under stress, Exim Bank will look at reorienting its projects, step up recovery and if need be tinker with interest rates to maintain its profitability, he said.
Exim Bank is eyeing 15-20 per cent growth in its loan portfolio this fiscal. Its loan book grew by 20 per cent to Rs 66,000 crore in 2012-13.

Rasquinha said the growth in loan book will come from two segments – lines of credit and long-term buyer’s credit.

“We grew by 20 per cent last year. It is still too early to comment on the growth rate this year, however, we expect 15-20 per cent growth in loan book,” he said.

Exim Bank was laying emphasis on pushing sustainable exports, particularly in the projects sector. Sri Lanka, Bangladesh, Ethiopia, Nepal and Mozambique were some of the major markets for project exports for Exim Bank, he said.

Exim Bank will shortly open an office in Myanmar, he added.

(This article was published on August 2, 2013)

Bad Loans Inch Up for India’s Largest Banks


By Gurdev Singh Virk :WSJ :2 Aug 2013

India’s slowing economic growth is starting to pinch some of its most profitable banks, and analysts expect their pain to worsen in coming months.

India’s slowing economic growth is starting to pinch some of its most profitable banks, and analysts expect their pain to worsen in coming months.

Bad loans at nonstate banks like Kotak Mahindra Bank Ltd., at HDFC Bank Ltd. and ICICI Bank Ltd. have inched up in the April to June quarter over the first three months of the year, according to their recently released earnings data. In addition, these banks have increased their provisions sharply, a sign that they expect bad loans to rise in the future. Higher provisions reduce the banks’ profits.

Stocks of these banks, which have long been favorites of foreign investors, have fallen by 5% to 16% since the beginning of July.

So far, bad loans had been rising mainly for state-run banks, like State Bank of India and Punjab National Bank, who are among the largest lenders to corporate India.

As the Indian economy has slowed, the profits of many Indian companies have fallen and their interest payment had increased because the central bank had been raising benchmark rates till late 2011Companies had taken a lot of debt during India’s boom several years ago, but are struggling to repay now that it is coming due. Kingfisher Airlines Ltd. defaulted on its debt last year, while companies like wind-turbine maker Suzlon Energy Ltd. and construction company HCC Ltd. have restructured their debt.

Ratings firm Crisil expects that the gross non-performing assets of all Indian banks would be 4% of total loans by end-March 2014 – the highest since 2005.

Most of these bad loans are being held on the books of state-run banks, who had been aggressive lenders in the recent past.

Meanwhile nonstate banks, like Kotak, HDFC Bank and ICICI Bank, lent mainly to individuals, who have in general been good about repaying their loans.

On corporate lending, these banks had been more selective. But now, even the companies they had lent to are hurting.

To be sure, the level of bad loans for the non state lenders remains small, and they aren’t at any risk of going under.

But they have increased their provisions for bad loans that could come down the road – a worrisome sign, say analysts.

In the April to June quarter, gross bad loans for Kotak Mahindra Bank rose to 9.95 billion rupees ($164 million) or 1.95% of total loans, versus 7.58 billion rupees ($125 million) or 1.55% of advances in the January-March quarter. The bank’s provisions for bad loans and other contingencies jumped as of June 30 stood at 1.7 billion rupees ($28 million), more than four times its provisions for the previous quarter.

Gross bad loans for ICICI Bank, the largest nonstate lender, rose to 100 billion rupees ($1.65 billion) or 3.23% of total loans, up from 96 billion rupees ($1.57 billion) or 3.22% in the previous quarter. Its provisions for bad loans rose to 5.93 billion rupees ($98 million), 29% greater than its provisions for the previous quarter.

HDFC Bank’s non-performing assets stood 27 billion rupees ($447 million) or 1% of loans held at the quarter ended June, versus 23 billion rupees ($384 million) 0.97% in the January to March period. HDFC Bank’s provisions rose by 75% to 5.27 billion rupees ($87 million).

Representatives for all three banks didn’t immediately respond to emails for comment.

Analysts expect the bad loans and provisions for these banks to rise further over the next year, as profits of Indian companies shrink amid slowing demand.

“Several firms are yet to be restructured, and most banks suggested the possibility of another (set of) mid-to-large corporate” loans turning bad, said a recent research note from U.S.- based Bank of America Merrill Lynch.

Analysts say this could weigh on share prices of these banks from here on.

Shares of ICICI Bank have fallen 16% over the last month to trade at 899 rupees on the Bombay Stock Exchange on Friday. HDFC Bank has lost 5% over the last month to trade at 632 rupees, while Kotak Mahindra is down 10% to 653 rupees.

Friday, August 2, 2013

The $7 trillion problem that could sink Asia

At the very least, Asia should stop adding to its dollar holdings and consider ways to bring more of those funds home. They could be used for infrastructure, education, research and development on cleaner energy, or any other vital investments in the future. Photo: Bloomberg

William Pesek :: Fri, Aug 02 2013. 10 13 AM IST

It’s our currency, but it’s your problem. This musing from Nixon-era treasury secretary John Connally is about to find new relevance as the White House battles Republicans over raising the US debt limit.
Connally couldn’t have foreseen how right he would be 42 years on as Asia sits on almost $7 trillion in currency reserves, much of it in dollars. Asia’s central banks are engaged in a kind of financial arms race after a 1997 crisis, stockpiling dollars as a defense against turmoil. That altered the financial landscape in two ways: One, Asia now has more weapons against market unrest than it knows what to do with. Two, Asia is essentially America’s banker, with China and Japan having the most at stake.
That might be less problematic if not for Capitol Hill’s propensity for shooting itself in the foot. A pointless squabble over the debt ceiling prompted Standard and Poor’s to yank the US’s AAA credit rating in August 2011, sending panic through global markets. Asia is now bracing for months of posturing when the US Congress returns from its August recess.
In a perfect world, Washington’s bankers would threaten to call in their loans. Asian nations would sit White House and congressional leaders down and tell them to get their act together. But Connally’s 1971 observation is infinitely truer today than at any time in Asia’s history. We need to stop considering huge reserve holdings as a financial strength. They are a trap that is complicating economic policy making. It’s time Asia devised an escape.
Fiscal matters
China isn’t without leverage. It’s no coincidence that new treasury secretary Jacob Lew’s first overseas visit in March was to his banker-in-chief, Xi Jinping, in Beijing. Nor did it go unnoticed that Lew was the new Chinese president’s first foreign-official meeting. Lew may have been sending Xi a signal this week by calling on Congress to act in a way that doesn’t create a crisis on fiscal matters.
But that leverage is limited. Xi and Premier Li Keqiang are engaged in a risky rebalancing act, trying to wean the Chinese economy off exports without fanning social unrest. Another debt- limit tussle would fuel market volatility, strengthen the yuan as the dollar plunges, and result in the loss of tens of billions of dollars in China’s portfolio of US treasuries.
“They don’t like it,” says Leland Miller, the New York-based president of China Beige Book International. “But while they’re sure to make some loud noises about it, at the end of the day, they understand they have no option but to accept the hand they’re given.”
In Tokyo, Shinzo Abe faces a similar dilemma. An important pillar of the prime minister’s plan to end deflation and restore healthy growth is a weak yen. The currency’s 17% drop since mid-November has helped even down-and-out Sony Corp. eke out some profits. Yet the yen would surge anew on another US downgrade: In 2011, a giant flight-to-quality trade drove huge amounts of capital Japan’s way.
The more Asia adds to its holdings of US debt, the harder they become to unload. If traders got even the slightest whiff that China was selling large blocks of its $1.3 trillion in dollar holdings, markets would quake. The same goes for Japan’s $1.1 trillion stockpile. So central banks just keep adding to them. Pyramid scheme, anyone?
Never before has the world seen a greater misallocation of vast resources. Loading up on dollars helps Asia’s exporters by holding down local currencies, but it causes economic control problems. When central banks buy dollars, they need to sell local currency, increasing its availability and boosting the money supply and inflation. So they sell bonds to mop up excess money. It’s an imprecise science made even more complicated by the Federal Reserve’s quantitative-easing policies.
Stealth selling
At the very least, Asia should stop adding to its dollar holdings and consider ways to bring more of those funds home. They could be used for infrastructure, education, research and development on cleaner energy, or any other vital investments in the future. The question, of course, is how?
There is a clear first-mover advantage for smaller economies. South Korea (with $53 billion in treasuries), the Philippines ($40 billion) or Malaysia ($18 billion) could try to dump dollars on the sly. Bigger ones couldn’t pull that off in this hyperconnected, 24/7-news-cycle world; news of sizable central-banker sell orders would inspire copycats.
Washington can help, and not just by avoiding another suicidal debt-limit fight. The treasury should engage with its Asian counterparts in a cooperative, transparent brainstorming process to draw down their reserves without devastating markets. It’s in the US’s best interest to keep more of its debt onshore, Japan-style, by attracting greater purchases from cash- rich US companies. That would make the US less vulnerable to capital flights in the future.
If ever there were a time for a currency summit, it’s now. Perhaps the International Monetary Fund or the Group of 20 can host the debate. Such high-level discussions would help Asia set goals and consider the mechanics and timing of reclaiming more of its savings. Only then will all those dollars start being the solution to Asia’s challenges, not the problem. Bloomberg

SBI chief, Pratip Chaudhuri, blames government for rising NPAs





Sangita Mehta, ET Bureau | 2 Aug, 2013, 04.31AM IST

MUMBAI: Pratip Chaudhuri, chairman of the country's largest lender State Bank of India, blamed the government's tardiness in clearing projects and supply of coal - or the lack of it - as the reasons behind rising sticky loans in the banking sector. 

Speaking at a closed-door meeting between bank chiefs and senior Reserve Bank of India officials, Chaudhuri stoutly defended the banks, arguing they alone cannot be blamed for the spike in bad loans, which have hurt their balance sheets. 

The SBIchief was responding to an observation made by RBI officials that sharp rise in non-performing assets is due to improper appraisal and monitoring by banks. Chaudhuri, however, could not be reached for his comments. 

"Is it the banks' failure in monitoring or is it the government that has not delivered what it promised," he had asked, according to bankers present at the meeting. 

Chaudhuri stressed in the meeting that if the government and RBI continue to blame banks for rising NPAs, they would be forced to insert impossible conditions in loan covenants that would make it difficult for borrowers to avail the credit facility. 

Bankers also said that many projects have become unviable because of the delay in getting environment clearances, allocation of land and non availability of coal. Besides, project costs have increased due to time overruns. 

Coal India has failed to scale up its output and meet the requirements of power firms. Power utilities suffered due to unavailability of coal which has impacted their revenue and eventually their ability to repay banks. 

Bankers also gave instances of loan sanctioned for road projects, where 80% of the land was acquired on the assumption that government will allocate the rest, but subsequent delay in government actions had affected such projects. Due to these delays, several manufacturing and infrastructure projects failed to achieve their commercial operation date (CoD). 

As per RBI norms, banks have to classify a project as a bad loan if it fails to start commercial operations from one year of the original date of commencement. 

Banks have to classify the loan as sub-standard even if the company continues to pay regular instalment of loans. 

The net non performing assets ( NPA) of banks have risen 51% in fiscal year 2012-13 to Rs 92,825 crore over the previous year, and a number of PSU banks have shown either a dip in profit or a modest rise in first quarter profit due to sharp rise in stress loans.

Subbarao: More steps on way to check NPAs





PTI: Chennai, Fri ,Aug 02 2013, 01:11 hrs

Concerned over rising bad loans, the Reserve Bank of India (RBI) on Thursday said it will take more measures to check non-performing assets (NPAs) of the public sector banks.

"We are going to put in more measures to see that NPA level is controlled across the asset quality of banks. It is very very important for credit to continue to go to productive sectors," RBI Governor D Subbarao said while delivering the 5th R Venkataraman Endowment Lecture here.
RBI, in the past, has taken some steps in this regard including increase in provisioning norms and tightening norms for restructuring.

Subbarao noted that public sector banks have high NPAs than private sector banks. "It is true that NPAs in public sector banks are higher than private sector banks because their decision variables are different," he said. 

The RBI governor was also non-committal on a time frame for rolling back liquidity tightening measures and said that they would remain in force till stability is achieved in the foreign exchange market

To postpone auction, agent makes hoax call





S Ahmed Ali, TNN | Aug 2, 2013, 03.33 AM IST

MUMBAI: An estate agent from Kandivli, who made a hoax call to the police control room regarding a possible blast at the Debt Recovery Tribunal (DRT) at the Income Tax building in Billard Pier to postpone a property auction verdict, was arrested by the crime branch on Thursday.

Alok Dinesh Tanna (29) thought that if he made a hoax call, the auction verdict, which was going in someone else's favour, would be postponed and he could manage to get a favourable order at the next hearing.

 But he ran out of luck when the police control room tracked the cell phone number from which he had made the call.

On July 26, Tanna anonymously called up the police control room and said he was passing off an important information that he had overheard. He said a bomb has been placed at the Debt Recovery Tribunal and it may go off anytime.

 "Within a few minutes, several police teams, including the bomb detection and disposal squad (BDDS) and sniffer dogs, were rushed to the spot. After three hours of search, nothing was found," said Subhash Sawant, senior inspector of unit 11.

The police registered an offence against unknown persons and the crime branch also conduced a parallel probe. 

During the course of investigations, police tracked down the cell phone number from which the hoax call was made.

"We traced the person in whose name the Sim card was registered. He said he was not using the number. However, we got some leads from there and picked up Tanna who runs an estate agency near Raghuleela Mall in Kandivli," said Niket Kaushik, additional commissioner of police (crime).

On Thursday, the police questioned Tanna on length. 

He finally admitted to have made the hoax call because he wanted to postpone a DRT auction order which was to take place on July 26

. "Tanna claims that the order was likely to go in other party's favour and hence to cancel or postpone the order he made this hoax call," said investigating officer Chimaji Adhav.


Tanna, who has been booked under various IPC sections for threatening, giving false information, endangering human life, has been remanded in police custody.