Saturday, October 12, 2013

Curbing bad loans top priority: Bhattacharya



HT Correspondent, Hindustan Times  Mumbai, October 08, 2013

The newly appointed chairperson of the country’s largest lender State Bank of India (SBI), Arundhati Bhattacharya, on Tuesday said that keeping bad loans under control would be her top priority.
“There is no doubt in our mind that NPAs (non-performing assets) remain the top priority. It will remain a top priority...(as long as) we see the stress being around,” said Bhattacharya at her maiden interaction with the media.
The gross non-performing assets of SBI rose to 5.56%, among the highest in the system in the June quarter.
The 57-year-old Bhattacharya, who on Monday was appointed  the first woman head of the 207-year-old bank, said SBI will use a lot more of IT tools to bring the NPA numbers down. She said the bank will soon be launching an IT platform in this regard.
Bhattacharya said the top government lender has under- utilised the IT architecture when it comes to dealing with NPAs, and it will leverage on the benefits of the same to get a grip over stressed assets. “We will be using IT much more. I think we have not leveraged it fully enough,” she said.
Bhattacharya, however, said she does not possess any “magic wand” to solve the problem in the next quarter or two, stating the bank is a proxy to the turbulent economy and hence, the stress will continue. But, she said there is no alarm rising on the NPA front as the economy has shown signs of improvement.

    NPA watch: Banks to strictly monitor loans



    http://www.hindustantimes.com/Images/Popup/2013/10/09_10_13-metro21.gif








    Mahua Venkatesh, Hindustan Times  New Delhi, October 08, 2013

    With the surge in the level of bad assets in the Indian banking system, all loan accounts that have been restructured under the CDR (corporate debt restructuring) scheme are being closely monitored by the top managements of the lenders.
    Loans worth `75,000 crore in 2012-13 were restructured under the CDR scheme, which is about double of what was done in the previous financial year. However, the government has asked banks to be cautious and closely monitor these accounts as there is fear that a chunk of this could turn unproductive with the slowdown in the economy.
    Besides, all existing loans of `1 crore and above and their performance are also being closely scrutinised by the lenders.
      “Due to the slowdown, there have been several cases where banks have gone in for restructuring but those cases are being very closely monitored to ensure that there are no damages to the system as there can be some who take advantage of the economic situation,” a bank chairman, who did not wish to be identified, said.
    The finance ministry and the RBI have asked banks to get tough with wilful defaulters. Banks have also decided to ask promoters of companies seeking corporate debt restructuring for a list of personal assets, which will be charged to banks to ensure that banks have sufficient collateral to cover their bad loans.

    “This issue ...has been discussed with senior finance ministry and banks  and all steps would be taken to address it,” the source said.


    Pyramid Saimira: Sebi orders attachment of promoter’s bank accounts



    After acquiring special powers from the government recently to attach properties
     and assets of defaulters in the capital market, this is Sebi’s first major move. 

    Anirudh Laskar  Mint Fri, Oct 11 2013. 11 06 PM IST

    The market regulator ordered the attachment in order to recover an amount of Rs1.27 cr

    Mumbai: The Securities and Exchange Board of India, or Sebi, on Friday ordered the attachment of bank accounts of P.S. Saminathan, promoter of Pyramid Saimira Theatre Ltd, in order to recover an amount of Rs1.275 crore.
    After acquiring special powers from the government recently to attach properties and assets of defaulters in the capital market, this is Sebi’s first major move.
     In December 2010, the market regulator had barred Saminathan from accessing the securities market for 10 years and directed him to launch a public offer for de-listing of his company.
    Sebi had found Saminathan guilty of inflating profit and revenue by making fictitious entries, false corporate announcements and making preferential issue of share warrants to promoters without receiving any money in return

    Monday, October 7, 2013

    Make contracts simple to help customers, RBI official tells banks














































    BL :Mumbai, Oct. 4:2013

    Simpler contracts will put an end to the many hidden penalties and fees in complex loans, according to Deepali Pant Joshi, Executive Director, Reserve Bank of India.

    This will make everyone aware of what (loan contract) they are signing.

    Banks need to apply principles of transparency to enable easier decision-making by clients, and verify assumptions about what clients understand and don’t understand about their products and the fine print in the contracts they sign.

    “If you’ve ever applied for a credit card, a student loan, or a housing loan, you know the feeling of signing your name to pages of barely understandable fine print.

    “What often happens as a result is that many people are caught by hidden fees and penalties, or saddled with loans they can’t afford,” said Joshi in her keynote address at the College of Agricultural Banking, Pune.

    They are also hit with a massive rate increase on their credit card balances even though they have paid bills on time.

    “Students who take student loans should have clear and concise information about their obligations.

    “Ordinary investors — like you and me, seniors saving for retirement — should be able to receive and understand information about the costs and risks of mutual funds and other investment products so that they can make better financial decisions as to what will work for them,” said Joshi.

    Information imbalance

    Banks need to address the needs of the customer and customise products and services without adopting a one-size-fits-all approach, she added.

    The RBI official observed that the greatest threat arises from the asymmetries information and power between financial institutions and poor consumers.

    This imbalance widens as customers are often less experienced and the products they choose are more sophisticated.

    This means, there is a real potential for negative outcomes arising out of institutional abuses or ill-informed client decisions.

    Financial education is an important tool to address this imbalance and help consumers, she said. .

    Companies rush to debt recast cell despite tighter norms

    BL :K Ramkumar :Mumbai, Oct. 6: 2013
    Scene worsened by slack demand, policy logjam
    There has been no letup in the number of companies seeking debt recast with the Corporate Debt Restructuring (CDR) Cell in the July-September quarter.

    Tighter norms prescribed by lenders have not deterred companies from going in for CDR, as they are unable to service their debt.

    Weighing the companies down are slack demand, policy logjam coming in the way of project implementation and shortage of raw materials.

    Common platform

    In the reporting period, 31 companies with debt aggregating about Rs 25,000 crore were referred to the Cell, which is a common platform of the banking industry to help companies cope with their debt burden.

    The big cases that have been referred to the Cell for debt recast in the July-September quarter include Lanco Infratech and Bombay Rayon Fashions, with debt amounting to about Rs 7,500 crore and Rs 4,000 crore, respectively, said a senior public sector bank official.

     In the April-June quarter, 28 companies with debt aggregating about Rs 39,500 crore were referred to the Cell. Overall, in the first six months (April-September) of the current fiscal, 59 companies (against 74 in the corresponding period last year) have been referred to the Cell with debt aggregating to about Rs 64,500 crore (Rs 39,435 crore).

     The quantum of debt referred in the April-September 2013 period is about 63.5 per cent more than in the corresponding year-ago period.

    This is symptomatic of the fact that besides the ongoing economic downturn, companies are being buffeted, among others, by delays in receiving statutory approvals, forest/environment clearances, land acquisition and shortage of fuel.

     The CDR Cell was jointly floated by banks and financial institutions in 2001 to restructure the debt of viable corporate entities affected by internal and external factors.

    Under CDR, creditors make concessions by reducing the interest rate, rescheduling repayments, converting debt into equity, and waiving principal/ interest (to a limited extent).  

    Higher contribution

    For debt restructuring to be approved by the lenders, the Cell now requires promoters to put up a higher equity contribution — either 25 per cent (15 per cent earlier) of the outstanding debt that is sought to be restructured or 2 per cent of the sacrifice (made by lenders) amount, whichever is higher.

    The sacrifice amount is calculated as the difference between the interest a bank will earn under the original loan agreement and the revised (lower) interest it will earn over an extended tenure under the debt recast.

    The time period for a company, whose debt restructuring has been approved by the Cell, to turn around has been cut to eight years (10 years earlier) in the case of infrastructure companies and five years (seven years) in the case of non-infrastructure companies.

     Lenders will no longer convert a portion of the loan into equity in the case of unlisted companies.

    The conversion will happen only in the case of listed companies so that banks can sell the shares in future.

    Viability study

    A public sector bank official familiar with CDR said: “We are not allowing any CDR case to just go through. In each case, we do a techno-economic viability (TEV) study.

    In each case, the monitoring institution or the lead bank appoints a consultant who carries out a TEV study before the debt restructuring package is finalised.”

    He underscored the fact that since the entire promoter shareholding is pledged, banks can change the management if they wish.


    What the new norms entail Higher equity contribution by promoters Shorter turnaround time (8 years for infrastructure companies and 5 for non-infrastructure companies) Lenders can no longer convert debt into equity in unlisted companies

    (This article was published in the Business Line  dated October 7, 2013)