Top 50 loan defaulters to face action

Sidhartha, TNN | Jun 23, 2014, 05.02AM IST

NEW DELHI: The government has asked banks to launch an offensive against the country's top 50 loan defaulters to change the perception that state-run lenders tend to be soft towards large borrowers while giving little leeway to retail borrowers and SMEs. 

Top bankers told TOI that the issue was discussed by financial services secretary G S Sandhu last week with bank chiefs from several leading public sector players, including State Bank of India, Punjab National Bank and IDBI Bank. 

"There is a perception, which may or may not be correct, that we don't act decisively against corporate borrowers and the government is keen to dispel that notion,"said a bank chief, who attended the meeting in the finance ministry.

Sources said the lenders have been asked to initiate all possible action against the top 50 defaulters to send a message that the companies cannot get away without clearing their dues to banks. On their part, bankers are learnt to have told the government that it is not often easy to recover the dues and they have to undergo a long process of litigation. "Every notice is challenged in courts and it is very tough. It is not as if we don't want to recover the dues," said a banker, adding that often they come under pressure from the finance ministry to restructure loans before they turn no-performing assets. 

Apart from the change of guard at the Centre, the government is keen that banks recover their dues from defaulters as they are saddled with a pile of bad debt, putting their credit worthiness at risk. Global rating agencies have flagged rising level of sticky assets as one of the major concerns for the Indian economy. 

In recent years, several prominent corporate groups have found it difficult to repay their loans, including the flamboyant Vijay Mallya, whose now-grounded Kingfisher Airlines owes over Rs 7,000 crore, mostly to public sector banks. His lavish lifestyle, despite his company's financial woes, has raised many eyebrows. Kolkata-based United Bank of India has already served a notice to treat Mallya and others linked to the airline as "wilful defaulters" which will choke loan flow to all group companies. 

The other prominent defaulters in recent years include Winsome Diamond, Zoom Developers and S Kumars Nationwide. 

The All India Bank Employees Union released a list of 406 loan defaulters, who together owed over Rs 70,000 crore and are facing legal action. Banks are grappling with non-performing assets of over Rs 2 lakh crore, while loans to several large projects have been restructured, which prevented them from turning bad debt. 

In recent weeks, the government has begun talks for initiating a series of measures to reduce the pile of debt, including a new law that will link the jail term to the size of the default, apart from enabling lenders to initiate criminal action. 

Similarly, the debt recovery tribunal set up is being reworked and discussions on a new asset management company have begun

Defaulters may have to pay higher rates, warns RBI

Press Trust of India  |  New Delhi  

December 11, 2013 Last Updated at 17:47 IST

RBI Governor said the central bank will come out with a discussion paper next week with regard to distressed borrowers and rising 

NPAs

Concerned over rising bad loans, the Reserve Bank today said it could consider making future borrowings more expensive for willful defaulters.

Speaking at the Delhi Economic Conclave here, Reserve Bank of India (RBI) Governor Raghuram Rajan said the central bank will come out with a discussion paper next week with regard to distressed borrowers and rising NPAs.

"For willful defaulters or a new category that we call uncooperative defaulter, future borrowing will become more expensive. By uncooperative defaulter I mean those who don't work with their lenders to achieve equitable and efficient resolution of stressed assets," he said.

Rajan said there was a need to ensure that the system recognises financial distress and provide for fair recovery of loans in the interest of lenders and investors.

"Next week, we propose to put out a discussion paper... The key element (will be) to deal with distressed borrower... It will focus on recognition, resolution and recovery (of assets)," he said.

Rajan said inability to deal with the problem of distressed assets will have a bearing on growth prospects.

To improve the health of the financial sector and to improve asset quality of banks, besides preventing slippages, RBI from time to time issues instructions to banks.

As per the norms, each bank is required to have a mechanism for early detection of signs of distress, including having a loan recovery policy, which sets down the manner of recovery, and monitoring of of write-off.

The ratio of top 30 NPAs as a percentage of gross NPAs, in respect of public sector banks, as on September 2013 is 35.5 per cent and for all banks it is 38.8 per cent.

The gross non-performing assets (NPA) amount of top 30 accounts of PSBs stood at Rs 72,174 crore, while for all banks it was Rs 91,667 crore at the end of September, 2013. 

Rajan to set right defaulters, builds a info repository

ET  :5th Oct 2013

MUMBAI: RBI Governor Raghuram Rajan is leaving no stone unturned in his efforts to end promoter abuse of the benign loan restructuring regime and is soon poised to mandate all banks to stick to uniform loan classification norms.

Three people familiar with the idea said the governor, who has been meeting bank chairmen over the past two to three weeks independently and some in groups, has said lenders should share information about defaulting clients. Rajan is building a repository of information about defaulters that could help banks ensure they do not get duped by unscrupulous promoters.

"Promoters do not have a divine right to stay in charge regardless of how badly they mismanage an enterprise, nor do they have the right to use the banking system to recapitalise their failed ventures," he had said at his first press conference after taking charge.

The Indian banking system, especially state-run banks, is facing a continuous downgrade by ratings companies such as Standard & Poor's and Fitch because of rising bad loans and concerns that many restructured loans could turn bad.

The absence of a repository is believed to have led to some of the biggest losses to banks.Kingfisher Airlines and Deccan Chronicle Holdings, which together inflicted losses of more than Rs 11,000 crore, might have been prevented if the banks had shared information and a repository was in place.

Deccan Chronicle Holdings, which went public in 2004, took loans from several banks to expand the circulation of Deccan Chronicle newspaper in several cities and started a new business newspaper, Financial Chronicle. However, the slowdown affected the company's expansion plan and profitability.

"Nobody knew how much Deccan had borrowed from the banking system. Today, Cibil has information on all borrowers.

However, if banks share this information with RBI, it would get information on the banking system's indebtedness to companies," said Romesh Sobti, managing director and chief executive officer, IndusInd Bank Numbers compiled by the Corporate Debt Restructuring Cell shows loans worth Rs 2,29,013 crore of 401 companies have been restructured as of March 2013.
The latest RBI initiative comes after the banking system had to write off loans worth Rs 12,000 crore given to Deccan Chronicleand Kingfisher.

"The move to set up a repository is a proactive step to prevent fraud," said SK Kalra, executive director of Andhra Bank. "Secondly, this will make it difficult for borrowers to conceal from lenders the loan they have taken from other banks in case the loan is availed through multiple banking routes."

Currently, under the consortium banking route, each lender is mandated to inform all lenders about the loans on their books. However, in case of multiple banking facility, lenders are unaware of loans a borrower has availed from other banks.

Conflict between private and public sector lenders and qualification of assets are also delaying the recovery process.

"If one bank treats it as a standard asset, the company can always approach that bank for fresh funding," said a state-run banker who did not want to be identified. "In the case of Kingfisher, since the company is non-operational now, that risk is not there."


Indian banks' stressed assets rose to 9.1% of total loans (NPL ratio: 3.4% and restructured loans ratio: 5.7%) in fiscal 2013, from 6.1% a year before, says Fitch Ratings.

SBI to get tough on loan defaulters

K Ram Kumar : BL ;Mumbai :June26,2013

Faced with a Rs 51,000-crore bad loans pile, State Bank of India has decided to tighten the screw on defaulting borrowers.

How? 

It is taking recovery action, such as filing winding-up petitions against defaulting companies and their guarantors.

SBI wants its field staff dealing with recoveries to go after loan defaulters and wring out as much of the outstanding loan as possible.

A secured creditor files a winding-up petition in a High Court when the borrower fails to repay debt.

Winding up of a company is a process whereby its normal activities are brought to a standstill. The company’s property is administered by a court-appointed liquidator for the benefit of its members and creditors.

ON RECORD

To keep tabs on the pledged security, bank staff have been asked to take photographs of the properties during inspectionand keep them in the records, said a senior bank official.

SBI will take physical possession of the assets charged to it by the defaulters to preserve their value and realise the maximum amount from their auction.

Earlier, the bank used to just take symbolic possession of a pledged asset by pasting a notice that the property belongs to it. Defaulting borrowers sometimes take advantage of symbolic possession to sell off plant and machinery and other pledged assets.

The official said, the bank may consider acquiring some properties at the reserve price for its own use when their auction fails.

In the case of loan accounts classified as doubtful, up-to-date valuation of such accounts will have to be done so that they can be showcased to asset reconstruction companies (ARCs).

A loan account is classified as doubtful if it has remained non-performing for more than 12 months. ARCs are in the business of resolving non-performing loans bought from banks and financial institutions.

Due to economic slowdown, which has affected its borrowers’ ability to repay loans, SBI’s bad loans increased by Rs 11,513 crore in FY13 to Rs 51,189 crore as at March-end 2013.

In FY13, the bank saw a gross reduction of Rs 20,480 crore in bad loans. Fresh slippages amounted to Rs 31,993 crore.

BREAK-UP

A break-up of SBI’s bad loans portfolio shows that as on March-end 2013, mid-corporate segment accounted for 36 per cent of the total bad loans; small and medium enterprises (28.4 per cent); agriculture (19.8 per cent); retail (8.3 per cent); international (5.5 per cent); and large corporate (2 per cent).

ramkumar.k@thehindu.co.in

(This article was published on June 25, 2013)

Keywords: State Bank of India, loan defaulters, NPAs, asset reconstruction companies, bad loans,