stay of the order of DRT-II, Chennai

Source: DRAT ,chennai- 18th april 2011


A. Suganthi & Anr. Vs Karnataka Bank & 8 Ors.


MA 697/2010

The Ld. Counsel for the Appellants drew the attention of this Tribunal to the order of the Tribunal below and stated that a reading of the judgment and decree in OS No. 6310/1981 dated 19.1.1984 on the file of First Additional Judge, City Civil Court at Madras  and a reading of the compromise decree of the Hon’ble High Court of Madras in Appeal Suit No. 614/1984 would amply reveal that the 2080 Sq. ft. of the property was allotted to the share of A.V.K. Velusamy and Shri A.V.K. Velusamy and his six children including the appellants had become entitled to equal rights in the property and that they are all enjoying the property jointly and further that each of the appellants are entitled to 1/6^th of 2080 Sq. ft. of the property which was subject matter of O.S. No. 6310/1981 on the file of 1^st Additional Judge, City Civil Court at Madras. 

The Ld. Counsel stated that Shri A.V.K. Velusamy, the father of the appellants and two brothers of the appellants mortgaged the 2080 Sq. ft. property and their mortgage is improper as they could not have mortgaged the appellants’ share and that any proceeding based on such a mortgage would be illegal.  

The Ld. Counsel stated that the Ld. Recovery Officer notwithstanding the judgment and decree of the Civil Courts has brushed aside the claim of the appellants and that the Ld. Presiding Officer also erroneously dismissed the appeal by ignoring the fact that the competent civil courts have already established the rights of the appellant. 


 He stated that the Ld. Presiding Officer has not considered the pre-existing rights of the appellants and that if the operation of the order of the Ld. 


Presiding Officer is not stayed the appellants would be put to great hardship and suffering and that they will not be able to enjoy the fruits of the decree of the civil courts.  


The Ld. Counsel also prayed for an order of restraint upon the Ld. Recovery Officer from proceeding any further with the Recovery Certificate issued in this case.

The Ld. Counsel appearing on behalf of the respondent bank stated that the mortgage created with the bank has been property created and the application filed before the Ld. Recovery Officer by the appellants has been only filed for the purpose of delaying the recovery proceedings.  

The borrowers had earlier approached this Tribunal and also failed to comply with the conditional order passed by this Tribunal and equally the borrowers have also not abided by the orders of the Hon’ble High Court and stated that the bank has been making its efforts to recover public money and the borrowers have been successfully thwarting the same. 

 He stated that the order of the Ld. Recovery Officer and the Ld. Presiding Officer are proper and correct and prayed that the appeal may be dismissed and added that no orders in the nature of interim orders be granted in this case as the appellants have failed to make out a prima facie case in their favour.

Heard both sides.

In view of the facts and circumstances of the case, more particularly in view of the fact that the appellants became entitled to the property by virtue of orders passed by the civil courts and further in view of the fact that the applicants cannot be prevented from putting forth their case on the question of their ownership of 2/6^th share of the property, this Tribunal is driven to pass the following order: -

“Call this appeal for final hearing on 31.5.2011.  In the meanwhile there shall be stay of the operation of the order of the Ld. Presiding Officer, DRT-II, Chennai dated 18.11.2010 made in Appeal No. 03/2010 and equally there shall be a restraint upon the Ld. Recovery Officer from in any way proceeding any further pursuant to the Recovery Certificate issued in this case till 31.5.2011 in so far as the shares of the appellants are concerned.”

Bad debts of PSU banks hit Rs 30k crore

Source :NEW DELHI:TNN | Apr 15, 2011, 04.31am IST

 The government's agenda for inclusive growth and emphasis on priority sector lending is proving costly for the exchequer, with bad debts of state-run banks increasing to over Rs 30,000 crore till December, 2010. These bad loans — given to agriculture, small-scale enterprises and other priority sectors — are around half of the Rs 68,000 crore non-performing assets (NPAs) of government banks during the same period. 

The agriculture sector leads the pack, accounting for 70% of bad loans. In contrast, only 22% loans went bad in small-scale industries (  SSI) sector during April-December 2010 as against 65% of NPAs in 2009-10. This issue will come up for discussion later this month during a meeting of CEOs of PSU banks with top finance ministry officials, a ministry official said. The assets quality of these banks has also raised concern on efficacy of due diligence on lending. 

The review on credit lending will ascertain if the banks are meeting the 40% mandatory lending to priority sectors on their own, or they have been borrowing such loans from regional rural banks (RRBs) and  micro-finance institutions (MFIs). If larger NPAs are attributed to such borrowings, the government may restrict these options in future. 

In the Budget 2011-12, government enhanced agriculture credit limit to Rs 475,000 crore from Rs 375,000 crore in the previous year. Banks have been asked to step up direct lending for agriculture and credit to small and marginal farmers in a bid to increase farm productivity. But, considering that the banks have pressure from the government to meet the credit target within the financial year, the high-level of NPAs show the kind of compromise is being made on the eligibility criteria.  

A similar problem, which had occurred a few years ago nad impacted banks' credit lending and reserves, had to be compensated by government's recapitalization and reimbursement through a farm loan-waiver scheme. A farm loan-waiver scheme announced in 2008-09 to compensate banks made a dent on the exchequer to the tune of Rs 70,000 crore.  

Besides, the farm loans, PSU banks have consistently been writing off bad debts of more than Rs 10,000 crore every year to reflect a healthy balance sheet. The gross NPAs of all government banks have grown by 30% in 2009-10 to Rs 57,000 crore, and in the first nine months of 2010-11, it went up by more than Rs 10,000 crore to Rs 68,600 crore.

Co-operative banks are in terrible shape; account-holders will be at the receiving end. RBIshould act noe

Wednesday, April 13, 2011

Co-operative banks are in terrible shape; account-holders will be at the receiving end. RBI should act decisively, and soon

Source :Money life: Prof Anil Agashe:April 12, 2011 03:16 Pm

A number of co-operative banks in Maharashtra are saddled with bad debts. Political interference seems to have silenced the banking regulator. It is high time the RBI, and the shareholders & depositors of these beleaguered entities woke up  

Recent news reports suggest that there are nearly 28 co-operative banks in Maharashtra which are having large NPAs (non-performing assets) and negative net worth and are in a bad financial state. 

However, there is nothing new about this situation. A lot of such banks have collapsed in the recent past, and no doubt many more will in the future. The RBI (Reserve Bank of India) seems to be inactive instead of being proactive in making sure that these banks close down and are acquired by other banks to safeguard the interests of the depositors. 

There is a strange argument doing the rounds that if the RBI takes action (like declaring a moratorium on sick banks) there will be a run on most banks that are sick. If this happens, it will actually be a good thing. Instead of protecting weak banks for 'safeguarding' depositors, let the RBI merge them. 

The banking regulator seems to have forgotten the Vaidyanathan and Madhavan Committee recommendations. Most state governments have signed MoUs (memorandums of understanding) with the RBI and have given the regulator all powers for supervision of co-operative banks as far as banking regulations are concerned, though state governments still have powers over these banks as these banks are under the control of their respective Registrar of Co-operatives (ROCs). 

Now it seems that the RBI needs the consent of these ROCs for placing these sick banks under a moratorium. However, if such consent is not forthcoming due to political pressure-as many such banks are controlled by politicians-then the apex bank should go ahead and suspend the banking licenses of these banks unilaterally.

There is also the curious case of Pune-based Rupee Co-operative Bank. There was a run on this bank sometime in 2002 and the board of the bank was dismissed, and it was put under an Administrator. According to some banking professionals who were advising the administrators, they were appalled that no proper records were available and the bank was unable to prepare its financial statements. The bank needed to be put under moratorium at that time itself. 

After five years under the 'supervision' of these administrators, fresh elections were held for the board of directors and many who were responsible to get the bank into trouble in the first place were re-elected! 

Today the bank claims that it has made a profit of Rs28 crore for the year ending March 2011. It also claims that no loan granted over the last two years is an NPA. However, the fact remains that almost 46% of its advances are classified as NPAs and the bank has in the process negative net worth and thus has a negative Capital Adequacy Ratio which has to be 12% of weighted risk adjusted assets of a bank! 

It is high time the RBI took action instead of watching the situation "closely" and giving more time to the management.

The depositors of the bank have cause for worry. If the bank is put under moratorium for a long time like the Suvarna Sahakari Bank which remained under moratorium for two years before it was finally acquire by IOB (Indian Overseas Bank), then all the money of the depositors will get locked in the bank. Last time when there was a run on the bank, the depositors had panicked and stood in long queues to take out their money. 

However, as the RBI assured liquidity support and said there was no need to panic, the same depositors stood in long queues to re-deposit their money as the bank announced increased interest rates to lure the customers back. 

The simple rule in finance is a bad borrower is forced to pay an interest rate higher than the market rate as a reward for higher risk that an investor requires. However, most depositors do not even understand that when they put money in a bank; the bank is a borrower. Even today I am afraid that most depositors in this bank are unaware of the risk that they are facing!

And what about the shareholders? They too seem to be an ignorant, callous and ignorant lot. They have received no dividend for the past many years. Their shares have absolutely no value today. Even if the bank is merged with another bank, shareholders are not going to get any money as had happened in the case of Global Trust Bank.

It will be worthwhile to see what security the bank is holding against the accepted NPAs of Rs500 crore, and what is the value of these securities. My guess is that not much value can be realised. It will also be pertinent to find out if the bank has used the provisions of the SARFAESI Act, 2002, against its willful defaulting borrowers. This Act gives enormous powers to banks in recovering bad loans.  

We must force the RBI to give answers to these questions in the interest of shareholders and depositors.

However, let us also not have too much sympathy for the shareholders and depositors because they have not pressurised either the management or the regulators, for protecting themselves. Even God helps those who help themselves! 

Financial ignorance is not an insurance cover against getting your fingers burnt.

---Prof Agashe teaches at Symbiosis and other management schools in Pune

Government operationalises central registry to check frauds in loan cases

Source :BS Reporter / New Delhi April 1, 2011, 1:18 IST

The government on Thursday operationalised central registry to prevent frauds in loan cases involving multiple lending from different banks on the same immovable property.

Initially transactions relating to securitisation and reconstruction of financial assets and those relating to mortgage by deposit of title deeds to secure any loan or advances granted by banks and financial institutions would be registered in the central registry, the finance ministry said in a statement on Thursday.

The records maintained by the central registry would be available for search by any lender or any other person desirous of dealing with the property. 


Availability of such records is likely to prevent frauds involving multiple lending against the security of same property as well as fraudulent sale of property without disclosing the security interest over such property.




“A central database of security interests created over property as well as assignment of such security interest by way of securitisation or asset reconstruction will make the secured lending activity in the financial market safer for lenders. 


This will enthuse the secured creditors to provide credit to the productive sectors to help sustain the growth momentum of the Indian economy,” the statement said.


The Central Registry of Securitisation Asset Reconstruction and Security Interest of India, a government company, licensed under Section 25 of the Companies Act, 1956 has been incorporated for the purpose of operating and maintaining the central registry under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002).


In the Budget, Finance Minister Pranab Mukherjee had announced the registry would be operationalised by March 11.


 Notifications for establishment of the registry, to be operated and maintained by the said company and for the purpose of appointment of central registrar, were issued by the government on Thursday.


The central registry would be under the superintendence and direction of the Central Registrar.
National Housing Bank Chairman and Managing Director R V Verma would hold additional charge as the registrar of the Central Registry for a period of three months.


 He would also be the managing director and chief executive officer of the company.


The forms for registration and the fees for filing registration particulars as well as for taking a search in the Central Registry have been prescribed by Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011.

RBI scraps sick, weak tags for urban co-op banks/

Business Standard


The Reserve Bank of India (RBI) has scrapped the “weak” and “sick” tags for classifying financially unsound urban co-operative banks (UCBs) and will now classify them into four grades — I, II, III, IV.



It has also relaxed the norms for classification of the banks as “weak” (now Grade II and III banks).
Earlier, a UCB was classified “weak” if its capital to risk weighted assets ratio (CRAR) fell below 75 per cent of the minimum prescribed level; or its net non-performing assets (NPAs) amounted to 10 per cent or more but less than 15 per cent of net loans and advances as on March 31; or if it had shown net losses in operations for two of the last three consecutive financial years.


Now, a UCB is classified under Grade I (sound bank) if it complies with CRAR norms in the latest year; its net NPAs are less than 10 per cent of net loans and advances as on March 31; has a net profit for the financial year just ended; and has not defaulted in maintenance of cash reserve ratio (CRR)/statutory liquidity ratio (SLR) the previous year.


Banks will be classified Grade II, if they meet any one of the following norms: (i) CRAR is one per cent below the prescribed norm; or (ii) net NPAs are 10 per cent or more but below 15 per cent of net loans and advances as on March 31; or (iii) has incurred net losses for the financial year just ended; or (iv) has defaulted in maintenance of CRR/SLR the previous financial year.


Banks will be placed under Grade III if they meet any two of the following norms: (i) CRAR is below 75 per cent of the minimum prescribed level but 50 per cent or above; (ii) net NPAs are 10 per cent or more but less than 15 per cent of net loans and advances as on March 31; (iii) incurred net losses for two out of the last three consecutive financial years.


UCBs will be placed under Grade IV: (i) if their CRARs fall below 50 per cent of the minimum prescribed level; and (ii) net NPAs are 15 per cent or more of net loans and advances as on March 31; or (iii) they show net losses.