Bad Loans Inch Up for India’s Largest Banks

By Gurdev Singh Virk :WSJ :2 Aug 2013

India’s slowing economic growth is starting to pinch some of its most profitable banks, and analysts expect their pain to worsen in coming months.

India’s slowing economic growth is starting to pinch some of its most profitable banks, and analysts expect their pain to worsen in coming months.

Bad loans at nonstate banks like Kotak Mahindra Bank Ltd., at HDFC Bank Ltd. and ICICI Bank Ltd. have inched up in the April to June quarter over the first three months of the year, according to their recently released earnings data. In addition, these banks have increased their provisions sharply, a sign that they expect bad loans to rise in the future. Higher provisions reduce the banks’ profits.

Stocks of these banks, which have long been favorites of foreign investors, have fallen by 5% to 16% since the beginning of July.

So far, bad loans had been rising mainly for state-run banks, like State Bank of India and Punjab National Bank, who are among the largest lenders to corporate India.

As the Indian economy has slowed, the profits of many Indian companies have fallen and their interest payment had increased because the central bank had been raising benchmark rates till late 2011Companies had taken a lot of debt during India’s boom several years ago, but are struggling to repay now that it is coming due. Kingfisher Airlines Ltd. defaulted on its debt last year, while companies like wind-turbine maker Suzlon Energy Ltd. and construction company HCC Ltd. have restructured their debt.

Ratings firm Crisil expects that the gross non-performing assets of all Indian banks would be 4% of total loans by end-March 2014 – the highest since 2005.

Most of these bad loans are being held on the books of state-run banks, who had been aggressive lenders in the recent past.

Meanwhile nonstate banks, like Kotak, HDFC Bank and ICICI Bank, lent mainly to individuals, who have in general been good about repaying their loans.

On corporate lending, these banks had been more selective. But now, even the companies they had lent to are hurting.

To be sure, the level of bad loans for the non state lenders remains small, and they aren’t at any risk of going under.

But they have increased their provisions for bad loans that could come down the road – a worrisome sign, say analysts.

In the April to June quarter, gross bad loans for Kotak Mahindra Bank rose to 9.95 billion rupees ($164 million) or 1.95% of total loans, versus 7.58 billion rupees ($125 million) or 1.55% of advances in the January-March quarter. The bank’s provisions for bad loans and other contingencies jumped as of June 30 stood at 1.7 billion rupees ($28 million), more than four times its provisions for the previous quarter.

Gross bad loans for ICICI Bank, the largest nonstate lender, rose to 100 billion rupees ($1.65 billion) or 3.23% of total loans, up from 96 billion rupees ($1.57 billion) or 3.22% in the previous quarter. Its provisions for bad loans rose to 5.93 billion rupees ($98 million), 29% greater than its provisions for the previous quarter.

HDFC Bank’s non-performing assets stood 27 billion rupees ($447 million) or 1% of loans held at the quarter ended June, versus 23 billion rupees ($384 million) 0.97% in the January to March period. HDFC Bank’s provisions rose by 75% to 5.27 billion rupees ($87 million).

Representatives for all three banks didn’t immediately respond to emails for comment.

Analysts expect the bad loans and provisions for these banks to rise further over the next year, as profits of Indian companies shrink amid slowing demand.

“Several firms are yet to be restructured, and most banks suggested the possibility of another (set of) mid-to-large corporate” loans turning bad, said a recent research note from U.S.- based Bank of America Merrill Lynch.

Analysts say this could weigh on share prices of these banks from here on.

Shares of ICICI Bank have fallen 16% over the last month to trade at 899 rupees on the Bombay Stock Exchange on Friday. HDFC Bank has lost 5% over the last month to trade at 632 rupees, while Kotak Mahindra is down 10% to 653 rupees.

The $7 trillion problem that could sink Asia

William Pesek :: Fri, Aug 02 2013. 10 13 AM IST

It’s our currency, but it’s your problem. This musing from Nixon-era treasury secretary John Connally is about to find new relevance as the White House battles Republicans over raising the US debt limit.

Connally couldn’t have foreseen how right he would be 42 years on as Asia sits on almost $7 trillion in currency reserves, much of it in dollars. Asia’s central banks are engaged in a kind of financial arms race after a 1997 crisis, stockpiling dollars as a defense against turmoil. That altered the financial landscape in two ways: One, Asia now has more weapons against market unrest than it knows what to do with. Two, Asia is essentially America’s banker, with China and Japan having the most at stake.

That might be less problematic if not for Capitol Hill’s propensity for shooting itself in the foot. A pointless squabble over the debt ceiling prompted Standard and Poor’s to yank the US’s AAA credit rating in August 2011, sending panic through global markets. Asia is now bracing for months of posturing when the US Congress returns from its August recess.

In a perfect world, Washington’s bankers would threaten to call in their loans. Asian nations would sit White House and congressional leaders down and tell them to get their act together. But Connally’s 1971 observation is infinitely truer today than at any time in Asia’s history. We need to stop considering huge reserve holdings as a financial strength. They are a trap that is complicating economic policy making. It’s time Asia devised an escape.

Fiscal matters

China isn’t without leverage. It’s no coincidence that new treasury secretary Jacob Lew’s first overseas visit in March was to his banker-in-chief, Xi Jinping, in Beijing. Nor did it go unnoticed that Lew was the new Chinese president’s first foreign-official meeting. Lew may have been sending Xi a signal this week by calling on Congress to act in a way that doesn’t create a crisis on fiscal matters.

But that leverage is limited. Xi and Premier Li Keqiang are engaged in a risky rebalancing act, trying to wean the Chinese economy off exports without fanning social unrest. Another debt- limit tussle would fuel market volatility, strengthen the yuan as the dollar plunges, and result in the loss of tens of billions of dollars in China’s portfolio of US treasuries.

“They don’t like it,” says Leland Miller, the New York-based president of China Beige Book International. “But while they’re sure to make some loud noises about it, at the end of the day, they understand they have no option but to accept the hand they’re given.”

In Tokyo, Shinzo Abe faces a similar dilemma. An important pillar of the prime minister’s plan to end deflation and restore healthy growth is a weak yen. The currency’s 17% drop since mid-November has helped even down-and-out Sony Corp. eke out some profits. Yet the yen would surge anew on another US downgrade: In 2011, a giant flight-to-quality trade drove huge amounts of capital Japan’s way.

The more Asia adds to its holdings of US debt, the harder they become to unload. If traders got even the slightest whiff that China was selling large blocks of its $1.3 trillion in dollar holdings, markets would quake. The same goes for Japan’s $1.1 trillion stockpile. So central banks just keep adding to them. Pyramid scheme, anyone?

Never before has the world seen a greater misallocation of vast resources. Loading up on dollars helps Asia’s exporters by holding down local currencies, but it causes economic control problems. When central banks buy dollars, they need to sell local currency, increasing its availability and boosting the money supply and inflation. So they sell bonds to mop up excess money. It’s an imprecise science made even more complicated by the Federal Reserve’s quantitative-easing policies.

Stealth selling

At the very least, Asia should stop adding to its dollar holdings and consider ways to bring more of those funds home. They could be used for infrastructure, education, research and development on cleaner energy, or any other vital investments in the future. The question, of course, is how?

There is a clear first-mover advantage for smaller economies. South Korea (with $53 billion in treasuries), the Philippines ($40 billion) or Malaysia ($18 billion) could try to dump dollars on the sly. Bigger ones couldn’t pull that off in this hyperconnected, 24/7-news-cycle world; news of sizable central-banker sell orders would inspire copycats.

Washington can help, and not just by avoiding another suicidal debt-limit fight. The treasury should engage with its Asian counterparts in a cooperative, transparent brainstorming process to draw down their reserves without devastating markets. It’s in the US’s best interest to keep more of its debt onshore, Japan-style, by attracting greater purchases from cash- rich US companies. That would make the US less vulnerable to capital flights in the future.

If ever there were a time for a currency summit, it’s now. Perhaps the International Monetary Fund or the Group of 20 can host the debate. Such high-level discussions would help Asia set goals and consider the mechanics and timing of reclaiming more of its savings. Only then will all those dollars start being the solution to Asia’s challenges, not the problem. Bloomberg

SBI chief, Pratip Chaudhuri, blames government for rising NPAs

Sangita Mehta, ET Bureau | 2 Aug, 2013, 04.31AM IST

MUMBAI: Pratip Chaudhuri, chairman of the country's largest lender State Bank of India, blamed the government's tardiness in clearing projects and supply of coal - or the lack of it - as the reasons behind rising sticky loans in the banking sector. 

Speaking at a closed-door meeting between bank chiefs and senior Reserve Bank of India officials, Chaudhuri stoutly defended the banks, arguing they alone cannot be blamed for the spike in bad loans, which have hurt their balance sheets. 

The SBIchief was responding to an observation made by RBI officials that sharp rise in non-performing assets is due to improper appraisal and monitoring by banks. Chaudhuri, however, could not be reached for his comments. 

"Is it the banks' failure in monitoring or is it the government that has not delivered what it promised," he had asked, according to bankers present at the meeting. 

Chaudhuri stressed in the meeting that if the government and RBI continue to blame banks for rising NPAs, they would be forced to insert impossible conditions in loan covenants that would make it difficult for borrowers to avail the credit facility. 

Bankers also said that many projects have become unviable because of the delay in getting environment clearances, allocation of land and non availability of coal. Besides, project costs have increased due to time overruns. 

Coal India has failed to scale up its output and meet the requirements of power firms. Power utilities suffered due to unavailability of coal which has impacted their revenue and eventually their ability to repay banks. 

Bankers also gave instances of loan sanctioned for road projects, where 80% of the land was acquired on the assumption that government will allocate the rest, but subsequent delay in government actions had affected such projects. Due to these delays, several manufacturing and infrastructure projects failed to achieve their commercial operation date (CoD). 

As per RBI norms, banks have to classify a project as a bad loan if it fails to start commercial operations from one year of the original date of commencement. 

Banks have to classify the loan as sub-standard even if the company continues to pay regular instalment of loans. 

The net non performing assets ( NPA) of banks have risen 51% in fiscal year 2012-13 to Rs 92,825 crore over the previous year, and a number of PSU banks have shown either a dip in profit or a modest rise in first quarter profit due to sharp rise in stress loans.

Subbarao: More steps on way to check NPAs

PTI: Chennai, Fri ,Aug 02 2013, 01:11 hrs

Concerned over rising bad loans, the Reserve Bank of India (RBI) on Thursday said it will take more measures to check non-performing assets (NPAs) of the public sector banks.

"We are going to put in more measures to see that NPA level is controlled across the asset quality of banks. It is very very important for credit to continue to go to productive sectors," RBI Governor D Subbarao said while delivering the 5th R Venkataraman Endowment Lecture here.

RBI, in the past, has taken some steps in this regard including increase in provisioning norms and tightening norms for restructuring.

Subbarao noted that public sector banks have high NPAs than private sector banks. "It is true that NPAs in public sector banks are higher than private sector banks because their decision variables are different," he said. 

The RBI governor was also non-committal on a time frame for rolling back liquidity tightening measures and said that they would remain in force till stability is achieved in the foreign exchange market

To postpone auction, agent makes hoax call

S Ahmed Ali, TNN | Aug 2, 2013, 03.33 AM IST

MUMBAI: An estate agent from Kandivli, who made a hoax call to the police control room regarding a possible blast at the Debt Recovery Tribunal (DRT) at the Income Tax building in Billard Pier to postpone a property auction verdict, was arrested by the crime branch on Thursday.

Alok Dinesh Tanna (29) thought that if he made a hoax call, the auction verdict, which was going in someone else's favour, would be postponed and he could manage to get a favourable order at the next hearing.

 But he ran out of luck when the police control room tracked the cell phone number from which he had made the call.

On July 26, Tanna anonymously called up the police control room and said he was passing off an important information that he had overheard. He said a bomb has been placed at the Debt Recovery Tribunal and it may go off anytime.

 "Within a few minutes, several police teams, including the bomb detection and disposal squad (BDDS) and sniffer dogs, were rushed to the spot. After three hours of search, nothing was found," said Subhash Sawant, senior inspector of unit 11.

The police registered an offence against unknown persons and the crime branch also conduced a parallel probe. 

During the course of investigations, police tracked down the cell phone number from which the hoax call was made.

"We traced the person in whose name the Sim card was registered. He said he was not using the number. However, we got some leads from there and picked up Tanna who runs an estate agency near Raghuleela Mall in Kandivli," said Niket Kaushik, additional commissioner of police (crime).

On Thursday, the police questioned Tanna on length. 

He finally admitted to have made the hoax call because he wanted to postpone a DRT auction order which was to take place on July 26

. "Tanna claims that the order was likely to go in other party's favour and hence to cancel or postpone the order he made this hoax call," said investigating officer Chimaji Adhav.


Tanna, who has been booked under various IPC sections for threatening, giving false information, endangering human life, has been remanded in police custody.

Banks urged to ease NPA norms

CPI leader D Pandian speaking on the sidelines of a seminar | Martin Louis

Express News Service - CHENNAI

31st July 2013 

The National Confederation of Small Industry organised a seminar on restructuring of sick Micro Medium and Small Enterprise (MSME) units here recently.

Speaking on the sidelines of the event, CPI leader Pandian said that in the past, MSMEs had recorded higher levels of exports than corporate companies. “Corporate firms retrench workers. MSMEs, on the other hand, create employment opportunities,” he noted.

Earlier, G K Basha, senior vice president, Industrial Estate Manufacturers Association, Guindy, said MSMEs in India account for 45 per cent of total exports while employing about 50 per cent of the workforce in the country. Tamil Nadu comprises 7.5 lakh MSME units, the highest in India. “But, stringent measures in the name of Surface Act, effected by banks have left MSMEs in a quandary,” he said and added that the seminar was primarily focused on this issue. 

According to him, a company that defaults on loan repayment continuously for three months is declared as a Non Performing Asset (NPA). “Presently, MSMEs all over India are facing various problems like power shortage and delayed payments by large scale industries,” he added. In such a scenario, the conditions enforced by the banks were making the functioning of MSMEs tougher. 

Basha sought banks to ease theirnorms, as it was done before 1995 for the survival of MSMEs

Ex-royal’s daughters get Rs.20,000-crore relief from court

Maharaja's daughters to inherit assets worth Rs 20,000 cr

 Deccan Herald :PTI :Chandigarh, July 28, 2013

Daughters of the erstwhile Maharaja of Faridkot are set to inherit his estates and assets worth a staggering Rs 20,000 crore following a local court's ruling after a 23-year-old legal battle that his will was forged.

Chief Judicial Magistrate Rajnish Kumar Sharma on Thursday gave the verdict in favour of Sir Harinder Singh Brar's eldest daughter, Amrit Kaur who had challenged the will which had entitled a trust as the caretaker of the estates and assets including the Faridkot House in the heart of the national capital, a palace and a fort in Punjab besides bank deposits and jewellery.

The assets include large number of properties in Chandigarh, Himachal Pradesh, Haryana and Andhra Pradesh.

The court declared that the will was "forged and fabricated", making Amrit Kaur and her sister, Deepinder Kaur, heir to the estate and assets worth Rs 20,000 crore under the Hindu Succession Act.

As the will forged on July 1, 1982 has been declared "illegal" and "void" by the court, the 'Meharwal Khewaji Trust' has also become illegal, according to the Maharaja's family's advocate Vikas Jain.

Of the Maharaja's three daughters, Amrit Kaur resides in Sector 10, Chandigarh; Deepinder Kaur is in Kolkata while Maheepinder Kaur died a few years ago in Shimla.
At the time when the will was forged, Sir Brar was in depression as his only son Tikka Harmohinder Singh Brar had died.

On June 1, 1982, the servants in connivance with certain people and lawyers had executed the will, while the Maharaja’s family including his wife and mother (then alive) were kept in the dark. 

The will which was executed eight months after Tikka Harmohinder’s death, raised the trust and all the servants of Maharaja and lawyers, including some others were made trustees.

Amrit Kaur was divested of all the powers of heiress on the ground that she had married against the wishes of the late Maharaja.

Deepinder Kaur was appointed trust chairman on paltry salary of Rs 1,200 per month while Maheepinder Kaur was given a salary of Rs 1,000 a month.

After the purported will came to light in 1989 following the death of the erstwhile ruler, Amrit Kaur filed a suit challenging the will in 1992 stating that her father had never made any such will and she was with her father till his death.

The suspicion about the will arose as the Maharaja excluded his mother Mohinder Kaur and his wife Narinder Kaur while all the employees, irrespective of their designation or class were appointed trustees.

 Ex-royal’s daughters get Rs.20,000-crore relief from court

IANS  |  Chandigarh  July 28, 2013 Last Updated at 09:35 IST

It is a royal bonanza for two daughters of a former maharaja, one they had to wait for over two decades.

A court here has declared a 32-year-old will "forged" and illegal" and granted inheritance of properties and assets worth a whopping Rs 20,000 crore ($4.4 billion) to the two daughters of the erstwhile Maharaja of Faridkot, Harinder Singh Brar.

The properties and assets include the palatial Faridkot House on New Delhi's Copernicus Marg, a royal palace complex and a fort in Faridkot, a fort in Mani Majra area of Chandigarh, vintage cars (including a Rolls Royce), an aerodrome in Faridkot spread over 200 acres, properties in Hyderabad and Delhi, gold and jewellery worth nearly Rs.1,000 crore with Standard Chartered Bank in Mumbai and more.

Real estate experts and accountants put the total worth of the properties and assets at over Rs.20,000 crore. The Mani Majra fort, which is over 350 years old, is not in a very good condition. The erstwhile ruler was allowed to keep these properties after the country's independence in August 1947.

The legal battle for the assets started in 1992 after the ex-maharaja's daughter Amrit Kaur filed a case in a court here. Following a 21-year-old legal battle, the court of the chief judicial magistrate Rajnish Kumar, ordered Thursday that the 1981 will, purportedly drawn up by the maharaja, was "forged and fabricated".

With the court judgment, Amrit Kaur and her Kolkata-based sister Deepinder Kaur will inherit the properties and assets of the erstwhile ruler. Their third sister, Maheepinder Kaur, who was not married, died under mysterious circumstances in Shimla in 2001.

Brar had three daughters and a son, Harmohinder Singh, who died in a road accident in 1981. Following this, Brar went into depression.

In her suit, Amrit Kaur, who lives in Sector 10 here, alleged that the will was forged by officials and servants of the ex-ruler at a time when he was in depression. The will, which gave all his properties and assets to the Meharwal Khewaji Trust, was registered in 1982. The trust had some of his servants on board, while his two daughters were appointed chairperson and vice chairperson for a mere Rs.1,200 and Rs. 1,000 per month.

Following the death of the erstwhile ruler in 1989, the trustees took control of all the properties and assets.

Amrit Kaur challenged the will, saying that the trust members had forced her father to sign it at a time when he was in depression. She had claimed that he was not in a "fit state of mind" when the will was drawn up. She pointed out that the will had completely excluded his wife, Narinder Kaur, and mother, Mohinder Kaur, who were alive in 1981-82.

Following the court order decclaring the will "illegal and void", the trustees are likely to appeal to a higher court