“Rise in NPAs, slippages need to be urgently addressed”

Anand Sinha, Deputy Governor, RBI (third from right), releasing an IDRBT’s

book at the valedictory function of BANCON in Chennai on Sunday 

.(From left) B. Sambamoorthy, author of the book and Director,

 IDRBT, M.D. Mallya, Chairman of IBA , M. Narendra, CMD, IOB and

 A.K. Bansal, Executive Director, IOB are in the picture. 

Source :The Hindu:Nov 7,2011 

 Photo Source : The Hindu:R.Ragu

RBI Deputy Governor attributes problem to aggressive lending

Deputy Governor of Reserve Bank of India Anand Sinha on Sunday flagged the steep increase in Non Performance Assets (NPAs) and slippages as two issues that the country's banking sector needed to urgently address.

In his valedictory address at ‘BANCON 2011' hosted by the Indian Overseas Bank and the Indian Banks' Association (IBA), Mr. Sinha said while part of the up-trending of NPAs could be attributed to the fallout of the global financial crisis, the bulk of the problem had its roots in very aggressive lending during the boom period.

While ruling out a systemic issue because of this, Mr. Sinha pointed out that while gross NPAs have been going down — in spite of inching upwards slightly in percentage terms — in absolute terms, the stock of NPAs had been going up in the last four to five years despite the ratio coming down.

In fact, between March 6 and 10, the NPA stock grew by 63 per cent, Mr. Sinha said. While overall profitability had helped peg the net NPAs at a respectable level, this measure of management was more akin to putting a lid on the garbage, he said.

“The fact is that there are a lot of unproductive assets lying underneath and that needs to be resolved,” he said.

The other area of worry was the substantial increase in slippage — from 1.8 per cent during 2007-08 to 2.2 per cent in 2009-10. As a result, slippage outsized recovery despite heavy write-offs, he said. Mr. Sinha urged banks to tone up credit management to contain slippage, mobilise recovery and reduce NPA stock. 

The RBI would be issuing draft guidelines on Basel III capital adequacy norms for the banking system by December and put out a final version by March 31, 2012, Mr. Sinha said. 

Stating that the Basel norms were not a regulatory product, he said the RBI sought a smooth transition to the Basel III norms.

It is important for senior management of banks have to understand the nitty-gritty of specialised niche products as the complexity of products coupled with excessive risk-taking had led to the governance failure that triggered the global financial crisis, Mr. Sinha said.

Mr. Sinha advocated appropriate standardisation of the Know Your Customer (KYC) norms to make them a one-time or single-point procedure. 

While new accounts are largely in adherence with the KYC norms, there is a lot of deficiency with regard to older accounts, he said.

Pointing to projections that the Indian banking system could become the third largest in the world by 2025, Mr. Sinha said the focus should not be on size but on sustaining “excellence in responsible banking”, through an advocacy of corporate governance, higher productivity, product innovation and financial inclusion. 

Responsible banking was no longer a choice as it was an obligation to the nation and the world in a globalised economy and banks should combine their pursuit of profits with a balancing of the interests of all stakeholders, Mr. Sinha said.

 Mr. Sinha also launched a handbook ‘Holistic CRM and Analytics' authored by B. Sambamurthy, director, IDRBT. M. Narendra, IOB chairman and managing director, M. D. Mallya, IBA chairman and A. K. Bansal, IOB executive director, also participated.

Keywords: Non Performance Assets, banking

High rates, rising NPAs may erode banks' profits: RBI

Source :BS Reporter / Mumbai June 15, 2011, 0:31 IST



The Reserve Bank of India (RBI) today said high interest rates and a rise in non-performing assets (NPAs) may erode the profitability of banks in the coming quarters.


“The SCBs’ (scheduled commercial banks) profitability showed an improvement in 2010-11. Going forward, increasing interest rates, a rise in the savings account interest rate, amortisation of pension and gratuity liabilities and the potentially enhanced provisioning requirements for NPAs may hit the profitability of banks,” RBI said in its Financial Stability Report, which was released today.





The report assesses the health of India’s financial sector and is set to be released by the central bank bi-annually — in June and December every year.

In 2010-11, profitability ratios of the Indian banking sector showed an improvement, signaling a recovery of the Indian economy. The return on banks’ assets rose from 1.0 per cent to 1.1 per cent, while return on equity improved from 13.3 per cent to 13.7 per cent, compared to the previous financial year. Public sector banks, however, witnessed a marginal decline in profitability ratios, as higher provisioning for pension liabilities led to a sharp rise in staff expenses.


RBI said it was necessary to tighten prudential norms, since deterioration in asset quality posed a threat to growth in banks’ earnings in the coming quarters.


“Asset quality improved on the back of a rebound in the credit off-take, as credit growth outpaced the growth in NPAs. Going forward, the rapid credit growth also raised the possibility of large scale slippages, requiring continued vigilance,” the central bank said.


The gross NPA ratio of banks improved to 2.3 per cent from 2.5 per cent in 2009-10, while net bad loan ratio declined by 20 basis points to 0.9 per cent.


The banking regulator, however, remains worried, since “NPAs were becoming increasingly stickier”, and the slippage ratio for public sector banks stayed above the system average. Rising delinquencies in priority sector loans, especially in farm credit, was another area of concern. The gross NPA ratio in the agriculture sector rose to 3.3 per cent in March from 2.4 per cent a year earlier.


RBI also said the revival in the demand for bank credit was driven by a handful of sectors like retail, commercial real estate and infrastructure. High exposure to the real estate sector may stress banks’ asset quality, as NPAs in real estate loans remained above the system level NPA growth. “Going forward, the asset quality in this segment may decline further pressure, given the increasing interest rate environment,” RBI said.


The central bank, however, was comfortable with the capital adequacy of banks, despite a minor decline in the adequacy ratio due to the robust credit disbursement. The leverage ratio of banks in India remained above three per cent, as required under Basel III norms.


Foreign banks’ off-balance sheet exposure surges


The Reserve Bank of India (RBI) today said off-balance sheet exposure of foreign banks in India have increased significantly and a vigilant risk management framework was required to keep a watch on the associated credit risks.


The off-balance sheet exposures in India typically comprise simple products and deals, including foreign exchange contracts, guarantees, acceptances, and endorsements.


The off-balance sheet exposures of scheduled commercial banks in India, as a percentage of the total size of the balance sheet, rose to 198 per cent in March from 178 per cent a year ago.
“In case of foreign banks, OBS (off-balance sheet) exposure, as a proportion of their on-balance sheet exposure, rose from 1,554 per cent to 1,860 per cent during the year,” RBI said in its Financial Stability Report.


“The distribution of the aggregate notional amount of OBS exposures among bank groups showed a concentration of about 68 per cent in foreign banks and just 15 per cent each in case of PSBs (public sector banks) and new private sector banks,” RBI said.

High NPAs a deterrent to banking lending in North-East: RBI

Mr Deepak Mohanty, Executive Director, Reserve Bank of India


Source :BL :MUMBAI, MARCH 24:2011

 

High level of non-performing assets (NPAs) in the North-Eastern States (NES) is a deterrent for bank lending, according to Mr Deepak Mohanty, Executive Director, Reserve Bank of India.

The senior RBI official attributed this, in part, to non-viability of some of the activities financed by banks coupled with lack of adequate engagement with the borrowers.

Pointing out that NES lagged behind other parts of India in terms of development banking, Mr Mohanty said the credit-deposit ratio in NES was much lower at 34 per cent at the end of March 2010 (28 per cent at the end of March 2001), compared with 73 per cent at the all-India level (59 per cent at the end of March 2001).

NSS data

As per the National Sample Survey (NSS) data on indebtedness, in the case of NES, 45 per cent of finance taken by the farmers was from the formal sector, while the remaining 55 per cent was from the non-formal sector.

Referring to the NSS data pertaining to NES, Mr Mohanty said it clearly shows that there is credit absorptive capacity. Hence, there is considerable scope for improving banking penetration in NES, comprising Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura.

The NSS data on all-India indebtedness show that 58 per cent of finance taken by the farmers was from the formal sector, while the remaining 42 per cent was from the non-formal sector.

“There is a need to improve credit culture (in NES) in which financial education could play a vital role. In addition, banks will have to augment the staff strength in their branches with an emphasis on staff with knowledge of local customs and practices,” the RBI official said in a speech delivered at the Gauhati University on Thursday.

Given the preponderance of community-based society in NES, Mr Mohanty observed that group lending could be a successful mode of credit delivery. Hence, there is a need for promotion of self-help groups (SHGs) with greater linkage with banks. In this regard, the National Bank for Agriculture and Rural Development has an important role to play, not only in promotion of SHGs, but also in capacity building, along with the Small Industries Development Bank of India and the State government agencies concerned.

Housing loan

Underscoring the fact that expansion of housing loan remains poor as mortgages cannot be created in many parts of NES, the RBI ED said, banks can explore innovative structures for housing loans with a greater emphasis on group lending.

While the topography of NES, the dispersal of population, transport bottlenecks and law and order conditions in some areas inhibit branch expansion other than in certain commercial centres, the RBI official suggested that all the stakeholders — banks, State governments and the Reserve Bank — need to work in close co-ordination for increasing banking penetration and promoting financial inclusion in the region

RBI move to have NPAs sold by banks on credit data records

ARCs may join credit info cos.

Source : Business Line :K. Ram Kumar :Mumbai, Sept. 13,2010

The Reserve Bank of India is considering allowing asset reconstruction companies (ARCs) to take membership of credit information companies (CICs). This is to ensure that the ‘defaulter' status of a borrower continues to be reflected in the records of CICs even after the sale of non-performing loans by banks to ARCs.

If ARCs are allowed to become members of CICs, then it will become well-nigh impossible for defaulters to obtain loans from lenders. The reason: with NPLs getting transferred to their books by virtue of acquisition from banks, the ARCs will take up the responsibility of updating the credit information pertaining to defaulting borrowers.

Continuity in credit information pertaining to defaulting borrowers, whose loans have been sold by banks to ARCs, will ensure that they will not get loans from other lenders – banks, non-banking finance companies (including housing finance companies) and financial institutions, said a senior banker clued in to the development.

“Once an ARC buys a non-performing loan from a bank, the loan ceases to be in the books of the latter. Hence, it is important that information pertaining to the sale of the loan to an ARC as well as the extent of recovery of loan outstanding should get reflected in a CIC's system so that other lenders are in the loop, in case they want to check the borrower's credit history,” said Mr M. R. Umarji, Chief Legal Adviser, Indian Banks' Association.

Credit Information Bureau (India) Ltd, India's only operational CIC which provides details pertaining to credit facilities already availed of by a borrower as well as his payment track record, reportedly moved the RBI to allow ARCs to take membership of CICs. This move comes as banks are increasingly resorting to sale of NPLs to ARCs to clean up their balance sheets.

RBI asks banks to give more info on NPAs

Source:Press Trust of India / Mumbai March 16, 2010, 16:07 IST

The Reserve Bank of India (RBI) has asked banks

to provide sector-wise details of their non-performing assets 

(NPAs) and exposures in the balance sheets from this fiscal.


The banks have also been asked to furnish details of any 
special purpose vehicles (SPVs) sponsored by the banks.

According to analysts, the move would bring in more
transparency in the banks' operations.

"It has been decided to prescribe the following additional
disclosures in the 'notes to accounts' in the banks' balance
sheets...(like) concentration of deposits, advances, exposures
  and NPAs, sector-wise NPAs, overseas assets, NPAs
and revenue, off-balance sheet SPVs sponsored by banks,"
the RBI said in an statement.

Banks would have to follow the format from the year ending
March 31, 2010, the RBI said.