By Abhishek Anand , New Delhi
Despite lacklustre credit growth during the present financial year,
banks are reluctant to goout of their way to
push increased credit flow to companies
because they fear that it might result in increase in bad debts.
A few banks that Financial Chronicle spoke with are of the view
that trying innovative ways to push credit growth could result in
compromising on quality of loan, which in turn may result in higher
non-performing asset (NPAs) for banks.
“Pushing artificially for credit off-take, may result in higher
non-performing assets,” A C Mahajan, chairman and managing director,
Canara Bank, said.
At the same time, Mahajan is optimistic of improvement in credit
demand going forward. “We are witnessing some improvement in credit
demand and are of the view the situation would improve further in
coming months,” he said.
Other bankers agreed with Mahajan. S Raman, executive director,
Union Bank of India, said, “We are not going to try too many things
to push up credit demand because that may result in deterioration of
the quality of assets for the bank. In fact, we have already reduced
credit disbursement target from 25 per cent to 18 per cent.
The first two quarters have witnessed very low credit off-take.”
C M Khurana, general manager, Oriental Bank of Commerce, said he
is hoping for higher credit pick-up in the days to come.
“As far as lending to companies is concerned, we are expecting
improved demand going forward,” Khurana said.
He said the bank’s retail credit was growing at a healthy pace.
“Housing loans clocked a year-on-year growth of 28 per cent and
education loans at more than 30 per cent,” Khurana said.
According to the latest RBI data, for fortnight ended November 6,
credit expansion by all banks put together increased by 9.07 per cent
at Rs 2,873,062 crore, compared with Rs 2,612,401 crore in the
corresponding fortnight a year ago. This is lower from the credit
off-take during the past financial year, where the credit grew at
a staggering 29 per cent year-on-year.
Source: Financial Chronicle
Thursday, November 26, 2009
Monday, November 23, 2009
Banks find DRT a better recovery mechanism
| Borrowers often do not honour commitment reached in Lok Adalats. |
Chennai, Nov. 20 Lok Adalats have not proved to be a good means
of effecting recoveries from bad loans, statistics show. The ‘public courts’
have accounted for only 5 to 8 per cent of delinquent loans recovered in
the last couple of years. Also, as the Chairman and Managing Director of
Indian Bank, Mr M.S. Sundara Rajan, observes, borrowers often do not
honour the commitment reached in Lok Adalats.
However, banks have found the mechanism of Debts Recovery
Tribunal and the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest (SARFAESI) Act,
more helpful. SARFAESI empowers banks to recover their
non-performing assets without the intervention of the Court.
A borrower aggrieved by the action of the bank can file an appeal
with DRT and then with the Debt Recovery Appellate Tribunal (DRAT),
but not with any civil court. The borrower has to deposit 50 per cent of
the dues before an appeal with DRAT.
Many bankers have told Business Line that it is easier to
recover small-ticket bad loans, of around Rs 1 crore,
because they are typically backed by securities and borrowers
come forward to negotiate.
On the other hand, the large borrowers are seen to have
sufficient ‘muscle’ and succeed in stalling the recovery process.
In addition to DRTs and the SARFAESI, the 11 registered
asset reconstruction companies that buy off the bad loans from
banks and make the recovery by themselves, seem to have
found favour with banks.
The total amount of financial assets acquired by
these 11 entities rose 25 per cent in the year July 2008-June 2009.
At the end of the period, the total assets with them stood at Rs 51,542 crore.
Source:The Busines line
Vishal Retail has received in-principle approval for corporate debt restructuring.
Nov 23, 2009
According to reports, the corporate debt restructuring cell of
Reserve Bank of India (RBI) has approved Vishal Retail's
proposal for debt recast. The terms of the debt restructuring will
reportedly be finalised over the next 60 days.
The Delhi-based retailer is saddled with a mounting debt
burden of Rs 730 crore. The State Bank of India is one
the main lenders to the retail chain with a loan of Rs 170 crore.
The company has 13 lenders in all including HSBC and
HDFC Bank, ING Vysya Bank, UCO Bank and Bank of India.
One of the conditions for the corporate debt restructuring
(CDR) proposal is that the company has to get in an investor
on board. RC Agarwal, the promoter, holds a 62.30% stake
in the company (As on September 2009).
The objective of the CDR framework is to ensure a timely and
transparent mechanism for restructuring of the corporate debt
of companies affected by internal or external factors,
outside the purview of Board for Industrial & Financial
Reconstruction, Debt Recovery Tribunal and other legal proceedings.
Vishal Retail has been going through a tough time over the
last 12-15 months, led by declining sales and slowdown in
demand along with the credit crunch. Recently, Employees
Provident Fund Organisation was reported to have
claimed Rs 11 crore from the company for provident fund violations.
Meanwhile, the company announced after market hours on
Friday, 20 November 2009, that its board approved the merger
of Vishal Water World with the company.
Vishal Retail sells ready-made apparels (including its own brands)
and a wide range of household merchandise and other consumer
goods such as footwear, toys, watches, toiletries, grocery items,
sports items, crockery, gift and novelties.
Promoters have pledged 20.03 lakh shares
representing 8.95% of the equity capital of the company.
Total promoters shareholding in the company is 62.30% as on September 2009.
Saturday, November 21, 2009
Thursday, November 19, 2009
Wednesday, November 18, 2009
RBI may soon issue new Norms on NPA
Nov 18, 2009
The Reserve Bank said it will soon come out with norms for
banks to augment the capital requirements that the lenders
have to keep aside against bad assets. “We will be issuing
the circular (provisioning against NPAs) so you can then see
details on that,” RBI deputy governor Usha Thorat told.
When asked about the timing of the circular, she said, “soon.”
RBI governor D Subbarao, in the second quarterly review of
the monetary policy in October, had said there is need to
increase provisioning against bad assets to not less than
70% by September 2010. “It has been advised to banks to
augment their provisioning cushions consisting of specific
provisions against NPAs as well as floating provisions,
and ensure that their total provisioning coverage ratio,
including floating provisions, is not less than 70%.
Banks should achieve this norm not later than end-September 2010,”
Subbarao said. The quarterly review noted that at present,
the provisioning requirements for NPAs range
between 10% and 100% of the outstanding amount,
depending on the age of the NPAs, the security
available and the internal policy of the bank.
Since the rates of provisioning stipulated by RBI for NPAs are
minimum and banks can make additional provisions subject
to a consistent policy based on riskiness of their credit portfolios,
it has been observed that there is a wide heterogeneity and variance
in the level of provisioning coverage ratio across different banks, RBI had said.
The Reserve Bank said it will soon come out with norms for
banks to augment the capital requirements that the lenders
have to keep aside against bad assets. “We will be issuing
the circular (provisioning against NPAs) so you can then see
details on that,” RBI deputy governor Usha Thorat told.
When asked about the timing of the circular, she said, “soon.”
RBI governor D Subbarao, in the second quarterly review of
the monetary policy in October, had said there is need to
increase provisioning against bad assets to not less than
70% by September 2010. “It has been advised to banks to
augment their provisioning cushions consisting of specific
provisions against NPAs as well as floating provisions,
and ensure that their total provisioning coverage ratio,
including floating provisions, is not less than 70%.
Banks should achieve this norm not later than end-September 2010,”
Subbarao said. The quarterly review noted that at present,
the provisioning requirements for NPAs range
between 10% and 100% of the outstanding amount,
depending on the age of the NPAs, the security
available and the internal policy of the bank.
Since the rates of provisioning stipulated by RBI for NPAs are
minimum and banks can make additional provisions subject
to a consistent policy based on riskiness of their credit portfolios,
it has been observed that there is a wide heterogeneity and variance
in the level of provisioning coverage ratio across different banks, RBI had said.
Monday, November 16, 2009
Lenders may refer STC unit to debt tribunal
Abhijit Lele / Mumbai November 16, 2009,
With very little chance of repayment from STCL,
a Bangalore-based ailing subsidiary of State Trading
Corporation, lenders are exploring an option to drag
the company to Debt Recovery Tribunal (DRT) as part
of efforts to get back dues.
STCL owes over Rs 1,300 crore to lenders including
State Bank of India (SBI) and Vijaya Bank. STCL
has raised varying amounts from eight banks, led
by Vijaya Bank to which it owes roughly Rs 290 crore.
Bangalore-based public sector bank has had to make
huge provisions for defaults from this account.
“Approaching Tribunal is one of the options before us.
A common view is yet to emerge on the use of option”,
top official of the small government-owned bank.
DRT is seen as a forum for expeditious adjudication
and recovery of debts due to banks and financial institutions .
The other banks which have advanced these amounts include
IDBI Bank, Union Bank, Canara Bank, UCO Bank, Axis Bank and YES Bank.
“Loans were given keeping in mind the ownership pattern
of the Bangalore-based company. Lenders are patiently
following up this case with the government,” said a senior
executive with other public sector bank. K C Ponnana,
managing director of STCL, was not available for comment.
STCL was set up in 1982 for promoting the cardamom trade.
But, in the past decade the company has moved to a diversified
set of commodities, with focus on metal scrap, iron ore,
blast furnace slag, spices and agricultural products.
In August, SBI had asked government-owned State
Trading Corporation of India to come up with a
‘workable solution’ for STCL to repay Rs 1,300 crore
of bank loans. The country’s largest lender had also
shot-off communication to the Reserve Bank of India
to explore various solutions for repayment.
In addition, banking sources said SBI had asked STC,
where the government holds a 91 per cent stake,
to factor in the liability before any dividend payment.
The rating assigned to STCL’s lines of credits has already
been downgraded by agency Icra. The rating agency has
downgraded STCL’s long-term rating assigned to Rs 515 crore
of fund-based limits from LBB to LC.
It had also downgraded the short-term rating of Rs 1,235 crore
of non-fund based limits from A4 to A5. The revised ratings
indicate the lowest credit quality. While STCL’s financial
results were unavailable, during the last financial year,
STC reported a 78.8 per cent drop in net profit at Rs 10.14 crore
in the quarter ended September 2009. Its net sales also dipped
by 12.38 per cent to Rs 3,609.15 crore during the period.
With very little chance of repayment from STCL,
a Bangalore-based ailing subsidiary of State Trading
Corporation, lenders are exploring an option to drag
the company to Debt Recovery Tribunal (DRT) as part
of efforts to get back dues.
STCL owes over Rs 1,300 crore to lenders including
State Bank of India (SBI) and Vijaya Bank. STCL
has raised varying amounts from eight banks, led
by Vijaya Bank to which it owes roughly Rs 290 crore.
Bangalore-based public sector bank has had to make
huge provisions for defaults from this account.
“Approaching Tribunal is one of the options before us.
A common view is yet to emerge on the use of option”,
top official of the small government-owned bank.
DRT is seen as a forum for expeditious adjudication
and recovery of debts due to banks and financial institutions .
The other banks which have advanced these amounts include
IDBI Bank, Union Bank, Canara Bank, UCO Bank, Axis Bank and YES Bank.
“Loans were given keeping in mind the ownership pattern
of the Bangalore-based company. Lenders are patiently
following up this case with the government,” said a senior
executive with other public sector bank. K C Ponnana,
managing director of STCL, was not available for comment.
STCL was set up in 1982 for promoting the cardamom trade.
But, in the past decade the company has moved to a diversified
set of commodities, with focus on metal scrap, iron ore,
blast furnace slag, spices and agricultural products.
In August, SBI had asked government-owned State
Trading Corporation of India to come up with a
‘workable solution’ for STCL to repay Rs 1,300 crore
of bank loans. The country’s largest lender had also
shot-off communication to the Reserve Bank of India
to explore various solutions for repayment.
In addition, banking sources said SBI had asked STC,
where the government holds a 91 per cent stake,
to factor in the liability before any dividend payment.
The rating assigned to STCL’s lines of credits has already
been downgraded by agency Icra. The rating agency has
downgraded STCL’s long-term rating assigned to Rs 515 crore
of fund-based limits from LBB to LC.
It had also downgraded the short-term rating of Rs 1,235 crore
of non-fund based limits from A4 to A5. The revised ratings
indicate the lowest credit quality. While STCL’s financial
results were unavailable, during the last financial year,
STC reported a 78.8 per cent drop in net profit at Rs 10.14 crore
in the quarter ended September 2009. Its net sales also dipped
by 12.38 per cent to Rs 3,609.15 crore during the period.
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