Staff crunch forces debt recovery tribunals to put off cases

Anita Bhoir & Maulik Vyas, ET Bureau :Mumbai :Dec 10, 2012, 05.28AM IST

Debt recovery tribunals (DRTs), an important mechanism for loan recovery by banks, are foundering amid charges of lack of professionalism and shortage of staff as bad loans are crippling banks. 

The disposal of cases has been falling as a few members have to handle enormous amount of claims and the delaying tactics employed by defaulters by going in appeal against every order are defeating the purpose.

In fact, bankers at a recent meeting with the finance ministry officials have charged that unjustified orders are being passed by some DRT officials in connivance with promoters who want to protect their assets.

 "We had complained about the unilateral stays that the registrars of the debt recovery tribunals are granting to the borrowers without giving banks a proper hearing,'' said a bank chairman, who did not want to be identified.

"The issue was raised by us at a DRT forum where finance ministry officials were also present."

There are at least 33 DRTs and five appellate bodies to deal with cases. Although the mechanism was brought in with a noble aim to decide on the cases within 6 months, the lack of adequate staff and timely replacements have hit their operations. 

With corruption spreading, some say, even DRTs are not immune to it. "Borrowers are taking advantage of the debt recovery appellate tribunal and appealing against the order issued by the DRTs,'' said advocate Ravi Goenka of Goenka Law Associates, who represents financial institutions like asset reconstruction firm Arcil and OBC.

"According to the law, DRTs have to dispose off cases in six months, but it's taking almost two to three years.'' In 2011-12, of the total amount recovered through the Sarfaesi Act, DRTs and Lok Adalats registered a decline of 8.2% at 14,400 crore, from 15,700 crore a year earlier despite a surge in bad loans.

There is only one member looking after the Western region comprising entire Maharashtra, Gujarat and Goa. For a long time, the post of presiding officer was vacant and presiding officer of the Kolkata bench was looking after the Western region appellate tribunal as additional portfolio. Mumbai-based banks had to go to Kolkata to file a case in most of the cases, said a lawyer representing a bank.

The long duration taken by DRTs to decide on the cases is reflected in the fact that the Oriental Bank of Commerce and Bank of India are still fighting a case to recover dues from former stock broker Ketan Parekhin a case relating to the 2001 securities scandal. He was barred from trading at the Indian stock exchanges till 2017.

During June to December 2012, some important cases involving companies like

 Som Developers (owing 390 crore to SBI, UBI and other banks),

 Sterling Biotech ( 322 crore debt towards a subsidiary of LIC) and

 Aeroflex ( 181 crore towards SBI) were admitted.

 "The DRTs were to finish cases in six month. However, they are not able to adhere to the timeline as they have become like a civil court,'' said the legal head of a private sector bank.

Amendments to debt recovery law will ensure banks get ‘right pricing for assets on sale’

B L :MUMBAI, DEC. 14,2012

Allowing asset reconstruction cos to convert a part of debt into equity is a positive

The amendment to the debt recovery legislation will, among others, allow multi-state co-operative banks to assign their bad loans to asset reconstruction companies (ARCs), proving a win-win for banks as well as the companies

Currently, these co-operative banks are not allowed to sell bad loans to ARCs. “This (amendment to the debt recovery legislation) will open the opportunity for ARCs to tap the sector which has so far not been targeted for debt recovery,” P. Rudran, MD and CEO of Arcil, country's largest asset reconstruction company said.The amendment to the debt recovery legislation will, among others, allow multi-state co-operative banks to assign their bad loans to asset reconstruction companies (ARCs), proving a win-win for banks as well as the companies.

The Enforcement of Security Interest and Recovery of Debt Laws (Amendment) Bill, 2011 was passed in the Lok Sabha on Monday. Rising non-performing loans has prompted the Finance Ministry to look at alternative ways to help banks mitigate the bad loans problem. The amendments if passed by Rajya Sabha will be notified by the Reserve Bank of India. ARCs buy bad loans from banks and financial institutions at a discounted rate and recover the dues from the borrower.

IMMOVABLE PROPERTY

The amendments also allow banks to acquire immovable properties from the borrower so that they can sell them at a later date.

Sometimes there are no buyers for a property or there is cartelisation from bidders, who deliberately quote a lower price thus undervaluing it. “The amendment will ensure that banks do not get into the situation of distress sale and get the right pricing for the assets on sale,” Rudran said. The amendment states that banks will be heard in Debt Recovery Tribunals (DRTs) before granting any stay on recovery of loans from borrowers. This will ensure that the law is not misused by borrowers to delay the settlements and payment of dues.

Also, the amendment allows ARCs to convert a part of the debt into equity. This could be a win-win situation for the borrower as well as the ARC. The borrower stands to gain because his outstanding liability decreases to the extent of equity conversion and the ARC can exit the company when it has made good of the liability. Further, the ARC will also get some amount of management control in the borrowing company so as to aid in the turnaround of the stressed company.

Private, foreign banks made greater use of loan recovery agents: FinMin

B L :NEW DELHI, DEC. 14:2012

The Finance Ministry has admitted that private sector and foreign banks made greater use of agents to recover outstanding loans from customers than nationalised banks, the State Bank of India and its associate banks.

In a written reply on Friday in Lok Sabha, the Minister of State for Finance Namo Narain Meena informed that out of total of 149 complaints (received between April-November 2012), 101 were against private sector banks (72) and foreign banks (29) for use of direct selling or recovery agents.

He also informed that 116 complaints out of 149 have already been disposed of.

Meanwhile, the number of complaints has been coming down after the Reserve Bank of India issued guidelines on July 1, 2011. These guidelines define norms for recovery of loans, including vehicle loans, along with engagement and training of recovery agents and methods to be followed by them. The guidelines ask banks to avoid adoption of uncivilised, unlawful and questionable behaviour of recovery agents during the process of loan recovery.

These are applicable to all scheduled commercial banks, regional rural banks and even primary cooperative banks.

“Banks are, therefore, required to rely on legal remedies available under the relevant statutes while enforcing security interests without intervention of the courts of law,” he said.

BANK FRAUDS DOUBLE

In reply to another question, Meena informed that the amount involved in fraud cases in public sector banks during the first six months has exceeded the total of the last full fiscal.

It is more than double of 2010-11.

According to figures, public sector banks reported 1,714 cases of frauds involving Rs 5,210.56 crore, while in 2011-12 a total of 3,392 cases with an amount of Rs 4,025.30 crore were reported.

SUSPICIOUS DEALS

The Finance Ministry said that during April-October, 2012, various agencies reported a total of 17,204 suspicious transactions (STRs) to the Financial Intelligence Unit-India.

These are for investigations of suspected money laundering, so the amount involved can not be ascertained now, Meena said.

In a reply to a question, the Minister said Foreign Currency Convertible Bonds (FCCBs) worth Rs 2,104 crore were due for maturity this month.

This amount will be Rs 667 crore, Rs 80 crore and Rs 317 crore for January, February and March, respectively.

To prevent any default of redemption of FCCB by Indian companies, the RBI has permitted restructuring of FCCBs not involving change in conversion price under the approval route.

Further, buyback of FCCBs has been allowed under the approval route at a minimum discount of 5 per cent on the accreted value up to March 31, 2013, the answer stated.

RBI may hike NPA provision ratio if needed: Chakrabarty

F C :PTI Dec 09 2012 , Mumbai

RBI Deputy Governor K C Chakrabarty has come down heavily on banks showing higher 
profits without providing adequately for bad loans, and said if need be, the central bank may hike provision coverage ratio (PCR) levels.


"Why banks need to show profits as high as 25 per cent? They can show 5 per cent growth in their profits. If they are not doing (providing more), I will increase it (PCR)," he told PTI in an interview.

The RBI had done away with its earlier requirement of forcing banks to maintain the PCR, or the ratio of provision to gross non-performing assets (NPAs), at 70 per cent.

The apex bank had increased the PCR to 70 per cent after the Lehman crisis in 2008 and this was applicable till September, 2011. While almost all private banks have higher PCR, majority of the state-run lenders could not meet this deadline.

A number of public sector banks, especially the smaller ones, have shown a drop in PCR in the second quarter earnings and posted a good jump in profits as a result.

The RBI has floated a discussion paper to explore having dynamic provisioning which requires banks to keep aside money during good times for a rainy day, rather than providing after an account has gone bad.

Speaking about NPAs of banks, Chakrabarty attributed a majority of them to poor administration and risk management practices of lenders and went to the extent of terming it as 'non-performing administration.'

"I call NPA as non-performing administration. We have to make the administration functioning," Chakrabarty, who oversees banking supervision at RBI, said.

The RBI Deputy Governor said the "change in the administration" has to come in a slew of areas which would be internal as well as external.

Lending rates would have been far lower if banks had got their NPAs down, Chakrabarty said.

Law changes to help revive stressed firms

 F C :Manju AB Dec 11 2012 , Mumbai

Give asset reconstruction firms more options

After the amendment to the SARFESI Act and the debt recovery tribunal in the Lok Sabha on Tuesday it will now be easier for banks and financial institutions to help revive companies and recoup their advances as no opposing bank or party can file a caveat in the debt recovery tribunal to obtain a stay unless both parties to the case are heard. Under the present DRT regulations it is possible for a bank or a borrower, which is opposed to the restructuring to file a caveat in the DRT and stall the revival or recovery process.

The asset reconstruction companies can also convert their debt into equity during  a restructuring so that the cost will come down for the company and the ARC gains by buying into the equity of the company. Until now it was not allowed to convert into equity.

P Rudran, MD and CEO, Arcil said, “By allowing the banks and FIs to file caveats and to be heard in DRTs before granting any stay, will ensure that the process of law is not misused by unscrupulous borrowers to delay the settlements and payment of dues. Similarly, allowing 15 days (instead of 7 days) to reply to the borrower’s objective under section 17 of SARFAESI act is also a good change so that the lenders can meaningfully analyse the issues raised by the borrowers.”

The amendments are to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFESI) Act of 2002, and the Recovery of Debts Due to Banks and Financial Institutions Act of 1993.

M Narendra, CMD, Indian overseas banks said, “No one can get a stay order from the tribunal unless all the parties to the case are heard which is a big step forward for resolution of cases. Allowing banks to acquire immovable properties towards the settlement of the dues is another big step, which will help banks buy back the property that is unsold in the auction. Now we had to hold it as non-current asset in our book for nearly seven years, now it can be acquired and will form a part of our fixed assets. These amendments will help in speedier resolution of cases.”

The amended law will allow the asset reconstruction firms to convert fully or in part their loan to a stressed entity into equity. This is specially useful in the initial stages when the company is under stress and the option of converting debt into equity will reduce the interest cost for the company in the initial stages where costing is an important factor.

According to rating agency Icra report the gross non-performing assets (NPAs) likely to cross Rs 2,00,000 crore and reach 3.6-3.8 per cent of gross advances as on March 31, 2013, up from 2.8 per cent as on March 31. Standard restructured advances could move up to Rs 3,70,000-4,20,000 crore by March 31, 2013 as against Rs 2,30,000 crore as on March 31.

நீங்க பாட்டனி படிக்கலையா...'இரட்டை இலை' வழக்கில் அட்வகேட் ஜெனரலை வாரிய நீதிபதி!

  One India :Friday, December 14, 2012, 15:30 [IST]


சென்னை: எம்.ஜி.ஆர்.சமாதியில் அமைக்கப்பட்டுள்ள புதிய கட்டடம் பார்க்க இரட்டை இலை போலத்தான் உள்ளது. இந்த இரட்டை இலை நடுவில் காம்பும் உள்ளது என்று சென்னை உயர்நீதிமன்ற நீதிபதி கூறினார்.

 ஆனால் அதை மறுத்து அட்வகேட் ஜெனரல் கூறியபோது, நீங்க தாவரவியல் படிக்கலையா என்று கிண்டலாக கேட்டார்.

 மேலும், இதுதொடர்பாக 8 வாரத்திற்குள் விளக்கம் அளிக்குமாறு அரசுக்கு உயர்நீதிமன்றம் உத்தரவிட்டது.

 எம்.ஜி.ஆர். சமாதியில் அமைக்கப்பட்ட இரட்டை இலை சின்னத்தை அகற்ற கோரி திமுக சட்டத்துறை செயலாளர் ஆர்.எஸ்.பாரதி சென்னை உயர் நீதிமன்றத்தில் மனு தாக்கல் செய்துள்ளார். 

இந்த வழக்கை நீதிபதி பால் வசந்தகுமார் விசாரித்து வருகிறார். நேற்று நடந்த விவாதம் விவரம்: 

திமுக வக்கீல் விடுதலை: கடந்த ஆண்டு அதிமுக ஆட்சிக்கு வந்ததும் எம்.ஜி. ஆர் மற்றும் அண்ணா சமாதிகளை புதுப்பிக்க ரூ. 8 கோடியே 90 லட்சம் ஒதுக்கப்பட்டது. இதில் 3 கோடியே 40 லட்சத்தில் எம்.ஜி.ஆர். சமாதியில் வளைவு அமைத்து அதில் இரட்டை இலை சின்னம் வைத்துள்ளனர். இது சட்டவிரோதமானது. பெரம்பூர் நெடுஞ்சாலை யில் அதிமுக வளைவு அமைக்கப்பட்ட வழக்கில் உச்ச நீதிமன்றம் வகுத்த விதிமுறைகளை அரசு பின்பற்றவில்லை. 

அட்வகேட் ஜெனரல் நவநீதகிருஷ்ணன்: 2007ல் 35 லட்சம் செலவில் கலைஞர் கருணாநிதி பெயரில் சட்டபேரவை பொன்விழா வளைவு அமைத்துள்ளனர்.

 விடுதலை: பெயர்தான் வைத்துள்ளனர். திமுகவின் உதயசூரியன் சின்னம் அமைக்கவில்லை. ஆனால் இங்கு இரட்டை இலை சின்னம் அமைத்துள்ளனர். ராணி மேரி கல்லூரியில் கலைஞர் மாளிகை என்ற பெயரை கலை மாளிகை என்று மாற்றியுள்ளனர். 

அட்வகேட் ஜெனரல்: மனுதாரர் கூறுவது தவறு. ஏற்கனவே இரட்டை இலை சின்னத்தை எதிர்த்த வழக்கை உயர் நீதிமன்றம் தள்ளுபடி செய்துள்ளது. 

விடுதலை: ஜெயலலிதா பிலிம் சிட்டி என்ற பெயரை எம்.ஜிஆர். பிலிம் சிட்டி என்று மாற்றினர். இப்போது என்ன நிலை யில் உள்ளது என்று தெரிய வில்லை. மாயாவதி தனது கட்சியின் யானை சின்னத்தை அரசு செலவில் அமைத்ததை எதிர்த்த வழக்கு உச்ச நீதிமன்றத்தில் நிலுவையில் உள்ளது. எனவே இந்த வழக்கில் அரசு பதில் அளிக்க நோட்டீஸ் அனுப்ப வேண்டும்.

 அட்வகேட் ஜெனரல் : எம்.ஜி.ஆர். சமாதியில் உள்ளது இரட்டை இலை சின்னம் இல்லை என்று உறுதியாக கூறுகிறேன். தேர்தல் கமிஷன் அங்கீகரித்த இரட்டை இலை சின்னம் அமைக்கப்படவில்லை. இது இரட்டை இலை இல்லை. குதிரையின் இறகு. சிலையின் மேல்பகுதியில் தேன்கூடு போன்ற அமைப்புதான் உள்ளது.

 விடுதலை: மக்கள் இதை இரட்டை இலை என்றுதான் கருதுவார்கள். 

அட்வகேட் ஜெனரல்: அப்படி ஏற்க முடியாது.

 நீதிபதி: (சிரித்து கொண்டே) எம்ஜிஆர் சமாதியில் அமைக்கப்பட்ட வடிவமும் இரட்டை இலை போலத்தானே உள்ளது.?

 அட்வகேட் ஜெனரல்: இரட்டை இலை இல்லை.

 விடுதலை: இரட்டை இலை இல்லாவிட்டால் யாருக்கும் அழைப்பு அனுப்பாமல் ஞாயிற்றுக்கிழமை அவசர அவசரமாக இந்த சிலையை முதல்வர் திறக்க வேண்டிய அவசியம் என்ன? வழக்கு தாக்கல் செய்து தடை வாங்கிவிடுவார்களோ என்று அஞ்சிதான் இதை முதல்வர் செய்துள்ளார். மக்கள் வரி பணம் வீணடிக்கப்பட்டுள்ளது.

 நீதிபதி: அழைப்பு அனுப்புவது அரசு விருப்பம். 

அட்வகேட் ஜெனரல்: இந்த வழக்கு விசாரணைக்கு உகந்தது இல்லை. இரட்டைஇலை வேறு, இது வேறு.

 நீதிபதி: இந்த இரட்டை இலை நடுவில் ஏன் காம்பு உள்ளது? 

அட்வகேட் ஜெனரல்: அது காம்பு இல்லை. அது ஒரு தூண்தான். 

நீதிபதி: (அட்வகேட் ஜெனரலை பார்த்து) நீங்கள் தாவரவியல் பாடம் படிக்கவில்லையா? காம்பு இல்லை என்று கூறுகிறீர்கள். காம்பு மாதிரியான தூண் என்று கூறுகிறீர் களா? இந்த வழக்கில் விரிவாக பதில் மனுவை அரசு 8 வாரத்தில் தாக்கல் செய்ய வேண்டும். இதில் தீர விசாரணை நடத்தி தான் முடிவு எடுக்க முடி யும். இந்த வழக்கை விசாரணைக்கு ஏற்றுக்கொள்கிறேன். உள்துறை செயலாளர் உள்பட 7 பேர் பதில் மனு தாக்கல் செய்ய வேண்டும் என்று உத்தரவிட்டார்.

Top banking scandals 2012

BS Reporter / New Delhi December 11, 2012, 16:00 IST

HSBC and Standard Chartered, the two biggest UK banks by market value, are to pay more than $2.5bn in fines as part of record settlements with US authorities over money laundering charges.

HSBC has confirmed it is to pay US authorities $1.9bn in a settlement, the largest paid in such a case.

It was fined for money laundering activities tied to drug cartels in Mexico and terror-linked groups in Saudi Arabia in December 2012.

The bank admitted to a breakdown of controls and apologised in a statement on Tuesday announcing it had reached a deferred-prosecution agreement with the US Department of Justice.

Money laundering is the process of concealing the source of money obtained by illicit means.

The settlement is the third time in a decade that HSBC has been penalized for lax controls and ordered by US authorities to better monitor suspicious transactions.

According to Quartz, it will take HSBC a mere 41 days to earn back the $1.9 billion fine.

On Monday, StanChart agreed to pay $327m to several authorities in the US to settle charges it violated US sanctions law and impeded government inquiries. 

That sum comes on top of the $340m the UK bank agreed to pay in August to New York state’s Department of Financial Services.

It was fined on August and December 2012 for violating US curbs on transactions with Iran, Burma, Libya and Sudan.

Business Standard presents a list of the most infamous banking scandals of 2012

1) Barclays CEO Bob Diamond resigns after rates scandal

1) On 03 July,  Barclays Plc Chief Executive Bob Diamond resigned, the highest-profile casualty of an interest rate-rigging scandal that spans more than a dozen major banks across the world. "The external pressure placed on Barclays has reached a level that risks damaging the franchise - I cannot let that happen," Diamond said in a statement.

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2) JPMorgan reveals shock loss of $2bn

In May, JPMorgan Chase disclosed that it had lost more than $2 billion in trading. Jamie Dimon, the chief executive of JPMorgan, blamed “errors, sloppiness and bad judgment” for the loss, which stemmed from a hedging strategy that backfired.

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3) The Libor saga

Barely a week after London-based Barclays Bank Plc was fined a record £290 million (Rs 2,500 crore), for allegedly participating in the fixing of the London Interbank Offered Rate, or Libor, by regulators in the US and the UK, its chairman Marcus Agius and outspoken CEO Robert Diamond have finally resigned.

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4) Nomura chief quits over insider trading
In July, chief executive of Japan's Nomura Holdings Kenichi Watanabe resigned following a damaging insider-trading scandal. It was alleged that staff leaked information on share offerings to customers before it was made public.

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On November 03, Nomura faced another major more legal problems. Nomura said it was likely involved in a new insider trading case, months after the firm’s CEO, Kenichi Watanabe, resigned following similar charges.

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5) Lloyds executive quits over funds bungling charges

A senior banker at the Lloyds TSB has resigned following claims that millions of pounds were channelled to companies set up by a pair of young Indian men he befriended. Andrew Taylor, 46, quit citing 'ill health' as auditors were sent in to probe the accounts of a firm controlled by the two colleagues - Vijay Bhaskar and Raj Kumar.

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6) Loss due to technical glitch

In August, media reported that Royal Bank of Scotland (RBS) kept aside £125m to pay compensation to customers affected by the recent breakdown in its computer systems. Account holders at RBS and its NatWest and Ulster Bank subsidiaries faced disruption for up to two weeks in June after a software upgrade at the bank.

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7) Big Four admit to mis-selling interest rate swaps

In June, Britain’s four main high street lenders have agreed to compensate small and medium sized businesses mis-sold interest rate hedging products after the Financial Services Authority said it had found “serious failings” in the way they marketed to some customers.  Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland have all agreed to immediately halt the sale of complex interest rate hedges to smaller businesses and have pledged to compensate potentially thousands of customers.

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8) In June, ING Group was charged for covering up fund transfers in violation of US sanctions against Cuba and Iran

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9) In February 2012, Bank of America was fined for charging discriminatory lending rates to African American and Latino borrowers.