Defaulters beware. Banks hiring detectives to track your assets

 I E :Samiran saha - NEW DELHI: 17th November 2013 06:00 AM

Defaulters beware, banks across the spectrum are now going the extra mile to recover bad loans.

The net bad assets of 40 listed banks across the country rose by 38 per cent, from Rs 93,108 at the end of the last fiscal to Rs 1,28,533 in the first half of the ongoing fiscal. The situation was made worse by the global slowdown and is being monitored closely by the government, which has asked banks to set up separate verticals to recover dues from written-off accounts. For their part, banks have adopted different methods to recover their money.

Besides taking detailed financial details of the borrowers from credit rating agencies, they have also started hiring detectives/agencies and putting up name and shame posters of defaulters and guarantors in their residential localities. Detective agencies are being hired to find out if defaulters have undisclosed assets that could be attached to recover the loan.

According to sources, banks are resorting to legal options as well, including the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, (Sarfaesi Act, 2002). This empowers banks and financial institutions to auction off residential and commercial properties of borrowers when they fail to repay their loans.

Recently a consortium of banks, with a huge loan exposure with an airline, attached several properties to partly recover their bad loans. The recoverable loans were about Rs 7,000 crore.

According to NPAsource.com, a private portal that tracks NPAs, the non-performing assets (NPA) of the 40 listed banks are likely to cross Rs 1.5 lakh crore by the end of the fiscal.

As of September, the gross NPAs stood at Rs 2,29,007 crore, which is 27 per cent higher than the Rs 1,79,891 crore in March 2013 for these 40 listed banks.

Of the 40 banks, 14 have reported more than 50 per cent jump in their net NPAs during the first six months of the current financial year.

According to the portal, gross NPAs of listed banks have doubled since September 2011, while net NPAs have risen by 140 per cent in the same period. In the second quarter, top public sector banks like State Bank of India, Bank of Baroda, Punjab National Bank, Central Bank, IDBI Bank and Union Bank reported more than 30 per cent rise in net NPAs.

“Instances of loan defaulters are rising because of poor business sentiment and activity. Those who borrowed just before the downturn are the worst affected. That is where we see the maximum number of defaulters,” a senior official with a mid-size public sector bank said, requesting anonymity. “We have hired detective agencies to identify the undisclosed assets of certain customers. These can be attached to recover our loan exposure in part or full,” he  added.

The NPA situation has truly reached worrisome levels, and Finance Minister P Chidambaram has said banks should ‘hand hold’ those borrowers who are genuinely affected because of the global downturn, but be firm with ‘wilful’ defaulters.

bad loan waivers of corporates far higher than farmers -RBI

Mayur Shetty TNN 17 Nov 2013

Mumbai: Data collected by Reserve Bank of India over a period of one year blows the lid off what goes as loan classification in banks.In a presentation at the annual bankers conference,RBI deputy governor K C Chakrabarty showed how banks have sacrificed over Rs 1 lakh crore by writing off bad loans to corporates,which is much higher than Union finance minister P Chidambarams farm loan waiver in 2008 a move that received flak from the industry.
Under the Debt Waiver and Debt Relief Scheme,2008,the Centre had waived off around Rs 60,000 crore to farmers.

In the past 13 years,banks have written off 1 lakh crore and 95% of these are large loans.Everyone talks of the farm loan write-off,but it is the medium and large enterprises segment that has a 50% share in NPAs, said Chakrabarty.

The deputy governor flayed banks for using technical write-offs to reduce their nonperforming assets (bad loans) over the years.Technical writeoff is a process adopted by banks whereby they take a hit on their profits and stop including the defaulting loan in the list of those from whom repayments are due.It is called a technical write-off because although banks do not show these loans as receivables in their books,they continue to pursue recovery in courts or other forum.
A technical write-off enables banks to claim they do not have any bad loans on their books by fully providing for the loans from their earnings.It also reduces their tax outgo.

Chakrabarty also raised the issue of restructured loans advances where potential defaulters are given more time to repay without being called defaulters.Restructuring of loans with retrospective effect has killed credit quality in banks, he said.He warned banks that the leeway might not be available in future.

We must move away from restructuring,there should not be any category called restructuring.The moment it is restructured,it should be declared as NPA,there should not be any technical write-off be prepared for that,unless you do that you might not be able to get out of the mess, he said.

RBI numbers showed that the banks added Rs 4,94,836 crore to their bad loans between 2007 and 2013.During the same period,they reduced NPAs to the extent of Rs 3,50,332 crore.This was possible because loans worth Rs 1,41,295 crore were written off and another Rs 90,887 crore were upgraded to repaying loans and Rs 1,18,149 crore was recovered from defaulters.According to Chakrabarty,after a technical write-off,there is no incentive to pursue recovery.

Between 2007-13,credit to 10 large corporate groups has more than doubled.We have seen that wherever credit growth has been higher,NPAs are also higher. 

Be stringent in loan appraisals, Chakrabarty tells bankers

 

The Hindu : Mumbai :16 Nov 2013


Lambasting banks for surging non-performing assets (NPAs), Reserve Bank of India Deputy Governor K. C. Chakrabarty, on Saturday, said credit risk management was lagging behind among public sector banks.

“I am more concerned of the future of banks than the banks of the future,” said Dr. Chakrabarty while speaking on ‘Two decades of credit management in banks: looking back and moving ahead’, at the annual banking conference (BANCON) here.

Narrating the steps taken by the central bank over the years to address the issue of NPAs, Dr. Chakrabarty said that “whenever we tightened regulations and prudential norms, the asset quality of banks has improved…relaxation is a wrong approach…prudential norms are not to kill banks but to secure their future.”

The sad part, according to Dr. Chakrabarty, was that these banks on their own never tried to analyse the reasons for the surging NPAs. “Many of them preferred to write-off NPAs, especially large borrowers. But when it comes to small borrowers, they were stringent.”

He dismantled the argument that slow growth in the economy had resulted in mounting NPAs. “Bad assets of banks started going up much before the GDP has come down…the culprit is industry… more powerful is the borrower, banks’ appraisal should be stringent and appraisal should be ownership-neutral.”

The Deputy Governor asked bankers to stop accusing farmers and retail borrowers for the NPA mess, and asked them to change their approach to small borrowers. “Be stringent with big borrowers but be sympathetic with small borrowers.”

Dr. Chakrabarty also advised banks to sanction loans at the bank manager’s level, instead of by the head office. He said that write-off should be done ethically for valid reasons. “To write-off a bad loan, no management is required…and those banks which are able to identify the NPAs quicker, will be able to manage it better.”

RBI to overhaul debt recovery process: Rajan

BS :Manojit Saha  |  Mumbai  November 16, 2013 Last Updated at 00:57 IST

Measures in next few weeks 
to ensure fair recovery of distressed loans; 
Rajan keeps market guessing on rate cut


The Reserve Bank of India (RBI) is to soon announce measures to ensure fair recovery for bankers and investors, and to punish those trying to milk the system.

“In the next few weeks, we will announce measures to incentivise early recognition, better resolution, and fair recovery of distressed loans. We will focus on putting real assets back to work in their best use,” said Raghuram Rajan, governor of the central bank, at the annual banking event, BANCON, here on Friday.

Rajan blamed promoters of companies for taking undue advantage of the debt restructuring process. “The natural incentive for a promoter to deal with distress is to hold on to equity and control, despite having no real equity left, and to stand in the way of all efforts to resolve the underlying project, while hoping for an ‘Act of God’ to bail him out. Not all bankers and promoters succumb to these natural incentives but too many do,” he said.

He didn’t spare bankers, either. “The natural, and worst, way for a bank management with limited tenure to deal with distress is to extend and pretend to evergreen the loan, hope it recovers by miracle or that one’s successor has to deal with it,” Rajan said. He added, while answering a question from the audience, that the practice of transfer of top management among public sector banks (PSBs) could be reviewed.

His comments come when banks face problems on the asset quality front and PSBs are the worst hit. State-run banks have seen more slippages in the past couple of years and have restructured more assets than their private and foreign counterparts. Debt recast by government banks has also raised questions on whether restructuring was done only to defer slippage to the non-performing category.

Rajan, who has raised policy interest rates twice since taking office in September, said no single data point would determine RBI’s next move on curtailing high inflation in a weak economy.

Wholesale Price Index-based inflation hit an eight-month high of seven per cent in October, driven by costlier fuel and manufactured goods, data on Thursday showed, raising the prospect of a further rate increase.

Rajan said demand needed to be reduced, without having severe effects on investment and supply. “This is a balancing act, which requires the Reserve Bank to act firmly so that the economy is disinflating, even while allowing the weak economy more time than one would normally allow for it to reach a comfortable level of inflation,” he said.

“The weak state of the economy, as well as the good kharif (summer) and rabi (winter) harvest, will generate disinflationary forces that will help. We await data to see how these forces are playing out.”

Which is when he added that “no single data point or number will determine our next move”.

While lauding PSBs’ efforts to digitise operations, enabling them to implement core banking solutions, the governor said the lenders must not rest on their laurels. “In the coming months, we will discuss with stakeholders in PSBs about what needs to be done to further improve their stability, efficiency and productivity,” he said.

The governor also emphasised the need to deepen financial markets and introduce new products to help banks de-risk their balance sheet. “Liquid markets will help banks offload risks they should not bear, such as interest rate or exchange risk. These will also allow banks to sell assets that they have no comparative advantage in holding, such as long-term loans to completed infrastructure projects, better held by infrastructure funds, pension funds, and insurance companies.” Rajan said liquid markets would also help promoters raise equity to absorb the risks that banks otherwise end in absorbing.

In the coming weeks, RBI plans to roll out more recommendations of the Gandhi committee report to improve the liquidity and depth of the government securities market. “We will then turn to money markets and corporate debt markets. We will introduce new variants of interest rate futures and products like inflation-indexed certificates, and work to improve liquidity in derivative markets,” Rajan said.

Rajan warns against return of licence permit raj

Raghuram Rajan sounded a note caution on the government’s industrial policies are concerned. He reminded New Delhi’s policy makers that the country’s industrial sector had come a long way and there was no need to enter free-trade free-trade agreements that give foreign manufacturers an undue advantage.

“Echoes of industrial planning seem to be heard once again in the corridors of power. I am worried because we seem to be reverting to a dialogue of protection and subsidies that we left behind long ago. Our industrial sector is no longer an infant that needs to be molly-coddled. While we should not enter into free-trade agreements that give foreign manufacturers an undue advantage, that is no reason for us to now respond by giving domestic manufacturers protection,” he said.


According to Rajan, instead of targeting specific industries for governmental attention, which risks bringing back all the baggage of the License Permit Raj that the country has left behind, focus should be on improving the conditions for growth for all.

RBI asks banks to increase bad loan provisions

BS Reporter  |  Mumbai  

November 16, 2013 Last Updated at 23:33 IST

Says retro debt recast killed credit quality;
 loan loss ratio slips below 50%

Banks might be dropping their guard against bad loans. This is evident from the fact that the banking system’s provision coverage ratio (PCR) has dropped below 50 per cent, compared with as much as 70 per cent only two years ago.

The bad loans, which have increased significantly, are eating into profits of Indian banks, especially the public-sector ones, leading to a sharp decline in their provision coverage ratio (PCR). As of September-end, banks’ loan loss ratio had fallen below 50 per cent, from 54 per cent as of March-end, Reserve Bank of India (RBI) Executive Director B Mahapatra said at the annual banking conference, BANCON, on Saturday.

Earlier, banks were required to mandatorily maintain a provision coverage ratio of 70 per cent. But the mandate was withdrawn in September 2011, when most banks had met the criterion. But now, with a rise in the level of banks’ loans turning bad and a sharp rise in restructured advances — for which they need to make provisions — they have lowered the overall provisioning for non-performing assets (NPAs). As a prudential measure, RBI expects banks to maintain a high level of overall provision, over and above the regulatory requirement for individual loan losses.

According to RBI Deputy Governor K C Chakrabarty, banks will need to increase their provisioning from the current level. “Internationally, provisioning is 70-80 per cent. RBI does not stop banks from making floating provisions,” he said at the conference.

To improve the asset quality in the banking sector, RBI was set to frame new rules and would incentivise banks that were proactive in early detection and resolution of NPAs, he said, adding the decision to allow restructuring with retrospective effect in 2008 had turned out to be counter-productive and killed credit quality.



















He said banks suffered from inadequate project appraisal, primitive information system and weak credit monitoring. “There is need for quick decisions in dealing with stressed loans — NPAs, as well as restructured loans.”

He also said banks needed to be much more stringent in appraising big-ticket accounts. “Many corporate accounts have high leverage ratios, meaning high debt component and low equity. Banks must insist on higher equity contribution from promoters.”

Chakrabarty came down heavily on public-sector banks, saying some of these were working as venture capital funds — they provided huge loans to companies, while promoters chipped in very little capital.

Asset quality situation deteriorates further if restructured accounts and write-offs are included. “This is especially true of public-sector banks. By March 2013, the impaired asset ratio of these banks had risen to 12.1, from 6.8 per cent in 2009,” Chakrabarty said. As at the end of March, the ratio was 6.8 per cent in the case of old private banks, 5.3 per cent for new private ones and 6.4 per cent for foreign banks.

RBI data suggest the situation of provision coverage for stressed assets (NPAs and restructured assets) is worse. The PCR for NPAs (plus restructured loans) for the banking sector fell to 30.25 per cent in March, from 34.47 as at the end of the same month in 2009. For public-sector banks, the combined PCR of which fell from 38.4 per cent in 2009 to 27.71 per cent, the situation is grimmer.

To improve the asset quality in the banking sector, the central bank is set to frame new rules and will incentivise banks that are proactive in early detection and resolution of NPA. He said the decision to allow restructuring with retrospective effect in 2008 turned out to be counterproductive and killed credit quality.

Bank NPAs: Net bad loans of 40 banks soar 38 pct to Rs 1.3 trillion in H1

PTI Mumbai 14 Nov 2013

14 banks have reported more than 50 per cent jump
 in their net NPAs during these six months.

The net bad assets of the 40 listed banks have jumped 38 per cent to Rs 1,28,533 crore during the first half of this fiscal, from Rs 93,109 crore at the end of the last fiscal, and is likely to cross Rs 1.5 lakh crore by the end of the fiscal, says a study.

Out of the total 40 listed banks, 14 banks have reported more than 50 per cent jump in their net NPAs during these six months, according to the study.

"The share of top 10 banks in net NPAs has come down to 67.8 per cent in September from 70 per cent in March 2013. Net NPAs of seven banks were higher than 3.5 per cent at the September quarter as against none at the March quarter," says the study by a portal NPAsource.com.

"Net NPAs in the banking system is likely to touch Rs 1.5 lakh crore by March 2014 as two more quarters are remaining in the current fiscal year and the situation is worsening every quarter," Devendra Jain, chairman and managing director of the portal, said.

Gross NPAs as of the September quarter stood at Rs 2,29,007 crore, 27 per cent higher when compared to Rs 1,79,891 crore as of March quarter for these 40 listed banks.

According to the study, gross NPAs of listed banks have doubled since September 2011, while net NPAs have risen by 140 per cent during the same period.

During the second quarter, top public sector banks like State Bank of India, Bank of Baroda, Punjab National Bank, Central Bank, IDBI Bank and Union Bank have all reported more than 30 per cent rise in net NPAs.

For SBI, net NPAs rose to 2.91 per cent from 2.44 per cent in Q2. However, on a sequential basis, NPAs of the nation's largest lender came down by 39.23 per cent. The rising provisions for bad assets pulled down the net profit of the bank by 35.03 per cent.

"With interest rates expected to remain high at least for the remaining fiscal and the economy and corporates inpoor shape, banks have a tough road ahead," he added.

Jain further said more pressure on NPAs will come in next two quarters as many restructured loans of last year will get converted to NPAs.

Bad loans: KC Chakrabarty blames poor credit appraisal by PSBs

Chakrabarty said in the last three years, state-run banks alone reported over Rs 16,690 
crore in frauds (Reuters)

PTI Mumbai 17 Nov 2013

KC Chakrabarty said state-run banks report over 86 per cent of the non-performing assets (NPAs).

Reserve Bank of India (RBI) deputy governor KC Chakrabarty today attributed the high incidence of stress on the books of public sector banks (PSBs) to poor credit appraisal and management and asked them to be economical with recasts, if not end the system of restructuring.

Chakrabarty, who carries a reputation for airing his frank views, said the banks were "complacent" during the good times since 2006-07 in their credit management process and wrongly blame the global to financial meltdown for high NPAs.

Using data from the last 20 years on the asset quality front, Chakrabarty said state-run banks, which control 75 per cent of the system, report over 86 per cent of the non- performing assets.

In the last 13 years since 2001, the banks have added over Rs 6 lakh crore in NPAs and have shown over Rs 4 lakh crore in reduction, he said, adding a bulk of the reduction is driven by the write-offs (Rs 1 lakh crore) than the actual recoveries.

Asking banks to be quick in decision-making, Chakrabarty, who himself was a banker before coming to the RBI, said the problems with the accounts start with the appraisal process itself as loans are granted without proper diligence and NPA accounts of the past are also getting credit.

A majority of the write-offs involve big accounts, he said, underscoring the need to hold the senior management which clears the big loan proposals, accountable for its decisions.

It is, therefore, necessary for bankers to be very diligent in the loan appraisal process, the deputy governor said, adding that in many cases undeserving cases, which have been NPAs in the past, have also received loans from banks.

"Wrong appraisal is leading to diversions, leading to over- leverage, leading to fraud, leading to NPAs...they are all inter-related," Chakrabarty said, asking the banks to rely more on available credit information.

Chakrabarty said in the last three years, state-run banks alone reported over Rs 16,690 crore in frauds and underscored the need for making senior management, who clear large loan proposals, more accountable.

Chakrabarty also lashed out against the practice of restructuring which is being used as a tool