Audited bank books understate bad loans: RBI

Source  :BS Reporter / Mumbai December 18, 2011, 0:30 IST

Pointing to shortcomings in the quality of bank audits, the Reserve Bank of India (RBI) has said financial statements certified by accountants show lower non-performing assets than is actually the case.

There is a difference between the levels of non-performing assets (NPAs) found during the course of supervisions (by RBI) and those in audited books of banks. Bad loans in certified statements are less, RBI Governor, D Subbarao, said on Saturday.

 Seeking an improvement on this front, Subbarao said, "We must identify where the systemic difference is coming from." He was addressing a conference organised by the Institute of Chartered Accountants of India (ICAI).

Subbarao said accountants who sign bank books were RBI's "eyes and ears". He added the regulator expected them to send out early warning signals to assist the regulator in the supervisory process. A true and fair picture must be shown to shareholders, he said.

The economic slowdown and rise in interest costs, owing to a rise of over 250 basis points in lending rates, have exerted pressure on the repayment capacity of retail and corporate borrowers. Gross NPAs of commercial banks rose to Rs 97,922 crore at end of March from Rs 84,698 crore a year ago, according to RBI data.


On the demand to reduce branch audit work, he said relevant branch audits at public sector banks (PSBs) had significantly declined due to core banking facilities and centralised record keeping.


The cost of audit of PSBs was significantly higher than the cost of auditing comparable private sector banks. However, ICAI has been resisted the move, as it would mean a reduction in work. ICAI's efforts in this regard are ill advised.


Accountants should sharpen their skills in concurrent audits, rather than agitate for the retention of work which does not add value, Subbarao said.


The profession had shied away from the responsibility of prevention and early detection of fraud, Subbarao said. The need for such a service exists, and if the profession did not fulfil that need, other agencies which could provide such services would displace auditors and deprive them of a potentially expanding opportunity, he added.


The central bank governor also had a word of caution for accountants on monopoly in areas like signing financial statements, advising them against perpetuating their monopoly status. Accounting professionals were concerned about expanding career opportunities, owing to the institute's growing membership.


The easy way out to expand opportunities would be to agitate for continuation of the monopoly position. However, this would be a mistake, Subbarao said, adding they should identify emerging opportunities and develop skills needed to exploit them.

RBI Reluctant to reveal the names of top 100 bank loan defaulter

Source :Anita Singh, TNN Dec 11, 2011, 05.14AM IST

PANIPAT: Reluctant to reveal the names of top 100 bank loan defaulter businessmen of the country, the Reserve Bank of India (RBI) has filed a petition in the Delhi High Court, seeking a stay on the orders passed by the Central Information Commission (CIC).

On November 15, CIC, while deciding a petition filed by local RTI activist P P Kapoor, had directed the RBI to provide him the names of defaulters by December 10 and upload these on the bank's website by December 31. In the petition, Kapoor had challenged the denial of information by the bank.

Kapoor had sought the details from the bank in August last year, but was denied on the grounds that RBI held these in 'judiciary capacity'.

However, the CIC directed the bank to post on its website complete information on all such industrialists as part of suo-motu disclosure mandated under Section 4 of the RTI Act before December 31 and asked it to update it every year.

The RBI had objected to making the information public, saying "it is held by it in fiduciary capacity and disclosing it will adversely affect economic interest of the state".

Information commissioner Shailesh Gandhi agreed that information was 'fiduciary in nature', but said that such exemption did not stand when there was larger public interest in the disclosure.

After his RTI query was dismissed by the RBI, Kapoor filed the petition with the Central Information Commission, which on October 12 summoned the public information officer of the RBI to appear before it on November 8 with all relevant documents. The commission held a hearing on the said date, but the verdict was withheld.

Kapoor said the information was sough by him in the larger public interest as revealing the names of the defaulters could force them to return the money of the public sector banks.

Mrs.Malliga V/S BOB

A.IR:954/2011

A 1472/11 (waiver);  Ld.  Counsel Shri Senthil Kumar appearing on behalf of the  petitioner stated that the respondent bank can claim only to the extent of the value of the secured asset and that the provisions of the SARFAESI Act only permit that.  

He further stated that the petitioner is a lady and that if this Tribunal imposes a condition of pre-deposit of a sum equivalent to 50% of the amount claimed by the bank the petitioner would be put to hardship and suffering. 

Ld.  Counsel added that  the amount for  the pre-deposit may be reckoned from the value of the secured asset and that the petitioner may be directed to deposit 25% of that value towards the pre-deposit.  Ld.  Counsel pleaded for sympathy and added that suitable orders may be passed.

Ld. Counsel Shri Manohar appearing on behalf of the respondent bank stated that the debt due to the respondent bank is Rs.20.73 crores and that the petitioner may be directed to deposit at least 50% of the said sum in order to meet out the requirement under Sec.18 of the SARFADSI Act.

Heard both sides.

In view of the facts and circumstances of the case  the following order is passed.

“The petitioner is directed to deposit Rs.5.18 crores into this Tribunal on or before 5.3.2012.  Call this IA on 6.3.2012 for verification of the compliance.  In the meanwhile there shall be an order of restraint upon the Authorised Officer from in any way proceeding any further under the provisions of the SARFAESI Act in any manner till 6.3.2012.”

IA 1473/11 (stay); Call with IA 1472/11 on 6.3.2012.


The Chair Person of DRAT Chennai passed this order on 13th Dec 2011

M/s.Indian Bank V/S Mr.J.Paramanandam & ors

R.A:28/2011


OA 491 /1999 on the file of DRT - 1 chennai

Ld.  Counsel Shri Kasturi Rangan appearing on behalf of the first respondent stated that a sum of Rs.2 crores deposited by the first respondent’s son is lying in a Fixed Deposit with the Indian Bank, Ethiraj Salai branch and that the first respondent’s son has given a letter to the bank for appropriation of the said sum towards the settlement of the dues of his father.  

The Ld. Counsel stated that this tribunal may act upon the letter and permit the bank to appropriate the said sum of Rs. 2 crores lying with the Indian Bank, Ethiraj Salai branch as per the terms set out in the letter which includes the appropriation of the sum of Rs. 3 crores which is lying in deposit with the Alwarpet Branch of Indian Bank and which has been deposited by Shri A. Ramadas Rao. 

 The Ld.  Counsel added that the lis is long pending and that all the parties are desirous of settling the matter. The Ld.  Counsel requested that this Tribunal to pass orders permitting the bank to appropriate the sum of Rs. 2 crores lying with them as requested by the first respondent’s son.

Ld.  Counsel Ms. Vasudha Thiagarajan appears on behalf of Shri Ramadas Rao and stated that Shri Ramadas Rao is only interested in an amicable settlement and that he is also ready and willing to permit the bank to appropriate the sum of Rs. 3 crores deposited by him and lying with the Alwarpet branch of the Indian Bank provided the sum of Rs. 2 crores deposited by the first respondent’s son with the Indian Bank is appropriated first.

Heard the Ld.  Counsel.

It is seen that once the sum of Rs.2 crores lying with Indian Bank, Ethiraj Salai Branch and the sum of Rs. 3 crores lying in the Alwarpet Branch of the Indian Bank are appropriated the first respondent would be liable to pay only a sum of Rs.1 crore for the settlement.

In view of the facts and circumstances of the case it would be appropriate if this Tribunal passes the following order:

“Indian Bank is permitted to appropriate the sum of Rs.2 crores deposited by the first respondent’s son lying in a Fixed Deposit with the Indian Bank, Ethiraj Salai alongwith the accrued interest towards the settlement and immediately after the said sum of Rs. 2 crores is appropriated for the settlement of the loan account of the first respondent the bank is also permitted to appropriate the sum of Rs.3 crores lying deposited in the SB account of Shri A. Ramadas Rao in Alwarpet branch of Indian Bank towards the settlement”

Call on 9.1.2012 for further proceedings.

IA-290/2011 (Stay) – Call with RA on 9.1.2012.

IA-1461/2011(Implead Petition) – Call with RA on 9.1.2012.

The Chair Person of DRAT Chennai passed this order on 25th Nov 2011

Finance ministry pushes banks to fast-track bad loan recovery

source :12 DEC, 2011, 01.30AM IST, SANGITA MEHTA,ET BUREAU 


MUMBAI: The finance ministry is pushing capital-strapped public sector banks to hasten recovery of bad loans to improve health, and has promised to fill vacancies at debt recovery tribunals (DRT) across the nation, partly responsible for inordinate delays in ending disputes. 

"Needless to say that Rs2 lakh crore (of bad loans) are a drag on the capital of banks," a bureaucrat from the finance ministry wrote to bank chairmen recently. 

"All cases should be reviewed and... ensured that all cases pending above two years should be cleared by March 2012." Banks last year wrote off almost 10% of their gross bad loans as various recovery forums failed. 

Recovery through DRTs fell to 28% of the total referred cases in 2011, from 32% ayear earlier, data from the Reserve Bank of India (RBI) shows. 

Under the SARFAESI Act, it was a little better at 38%, compared with 30% in the same period previous year. 

Bankers had complained to the finance ministry that the DRT mechanism was not functioning efficiently, which in turn was making it difficult for them to recover dues. They had said the tribunals lacked presiding officers and recovery officers.

A Better Way To Pay Off Debts

Source :Gary Belsky & Tom Gilovich :Time moneyland : December 8, 2011

‘Tis the season … to accumulate debt, and in that spirit we thought we’d write about a pair of related and timely subjects. The first is a new study, containing findings that could help you pay off loans faster. The second is a new book that may be the most useful and thoughtful gift you can give. Both could make you wealthier and happier.First the study, which comes from a handful of researchers led by Israeli marketing professor Moty Amar and including Duke University’s Dan Ariely, one of the most creative minds in behavioral economics. In a series of surveys and studies, the investigators identified and examined a cognitive bias they call “debt account aversion”: a strong preference of people with multiple loans to pay off smaller debts first, even when it makes more sense to pay down larger balances on loans with higher interest rates.

The flaw in this approach is obvious: Imagine owing a total of $10,000 to four different lenders, with balances of $300, $400, $1,300 and $8,000 and interest rates of 8%, 10%, 12% and 16%, respectively. Imagine further that you have $1,000 to put toward your borrowings. Logic dictates that you devote everything but the required minimum payments to decreasing the $8,000 balance (which costs more to carry) rather than closing out two of the smaller balances. You’ll pay off everything more quickly. On the other hand, going from four outstanding debts to just two sounds very appealing.

The researchers propose various causes, but at their core they combine to highlight a kind of meta-error we might fairly call the “simplification bias.” All things being equal but especially when they’re not—when we’re anxious, frightened or otherwise stressed or confused—people prefer to simplify their world and choices. In fact, it’s not so much of a preference as an elementary feature of how the mind works.

Which brings us to our second topic, what we might fairly call “Tom and Gary’s Holiday Gift Guide!”

Readers of our book and blog surely recognize the name Daniel Kahneman. Along with his partner, the late Amos Tversky, Kahneman is the parent of behavioral economics: Indeed, in 2002 he was awarded a Nobel Prize for Economics (his Nobel lecture is worth the 38-minute listen). Kahneman has been in the news lately because of a book he wrote; not his first, but the first intended for a general audience. It’s called Thinking, Fast And Slow, and we recommend it with the utmost enthusiasm.

In it, Kahneman offers something of a metaphorical view of decision making that he describes as an ongoing interaction between two independent actors within our minds: System 1 is non-conscious, fast-acting and intuitive; System 2 is generally conscious, slower-acting and analytical. Many of our most common judgmental biases and behavioral head-scratchers emerge from System 1 (which, in broad and loose terms, evolved to help our ancient ancestors deal with challenges to survival) and most of the thinking that allows us to consciously understand and sometimes override those instinctive responses emerge from System 2. But, in general, Kahneman writes, System 1 does most of the work: it is the quiet but influential driver of most judgments and choices. Conscious Thought might get top billing, but without Gut Feeling there’s no show.

And so, even though paying down large debts with high interest rates first makes more sense, eliminating small balances first feels right. After all, Gut Feeling whispers to us, going from four debts to two has to be a good thing. And it can be—if, say, a feeling of accomplishment (“Hey, I eliminated two debts!”) motivates borrowers to focus on paying off remaining debt in lieu of spending (and charging) more. At the very least, though, Amar and Ariely’s paper (“Winning The Battle But Losing The Way: The Psychology of Debt Management“) indicates that your feelings about paying down loans might be counter to your financial well-being—and are therefore worthy of some System 2 thought.

Likewise, Thinking, Fast And Slow is a worthy purchase this holiday season. For yourself, certainly, but especially for someone else in your life. Kahneman is skeptical about our ability to notice and correct our own System 1 biases, but he’s more optimistic about our chances for identifying and tweaking those of others. So this bestseller is really a two-for-one special: a good read for someone you care about—and a chance for them to help you improve your decision making!

Repayment crisis in education loans worries TN banks

Source :Aparna Ramalingam, TNN : Dec 8, 2011, 04.34AM IST


CHENNAI: The number of educational loans that are not being paid back is increasing in the state. 


Non-performing assets (NPAs) in educational loans stood at Rs 528.16 crore, accounting for 5.02% of the educational loan business on June 30. For co-operative banks, this figure stood at Rs 1.6 crore representing 1.25% of the total educational loan portfolio of such banks, as per a report of the State -Level Bankers' Committee (SLBC). 


"In case of educational loans, repayment normally commences after completion of course or after bagging a job. With professional courses like engineering and medicine being four to five years long, repayment is an issue," said M Narendra, chairman, SLBC, Tamil Nadu, and CMD, Indian Overseas Bank. "Only 30% of students in the state get recruited from campus. The rest have to look for jobs. So repayment becomes a problem," he said. 


While there is no security required for educational loans up to Rs 4 lakh, the co-borrower (usually the parent) stands as guarantor for loans between Rs 4 and Rs 7.5 lakh. Educational loans in India normally range between Rs 4 and Rs 45 lakh with the repayment period being seven to 10 years. 


Loans disbursals in the state registered a growth of 37% to touch Rs 12,103 crore in September compared to Rs 8,841 crore last year. "While the percentage of NPA in priority sector advances has come down in all categories between March and June, it has gone up in educational loans considerably," says the report. 


One reason is the recent influx of students from north India to engineering colleges in Tamil Nadu. "Many of them don't have a permanent address and it becomes difficult to track them once they complete the course," said SN Mishra, convenor, SLBC. 
Rising interest rates have resulted in higher educational EMIs and this has contributed to the rise in delinquencies, said bankers. 


Bleak employment opportunities abroad have also contributed to rising NPAs. "Earlier, women graduating from nursing colleges used to bag jobs abroad within six months to a year. Opportunities abroad have dwindled since 2008 and this is being reflected in the repayment pattern," said a senior official from Central Bank of India.