SBI tweaks recovery model

BL :15 Feb 14

With bad loans surging 27 per cent year-on-year to touch Rs. 67,799 crore towards the end of December, State Bank of India has got into a ‘non-performing asset control’ mode, tweaking its recovery model and setting up committees to check further slippages.

The bank has created four General Manager positions for North, South, East and West to focus more on bad loan recovery.

These officials will be in charge of the stressed assets recovery branches (SARBs) in the circles, said SBI Chairperson, Arundhati Bhattacharya.

“We have also made it easier for the other verticals – Corporate Accounts Group (CAG) and Mid-Corporate Group (MCG) – to migrate all their accounts which need hard recovery measures into Stressed Assets Management Group (SAMG).”

“And with this we hope SAMG will be much more focussed and be able to bring about faster (NPA) resolution,” she said.

Committee approach

India’s largest bank has created various committees to look into stressed assets and accounts that are beginning to show weakness.

“The largest of the committees, the one that looks at the largest loans – those above Rs. 500 crore – is headed by me,” said the SBI chief.

The committees that look at loans between Rs. 100 crore and Rs. 500 crore and between Rs. 50 crore and Rs. 100 crore are headed by Pradeep Kumar, Managing Director (Corporate Banking), and Soundara Kumar, Deputy Managing Director (Stressed Assets Management Group), respectively. The committees that look at loans between Rs. 25 crore and Rs. 50 crore and between Rs. 5 crore and Rs. 25 crore are headed by the heads of circles/verticals and by the General Managersrespectively.

Loans between Rs. 1 crore and Rs. 5 crore will be looked after by Deputy General Managers.

“So, with these committees in place, there are weekly reviews of the accounts. We do an ABC analysis of the ones that require immediate attention and then there is a follow-up on the action points to ensure that the accounts get enough attention, and the chances of their slipping are minimised,” said Bhattacharya.

ABC analysis is an analysis of a range of items that have different levels of importance and should be handled and controlled differently.

(This article was published in the Business Line print edition dated February 15, 2014)

SC collegium withdraws 12 names for Madras HC

 Dhananjay Mahapatra,TNN | Feb 15, 2014, 03.54 AM IST

NEW DELHI: In an unprecedented move, theSupreme Court collegium headed by Chief Justice P Sathasivam on Friday withdrew the 12 names it had recommended to the Centre for appointment as judges in Madras High Court, taking into account the massive controversy it had sparked over the selection criteria. 

The animosity caused by the 12 names was such that during hearing of a petition challenging the selection criteria in Madras HC, a sitting judge of the HC, Justice C S Karnan, walked into the court room and openly sided with the issue raised in the petition. 

Justice Karnan had made an appearance before a division bench of Justice V Dhanapalan and Justice K K Sasidharan which was hearing senior advocate R Gandhi's PIL and said he would file an affidavit describing the selection as unfair. The bench had ordered status quo on appointment. The HC had challenged its own interim order before the Supreme Court. 

At a time when the apex court was seized of the matter on the judicial side, the collegium of three senior-most judges of the Supreme Court headed by Justice Sathasivam decided to withdraw the names and send it back to the chief justice of the high court for reconsideration. 

These names had come to the apex court collegium when Justice R K Agrawal was chief justice of the high court. The collegium based its decision to withdraw the 12 names on two developments - one, there had been unprecedented opposition to the recommendation and second, Justice Agrawal was elevated to the Supreme Court as a judge.

The collegium sent its decision withdrawing the December recommendation to law minister Kapil Sibal on Friday evening and said it had not expressed any opinion on the merits of the selection of the 12 names. 

It said since Justice Agrawal had been elevated as a judge of the Supreme Court, in fairness of the scheme of things, the names should be considered afresh by the new chief justice. 

The Supreme Court on January 13 had stayed the HC's January 8 order directing status quo in the appointment process of the 12 as judges of Madras HC. It had also restrained the HC from proceeding further with the hearing on Gandhi's PIL and asked why it should not be transferred to the SC. 

Appearing for the Madras HC registrar general, who had appealed against the HC order, attorney general G E Vahanvati had said the SC had settled the law on this issue to rule that the suitability of a person to be appointed as judge could not be questioned before the HC or the SC.

The AG had said, "The process is such that it could not be questioned judicially. Judicial review could be undertaken only on two grounds lack of eligibility of a person to be appointed as a judge and lack of proper consultation among the constitutional authorities part of the process of selection of judges." 
Referring to the surprise intervention by a sitting judge of the HC during the proceedings, Vahanvati had said, "It is a serious matter." Of the 12 names recommended earlier for appointment as judges, 10 are practicing advocates and two are from subordinate judiciary. 

Beyond Bad loans :ICRA downgrades United Bank's Tier-II bonds, CDs

BS Reporter  |  Mumbai  February 14, 2014 Last Updated at 00:47 IST
Sharp rise in bad loans, rising losses lead to action

 Rating agency ICRA announced on Thursday a downgrading of United Bank of India (UBI)’s capital bonds (Tier-II) and certificates of deposit (CDs), due to a higher than expected deterioration in asset quality, pressures on margins and profitability.

The ratings have been put on a watch with negative implications, ICRA stated. It cut the rating for lower Tier-II bonds from AA- to A-. The rating for CDs has been downgraded from A1+ to A2+.

ICRA said the revision reflected the considerably higher than expected deterioration in asset quality. Gross non-performing assets (NPAs) rose sharply to 10.82 per cent as on December 30, against 7.52 per cent as on September 30, 2013. The vulnerable portfolio also includes standard restructured advances, 5.25 per cent of the total as on December 31.

The Kolkata-based public sector lender also saw pressure building on its earnings, as it posted a net loss of Rs 1,238 crore in the quarter ended December. It had a loss of Rs 489 crore in the earlier one. Its capital adequacy ratio also declined to 9.01 per cent in December as against 9.48 per cent in September. The Tier-I capital was 5.59 per cent at end-December, down from 6.18 per cent in September.  The government had injected Rs 700 crore as equity in the third quarter.

On February 11, Fitch, another rating agency, warned UBI’s recent losses might result in the state-run lender's capital ratios falling below the regulatory minimum and test the regulator's approach to the Basel-III capital rules. This is likely to be the first such instance within Asia since implementation of the Basel-III framework. It is also important at this time because a number of Indian banks, mostly state-owned, are considering raising of fresh regulatory capital in the international market, due to capital pressures on the sector, the rating agency had said.

ICRA said UBI would continue to post losses, given its large unprovided NPAs (with net NPA of 7.44 per cent as of December) and its higher NPA generation rate, which would further exert pressure on its capitalisation and solvency ratio. The net loss for  April-December 2013 was Rs 1,683 crore, as against a profit of Rs 361 crore a year before.

CRISIL downgrade

In a related development, rating agency CRISIL also downgraded rating for UBI’s Tier-II bonds (under Basel-II norms) from “AA” to “AA-” and Tier-I perpetual bonds from “AA-“ to “A”.

The downgrade on the Tier-II Bonds reflects the continued and higher than expected weakening in United Bank's asset quality and earnings profile, CRISIL said in statement.

ICRA ratings continue to be based on the high likelihood of timely support from the Government of India (GOI). A lack of support from the government could trigger a further downgrade of the rating.  

The ratings have been put on watch with negative implications as ICRA will be closely monitoring what is being done to shore up the bank’s capital.  The amount and timing of support from GOI and the bank’s ability to arrest further losses due to a worsening asset quality would have a critical bearing on its credit profile.

India iron and steel industry worst affected by slowdown NPA mount - ASSOCHAM

Source – Strategic Research Institute 13 Feb 14

According to the Associated Chamber of Commerce and Industry, iron and steel industry was the worst affected by slowdown in the Indian economy and their repayments to banks have seen huge defaults causing non performing assets of banking sector to swell.

ASSOCHAM said that the number of properties and assets mortgaged to the lenders going for auction has increased substantially but due to slowdown there aren’t many takers for these assets. The number of possession notices published in the media has also gone up significantly, reflecting a tremendous stress in the economy.

According to ASSOCHAM, the worst seems to be over and the situation may improve in the fiscal 2014 to 2015, though the improvement may not be dramatic as long as the consumer confidence is restored and the investment cycle gets back on track.

Iron and steel and infrastructure sectors are the largest contributor to NPAs of the public sector banks. Besides, aviation, textiles and mining are also adding to the stressed assets. These 5 sectors together contribute around 24% of total advances of all banks and account for around 51% of their total stressed advances at the end of September 2013.

The possession and the sale notices are issued by banks and other lenders like financial institutions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. These notices are for the immovable properties mortgaged with the banks.

Mr DS Rawat Secretary General of ASSOCHAM said that “We will urge the banks to avoid publishing pictures of the borrowers since it does no good either to the banks or to the failed borrowers, a large number of whom would have failed to repay the loans for reasons beyond their control.”

Is bad loan menace at United Bank of India a cover-up after serious Lapses ?

ET Now Simran Gil 13 Feb 14

Is the bad loan menance at United Bank of India a cover-up by the bank's management after serious lapses? Sources close to the development say, the report prepared by RBI-appointed forensic audit firm Deloitte suggests serious lapses on the credit appraisal and automated NPAdetection system of the bank. Sources also say that the report suggests that NPAs were not being detected for past two and half to three years. 

A senior banker in the know says, "the automated system that detects NPAs was found switched off, whether it was intentional or by mistake remains a big question." TheReserve Bank of India had appointed Deloitte to conduct a forensic audit on the bank. 

United Bank of India sent shock waves across the banking sector when it reported gross NPAs at 10.89% in Q3, increasing its bad loans by nearly three times. However, sources in both the government and RBI maintain that the situation at United Bank of India does not pose a systemic risk. The bank has also been instructed to focus primarily on debt recovery and avoid any fresh loans especially on the corporate side. 

Though the bank is dire need of capital, sources indicate that the government will not be in a position to infuse funds immediately, and this will most likely have to wait till the new fiscal starts. 

UBI posted a net loss of 1238 crore rupees in Q3 compared with 42 cr net profit a year ago. Serious questions have also been raised on the bank's capital position. The bank's tier 1 capital has fallen to 5.6% as of Dec, 2013, which is below the minimum capital ratio stipulated by the RBI 

Even in the past questions have been raised on the governance practices at public sector banks. Sources indicate that the RBI had requested the government to appoint a committee on the same, following which PJ Nayak committee to review the governance of bank boards in India was set up in January this year. 

Calls to United Bank of India's CMD by ET NOW remained unanswered.

United Bank to try selling Zoom Developers' assets for a 4th time

BS Reporter  February 13, 2014 Last Updated at 00:22 IST

Properties include 900 sq mt property in Andheri in Mumbai and four land parcels with area of 75,788 sq ft in Indore

Kolkata-based United Bank of India has put the assets ofZoom Developers on the block for a fourth time, to recover dues of Rs 3,002 crore from the developer. The bank reportedly tried thrice to sell the assets in the past.

The amount was due to a consortium of 25 banks, including UBI, Punjab & Sind Bank and Central Bank of India among others and UBI has put the assets on the block on behalf of other banks under Sarfaesi Act .

The reserve price of the assets is Rs 31.88 crore, UBI said in an advertisement. The properties include 900 sq metres property in the Andheri area of Mumbai and four land parcels with a total area of 75,788 sq ft at Indore, Madhya Pradesh.

The properties will be auctioned through e-auction on March 20, the bank said in an advertisement.

"Last time we did not receive any bid that met the criteria. Hence, we decided to put out another advertisement. We are confident that we will be able to sell these assets (of Zoom Developers) and recover our dues," a top official of United Bank of India told Business Standard requesting anonymity.

According to reports, lenders were planning to revaluation of mortgaged assets since they failed to recover part of outstanding loans. But it could not be ascertained whether they have revalued assets. In earlier attempts, the reserve price was fixed at R 72.88 crore for seven properties.

Recently, Housing Finance major HDFC put properties of London-based, Hirco-owned Hiranandani Palace Gardens in Chennai on the block under the Sarfaesi Act as the latter had failed to pay dues of Rs 539.86 crore and interest there on.

Sahara justifies Rs 20,000 cr cash dealings; blames Sebi for refund delay

FB   PTI 13 Feb 2014

Under fire for claiming it has refunded thousands of crores of rupees to investors in cash, the Sahara group has said such large-scale dealings were possible with its vast network of branches.

The group also sought to shift the blame to Sebi for delaying the refund to investors, while saying that its cash transactions were based on a "strict, convenient, safe and cost-effective policy."

The Supreme Court on Tuesday asked how Sahara had transacted only in cash while purportedly refunding Rs 20,000 crore. The court made the observations after Sebi said the group had not furnished any bank statements to support the refunds to investors, claiming the amount was paid in cash.

After a brief hearing, the court adjourned the case to February 20. The group said in the statement today that it had put in place the cash policy after hundreds of cases of "snatching,robberies, injuries" and even death faced by its workers while carrying money between branches and banks.

Blaming Sebi, Sahara said the regulator "does not want to understand the spread of our network into 4,700 centres" and the average daily payment at each branch of about Rs 2.5 lakh. The long-running case relates to the refund of over Rs 24,000 crore to investors by two Sahara firms through Sebi.

Sahara deposited Rs 5,120 crore with Sebi and claimed that more than Rs 20,000 crore was returned directly to investors who had subscribed to bonds issued by the two firms. Sahara claimed that in the past 17 months, Sebi has repaid about Rs 70 lakh out of the Rs 5,120 crore deposited. It claimed Sebi had not initiated verification of even one of the 3 crore investors in the past 17 months and had avoided reporting the valuation of asset details submitted by Sahara. The group welcomed the court's direction to Sebi to come out with the valuation report.

Stating that the image and credibility of Sahara, where 12 lakh families earn their livelihood, have been "severely affected," the group said most of its investors were small and the average bond investment amount was Rs 8,000. In the detailed statement, the group claimed almost 98
percent of its investors had put in amounts ranging from Rs 500 to Rs 19,000. Most of these people do not go to banks. These investors deposit cash and want to take back cash, Sahara said, justifying its cash dealings with them through "more than 4,700 offices with lakhs of workers" across the country.

The group said it has adopted a policy wherein the entire "Sahara India" was considered to be one and money inflows from different businesses in a single day were first used for all payments of that day and then the final settlement was done at the headquarter level. Sahara said such a policy for cash dealings within the group was followed after a few workers who used to carry money between branches and banks had lost their lives. "It happened hundreds of times where these workers faced snatching, robberies, few had died, many had serious injuries and many more had minor injuries. Our workers always feel scared to take money to deposit into the bank or from bank to offices and it is definitely not possible cost wise to provide one-two gunmen at more than 4,000 branches.

"If the policy would have been to get all the collected money from branches to headquarters and then again send back to the branches for payments, it would cost us a huge amount of bank charges and also loss of interest would have been very big amount," the group said.
Claiming that only about 50 percent of the Indian population had access to bank accounts, it said Sahara India is a "partnership firm" with infrastructure throughout the country.

PTI