Saturday, August 10, 2013

Fearing defaults, banks go slow on education loans


Banks go slow

IE :Vishwanath Nair : Mumbai, Fri Aug 09 2013, 11:39 hrs

A year after the finance minister urged banks not to turn down education loan applications from deserving candidates, lenders remain skeptical about the business, which, in the past, has been prone to higher defaults. Indeed, the main reason for banks going slow remains the relatively high ratio of non-performing assets (NPAs), which, as per some lenders, is as high as 7%.

"In certain cases, the students who avail loans then disappear from the radar of the bank, making it difficult for us to track them and get repayments," said a senior official at a public sector bank.

Moreover, the weakening economic scenario has significantly increased the probability of defaults on these loans, since job prospects for fresh gaduates have gone down significantly. Banks have stuck to lending to students who go for courses like management, engineering and medicine.

"The government had earlier said that it will be coming out with a education credit guarantee fund but we are still waiting for the announcement. It's not that we will lend with only such a fund, but it gives us a little more comfort," said a banker. A credit guarantee fund will enable banks to lend collateral-free education loans of up to R7.5 lakh.

Currently, banks give out education loans at interest rates between 11.5% and 13%, depending on the course chosen by the student.

The demand of education loans remains strong as more and more middle-class Indian students want to go for higher studies in India and abroad.

According to Neeraj Saxena, business head, Avanse Financial Services, while India spends nearly R80,000 crore on education each year, the outstanding finance towards education is barely at R60,000 crore. Almost 90-95% of this is lending by banks and a small percentage by private lenders like Credila (promoted by Housing Development Finance Corporation) and Avanse (an associate company of Dewan Housing Finance). As per the monthly data released by RBI, the outstanding education loan portfolio of banks stands at R55,500 crore as on June 30, up by 9% from a year ago. In June 2012, outstanding education loans had risen by over 14% year-on-year, the data showed, suggesting that the pace of growth in the business has slowed down.

South India has traditionally been the geography where banks give out more education loans, bankers note. M Narendra, CMD, Indian Overseas Bank (IOB), says that the bank is conducting a 100-day campaign down South, which will have emphasis on education loans.

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.