Overdue NPA provisions to hit banks hard in Q2

BS /Manojit Saha & Abhijit Lele / Mumbai Oct 04, 2012, 00:44 IST

Many banks face erosion of entire quarterly profit as the Reserve Bank of India wants immediate cover for last years bad loans

Several large public sector banks may see their profits in the quarter ended September being eroded, with the Reserve Bank of India (RBI) asking banks to provide for last financial year’s bad loans in that quarter. During the annual inspection of banks’ books, RBI had found many banks had under-provided for bad loans in the last financial year.

According to banking sources, some banks may record Rs 500-600 crore of additional provisioning. In the quarter ended June, large public sector banks had reported net profits of Rs 500-Rs 1,250 crore. With a profit of Rs 3,752 crore, State Bank of India (SBI) was the only exception. The impact of the RBI move on SBI would be limited, as the bank has already made stringent provisioning. 

A senior SBI official said the bank, as well as its associate banks, was scheduled to make overdue provisions in the second quarter. “But the gap between what is provided and what RBI has pointed out is small,” the official added.

Though RBI carries out financial inspection every year, the process has been expedited from this year. Earlier, these inspections were carried out with a lag of 12-18 months. However, to ensure banks take corrective measures immediately, the banking regulator has now decided to complete the report of the previous year in the current year.

According to RBI data, non-performing assets (NPAs) have hit public sector banks the most, as these banks carried out the most debt recasts. Net NPAs of public sector banks rose from 1.09 per cent of net advances in 2010-11 to 1.53 per cent in 2011-12. For private banks, the ratio fell from 0.56 per cent to 0.46 per cent. For foreign banks, the it fell to 0.61 per cent in 2011-12.

Latest data shows the ratio of restructured standard advances to gross advances was highest for public sector banks. Till March, this ratio stood at 5.73 per cent for public sector banks, while for private and foreign banks, the ratios were 1.61 per cent and 0.22 per cent, respectively.

Compiled by BS Research Bureau

Lenders again fail to admit Deccan Chronicle case at CDR

BS Reporter / Mumbai Sep 26, 2012, 00:19 IST


Wait for Canara Bank's forensic report


Lenders with exposure to Deccan Chronicle Holdings Ltd (DCHL) on Tuesday postponed a decision on admitting the cash-strapped company’s proposal to recast its loans under the corporate debt restructuring (CDR) route, saying they would wait for an audit report by Canara Bank.

DCHL is the parent company of the Deccan Chronicle newspaper and Indian Premier League (IPL) cricket team Deccan Chargers.

The decision regarding loan recast was put on hold,” said a senior bank executive after on Tuesday’s CDR meeting. This is the second time banks postponed the decision. Earlier, they had discussed the case on September 12.

CHRONICLE OF DEBT RESTRUCTURING

• According to the terms and conditions which govern the corporate debt restructuring (CDR) process, consent of at least three-fourth of the lenders is required to draw a debt restructuring programme for a particular company
• Another public sector bank associated with the CDR for Deccan said most lenders would convey their view after studying the forensic report
• Top lenders whose exposure to Deccan Chronicle Holdings Ltd is being considered by the CDR cell are ICICI Bank, Axis Bank, Canara Bank, IDBI Bank and Andhra Bank

CHRONICLE OF

 DEBT RESTRUCTURINGCanara Bank is conducting the forensic audit for DCHL. A top Canara Bank official said it would take at least one month to complete the work (on a forensic audit report).

According to the terms and conditions that govern the CDR process, consent of at least three-fourth of the lenders is required to draw a debt restructuring programme for a particular company. Total debt to be admitted by the CDR cell is about Rs 2,300 crore, while the banks’ total exposure to DCHL is Rs 5,000 crore.

Another public sector bank associated with CDR for the company said most lenders would convey their view only after studying the forensic report. “If the audit establishes the fraud in the company, then it won’t be considered for the CDR,” an official with the bank said.

Top lenders whose exposure to DCHL is considered by CDR cell are ICICI Bank, Axis Bank, Canara Bank, IDBI Bank and Andhra Bank.

Banks want NPA norms relaxed for housing project loans

BS:Manojit Saha / Mumbai Sep 24, 2012, 00:13 IST

Banks want the Reserve Bank of India (RBI) to relax the norms on asset classification in the real estate sector to facilitate credit flow.

The request comes after the finance ministry had asked banks to increase lending to residential housing projects.

In a meeting last week with bankers and the Confederation of Real Estate Developer’s Associations of India (Credai), D K Mittal, secretary, financial services, had reviewed the issues pertaining to credit flow to the housing sector and discussed remedies.

Credai representatives told the ministry many projects could not be completed due to lack of funds. Most of these unfinished projects were in Tier-II and Tier-III cities.

REALTY REALITY

Finance ministry had asked banks to increase lending to residential housing projects Bank wants relaxed asset classification norms in the sector  Ministry has asked CREDAI to survey unsold housing stock to take remedial steps CREDAI says projects could not be completed due to lack of funds Most such projects in tier-II and tier-III cities

“We have noted that a developer starts the project by availing finance from non-banking sources, mainly non-banking housing companies, at a high interest. Later, they realise that servicing such loans become unviable,” said a senior executive of a public sector bank.

To add to the woes of real estate developers, RBI guidelines do not allow banks to take out that exposure from the non-banking finance company (NBFC) if the project has not commenced.

Now, bankers have requested the finance ministry to take up the matter with the banking regulator so that favourable policies could be framed to boost bank loans to real estate projects.

Banks also want asset classification norms to be relaxed on real estate projects.

According to RBI norms, if a project fails to be operational two years after the commercial operation date (as scheduled while loan sanctioning), banks have to classify the project as non-perfoming. “We have noticed there are issues beyond the control of the developer, like land acquisition and other clearances. These are genuine issues and the developer cannot do much in such a case. As a result, the commercial operation date of the project is delayed,” said a banker who attended the meeting.

Banks have requested the finance ministry to take up the matter with the central bank, so that there could be some relaxation in terms of extending the asset classification norms over two years.

The finance ministry has also asked Credai to conduct a survey of unsold housing stock so that a decision could be taken on unlocking its value.

RBI Deputy Governor Anand Sinha had on Friday said banks' asset quality had deteriorated due to the gloomy economic conditions but noted that there was enough capital with the lenders to take care of the situation.

Non-performing assets (NPAs) in the banking system were highest in last five years

BS Reporter / Mumbai Oct 01, 2012, 21:48 IST

Non-performing assets (NPAs) in the banking system were highest in last five years, according to the Reserve Bank of India (RBI) data.

Net NPA levels in the year 2011-12 were at 1.28% in the banking system. Net NPA ratio of the nationalised banks (excluding SBI and associates) crossed 1% mark in the net NPA ratio for the first time in last five years at 1.43% in 2011-12. The ratio was lowest at 0.68% in 2008-09. Including SBI and its associates it stood at 1.53% for all public sector banks.

Though the net loan loss ratio is at highest in the past five years for the banking system, for private sector banks, it has declining continuously for the past three years. In 2011-12, the private banks reported net NPA ratio of 0.46% compared to 0.56% reported last year.

Country's largest lender State Bank of India reported net NPA ratio of 1.82% in 2011-12 compared to 1.63% reported a year back. SBI advances are about 17% of the total banking system.

“The overall economy is slowing down and the cash flows of corporates have been affected which has had cascading effect on NPA levels” said one senior public sector bank executive.

RBI today published a profile of Indian banks for 2011-12. RBI in its report said that profitability in terms of return on assets (RoA) declined in 2011-12 compared to previous financial years while cost of funds (CoF) increased for the banks.

Also profit per employee remained static for the nationalized (excluding SBI group) banks in 2011-12 and increased for the other bank groups. Capital adequacy ratio (CAR) declined in 2011-12 for all banks excluding SBI group.

SBI group reported CAR of 13.70% in 2011-12 an increase of 145 basis points over last year. This increase helped overall banking system to post an increased CAR in 2011-12 though the CAR for other groups of banks declined compared to last year.

Debt Recovery Tribunal may sell property of borrowers, guarantors: Allahabad High Court

Sep 25, 2012, 05.52AM IST TNN[ R N Pandey ]

ALLAHABAD: The Allahabad High Court on Monday ruled that the Debt Recovery Tribunal (DRT) is an authority empowered under the law to sell the property of borrowers or guarantors of a loan through recovery officers.

The High Court further ruled that the sale certificate granted by the recovery officer is fully covered under Article-18 of Schedule I-B of Stamp Act and the stamp duty is chargeable on the amount of sale certificate.

The court turned down the plea that the sale certificate issued by the recovery officer of DRT is chargeable under Article-23 of Schedule I-B of Stamp Act on the market value of the property determined by the Collector under the Stamp Act.

Passing the order on a writ petition filed by Avdhesh Tyagi & others, Justice Sabhajeet Yadav remarked that in view of the statements of law contained in various provisions of the Act, 1993, it is clear that since by virtue of Section-18, read with Section-31 of the Act, the jurisdiction of court and other authority is barred from exercising the jurisdiction and powers conferred on the tribunals constituted and established under the said Act from the appointed date and the tribunal alone is entitled to recover the debts due to the banks and financial institutions.

Therefore, there can be no scope for doubt to hold that the Debt Recovery Tribunal is an authority or body empowered under law for time being in force under the Act 1993 to sell the property of defendants before the tribunal, who are borrowers and/or guarantor of the loan through recovery officers as such recovery officers are authorized to sell property of such defendants by public auction for recovery of debts specified in the certificate issued by the tribunal and to grant sale certificate to the purchaser of the property, the court stated.

As such, in my considered opinion, such sale certificate granted by the recovery officer is fully covered by Article-18 of Schedule I-B of Stamp Act.

It is immaterial that the aforesaid sale certificate was not granted by the civil or Revenue court, Collector or Revenue Officer, the judge added.

Allowing the writ petition, the court said that the petitioners are liable to pay stamp duty on the basis on a sale certificate and they are not liable to pay stamp duty under Article-23 of Schedule I-B on the market value of the property determined/fixed by the collector under the Stamp Act.

The issue before the court for consideration was that sale certificate issued to the petitioners by an officer of the Debt Recovery Tribunal was a body empowered under any law for time being in force to sell such property by public auction and also the payment of stamp duty on such sale certificate.

The borrower had failed to pay the money to the bank and therefore in pursuance of the recovery certificate, the recovery officer auctioned the property of the borrower in which highest bid of the petitioners was accepted by the recovery officer and a sale certificate was issued by the recovery officer of the DRT.

In pursuance of the sale certificate of Rs 2,60,000, the petitioners paid a sum of Rs 26,000 as stamp duty.

The matter came up before the high court as the additional collector (F&R) Ghaziabad was not satisfied to the stamp duty and had passed an order saying that there was a shortage of stamp to the tune of Rs 4,03,500, as per the market value of the property determined by the collector under the Stamp Act.

Fin Min wants PSU banks to phase out unsecured short-term loans

zee news:PTI :Tuesday, August 21, 2012, 17:36

The government has asked the public sector banks to phase out all short-term loans without collaterals by January end saying these lendings create pressure on balance sheets of banks.

"All such loans shall either be phased out in the next six months time or collateral security will be created," a Finance Ministry communication to heads of all PSBs said.

The PSBs have also been asked to frame a policy for sanctioning short term unsecured loans.

It further said in future, any sanctions without security should have the approval of their Boards as "most of these loans are unsecured and therefore create pressure on PSBs for keeping such account standard".

The Finance Ministry, said in case any such loans have become non-performing assets (NPAs), details of the cases should be provided to it.

The directive applies to loans which are being extended without any security and are of short term in nature.

Since short term loans create pressure on the PSBs, the ministry felt there is a need to reduce this pressure by strengthening the process of sanction of such loans, the communication issued last month said.

The instructions to PSBs comes at a time when NPAs in the state-owned banks are rising due to slowdown in economic activities.

 

Are Indian Banks camouflaging NPAs?

 Reuters:Tuesday :28 Aug 2012

Lenders in India will no longer be able to hide non-performing loans on their balance sheets if proposals over the treatment of restructured assets make it into practice. It’s about time.

 

‘Evergreening’, where non-performing loans are repeatedly refinanced and extended instead of restructured, has distorted the cost of credit in India for years. The practice has allowed inefficient, unprofitable companies to outlast their economic lives, and prevented the new breed of entrepreneurs from taking over.

 

In a report by Nirmal Bang Equities, a broking firm says, "Banks have resorted to innovative techniques of effectively restructuring stressed corporate standard loans which are not disclosed as restructured standard loans, but are impaired loans. Such a practice makes their asset quality appear deceptively healthy even though it has deteriorated." 

 

It has also allowed an untold amount of bad debts to pile up in the banking system. Last week’s recommendations show that the Reserve Bank of India is finally running out of patience. It needs banks to clear up these bad loans before they become a systemic problem.

 

That, however, puts India in a tricky situation. Government-dictated targets – designed to fuel economic growth – are partly to blame for forcing the public sector banks to grow their books too fast in the first place. Now that the country’s economy is slowing, politicians will be pressuring banks to lend more, not less, and any restructuring that puts voters’ jobs at risk is bound to meet heavy resistance.

 

However unpopular, the RBI’s recommendations are sound. The central bank now needs to ensure they are enforced.

 

Restructuring India’s underperforming borrowers – many of which are still looked on as national champions – will take time, and the upheaval will be a painful burden for the country’s banks at a time when inflation and slower economic growth are already eroding their margins. But it’s a step in the right direction.