writ petition from Tech Mahindra Ltd, Pune

Source :  Business Line: January 3, 2012

There was “no unreasonableness” in SIPCOT (State Industries Corporation of Tamil Nadu) cancelling land measuring 3.07 acres allotted to Axes Technologies I P Ltd at SIPCOT Information Technology Park, the Madras High Court has held.

Hearing a writ petition from Tech Mahindra Ltd, Pune, challenging said the order dated July 26, 2006, Mr Justice K. Chandru, said it was not clear as to how the petitioner had the locus standi to challenge the order. 

Even if it was taken that the original allottee company (Axes Technologies) was amalgamated with the petitioner company, they had no right to challenge the same. Such amalgamation came long after the cancellation of land allotted.

Even now, there was no explanation for not proceeding with the construction of factory buildings according to the lease deed dated March 10, 2005, which incorporated the conditions to be fulfilled by the allottee. This was clear violation of Clause 18 of the condition of allotment of land.

The respondent, SIPCOT, contended that under the said clause, construction should be completed within 24 months. No extension of time was sought for implementing the project.

Following the cancellation of land allotment, notice was issued on July 3, 2008, under the TN Public Premises (Eviction of Unauthorised Occupants) Act by Estate Officer, SIPCOT IT Park (R-2).

The petitioner said they had intimated SIPCOT about the amalgamation of the petitioner-company with Axes Technologies. After amalgamation, they were in rightful possession of land, they contended.

It was stated that even after the original allotment, conditions regarding starting of the project was never done by original allottee. Hence, the original allotment was cancelled.

The judge held that this court did not find any unreasonableness in the action of respondent. The writ petition would stand dismissed.

Rs 1,50,000 crores

Source : Financial Express :GEORGE MATHEW:, 

Dec 26, 2011 at 0334 hrs IST

Mumbai: The Reserve Bank of India’s worst fears are likely to come true on the asset quality front with gross non-performing assets (NPAs) of the banking sector set to cross the Rs 150,000 crore mark during the fiscal ended March 2012, indicating a rise of nearly three times from Rs 56,000 crore in 2008.

“The gross NPA ratio is expected to increase to around 3 per cent by March 31, 2012, from 2.3 per cent as of March 31, 2011. The increase was already visible in the first six months, where the GNPAs of the system increased to 2.7 per cent as of September 30, 2011,” rating firm Crisil said in a note prepared for The Indian Express.

A gross NPA ratio of 3 per cent means the fig-ure will reach Rs 150,000 crore by March 2012. The priority sector, including SMEs and agriculture, apart from retail, real estate and infrastructure sectors, are contributing the maximum to the stressed assets.

There are two key reasons for the deterioration in the asset quality: First, the increase in interest rates amidst slowing economic growth is leading to weakening debt servicing ability of the corporate sector, including small and medium enterprises; second, banks are migrating to


“Certainly bad loans are on the rise. We hope the situation will become better when the economy picks up steam in the coming quarters,” said the chairman of a nationalised bank.


In its Financial Stability Report released last week, the central bank has warned of a further rise in bad loans in the banking system on the back of the slowing economy and fall in credit growth. The growth rate (year-on-year) of NPAs at 30.5 per cent as of end September 2011 has outpaced credit growth of 19.2 per cent. Slippages (i.e. fresh accretion to NPAs) too have outpaced credit growth and grew at 92.8 per cent (year-on-year) as of end September 2011.

“An analysis of the growth rate of NPAs shows that the growth rate in the first half of 2011-12 at 25.5 per cent is more than triple the average growth rate of 7.4 per cent in the first half years during 2006-2011,” the report said.


In the infrastructure segment, though the NPAs as a ratio of outstandings remained low at 0.6 per cent, power and telecom sectors saw a rise in impairments and restructuring. However, going forward, if growth slows down, there could be further impact on the asset quality in this sector.


Crisil said the sectors that are under stress are state power distribution companies, power generation projects with limited pass-through of fuel costs and/or without adequate fuel linkage, airlines, microfinance in the....state of Andhra Pradesh, and the new entrants in the telecom sector. “The commercial real estate sector is also facing significant overcapacity leading to higher vacancies and pressure on rentals,” it said.

On top of this, the RBI has expressed apprehension about underestimation in NPAs. “In the RBI’s view, in certain cases, the statutory auditors have underestimated the extent of NPAs and the required provisioning. Since the RBI, as the supervisor of the banking system, relies and leverages on the work done by auditors, the profession should effectively address this issue,” RBI Governor D Subbarao said last week.

State Bank auctions wrong plot

Source  :Deepender Deswal, TNN Dec 29, 2011, 07.01AM IST




ROHTAK: In a strange case, the state bank of India (SBI) auctioned a plot of a senior citizen to recover the amount following default of repayment of loan taken by another person.


The owner of the auctioned plot had been running from pillar to post for the last six months but he failed to get any relief from the bank, the police or the court. His plot was auctioned on Tuesday on the orders of the debt recovery tribunal (DRT) in Chandigarh.


According to information, Jai Singh and Om Prakash had purchased plots measuring 107 square yard and 124 square yard respectively from one Malha Ram in 1980 in Rohtak. Jai Singh disposed off his plot to another person, Dharambir Singh in 1998.


The dispute began when Jai Singh allegedly furnished an old registry of the plot (which he had sold) as guarantee in bank for one Rajesh of Chiri village who had taken loan in 2004. Rajesh defaulted in payment of the loan and the bank started the process of auction of the said plot in February 2011.


The problem began when the bank earmarked the adjacent plot owned by Om Prakash instead of Jai Singh's plot for auction. Om Prakash was shocked to find a notice from the DRT, Chandigarh, pasted on the boundary wall of his plot. When he approached the bank officials and told them that they had "erred in serving notice" on him, they told him that they had identified the right plot for auction.


Om Prakash lodged a complaint with the police against Jai Singh alleging fraud and also wrote to the public grievances department of the SBI. But he got no relief from the police or the bank authorities and finally he filed a petition in a Rohtak court demanding stay on the auction.


The court however declined to stay the auction. He filed an appeal in the district court in Rohtak on Tuesday, but the DRT officials auctioned the plot the same day.


Stating that it was a fraud, Om Prakash alleged, "I suspect that the bank officials are hand-in-glove with Jai Singh and Rajesh who defaulted in loan repayment and I am being made to suffer for the misdeeds of the duo".


SBI's chief manager at Rohtak Hans Raj told TOI that they had earmarked the right plot for auction on the basis of location and dimensions mentioned in the documents regarding guarantee. "We have received the complaint and referred it to the higher authorities for further action," he added.

Debts Go Bad, Then It Gets Worse

By JESSICA SILVER-GREENBERG : WSJ : 23 DEC 2011

A personal bankruptcy is supposed to cut borrowers loose from lenders and debt collectors, but Capital One Financial Corp.—one of the nation's largest credit-card issuers—sometimes doesn't want to let go.

Leila Torres, a 35-year-old waitress who lives in Hawthorne, N.J., concluded her Chapter 7 bankruptcy case in 2009. She was stunned when she got a letter notifying her that Capital One was suing her for $4,266 in credit-card debt.

"I was trying to move on, and this whole thing has sucked me back into a nightmare," she says.

Capital One dropped the suit after Ms. Torres accused the company in a separate lawsuit filed in September of flouting bankruptcy law. Capital One asked a bankruptcy judge to throw out her suit, but he refused.

It wasn't the first time the company went after its customers for debts that had been snuffed out in bankruptcy, even though the practice is illegal. A court-appointed auditor concluded earlier this year that Capital One pursued 15,500 "erroneous claims" seeking money previously erased by a bankruptcy-court judge.

More than 800 of those borrowers have filed lawsuits or other legal actions against Capital One, the auditor said in a Dec. 6 court filing. Without admitting or denying wrongdoing, Capital One agreed to reimburse about 130 borrowers, lawyers and bankruptcy trustees for legal costs incurred trying to fend off Capital One.

A spokeswoman for the McLean, Va., company said: "It is our policy and practice not to collect on discharged debt."

In a court filing earlier this year, Capital One disputed the auditor's finding of 15,500 erroneous claims but didn't disclose what the company thought the correct tally should be.

Associated Press

Debt collection is a major component of Capital One's business.

The auditor is scrutinizing Capital One as part of a 2010 settlement between the company and a U.S. bankruptcy trustee in Massachusetts.

Separately, David W. Houston III, chief judge of the U.S. Bankruptcy Court in Aberdeen, Miss., said he plans to demand that Capital One show up in his courtroom to explain its debt-collection practices.

In October, the judge rejected the company's request to throw out a lawsuit that alleged Capital One tried to collect $43,396.59 that was legally erased in an earlier bankruptcy case filed by the same person.

"I want some proof from the company that this was a legitimate error and not a conscious, malevolent effort to go out and collect a debt that's been discharged," Judge Houston said in an interview.

Capital One said in a court filing that it didn't know about the previous bankruptcy.

Once the company found out, it abandoned its claim, saying it made a mistake that was "neither willful nor intentional," according to the filing.

Capital One is the 10th-largest U.S. bank by assets, best known for the credit cards pitched in its "What's in your wallet?" ads. The company's banking unit has grown to nearly 1,000 branches, and federal regulators are reviewing the proposed $9 billion acquisition by Capital One of ING Groep NV's U.S. online-banking business.

Debt collection is a major component of Capital One's business that gets little attention from analysts and investors. As of Sept. 30, Capital One had $2.7 billion in net income so far this year on revenue of $12.22 billion, but it also was forced to write off $2.9 billion in uncollectible loans.

As a result, like most lenders, Capital One invests significant resources into trying to collect from customers who are behind on their bills. But unlike most others who outsource their debt collection, Capital One largely relies on employees.

If a customer files for bankruptcy, the company often lines up with other creditors to collect whatever assets are left. This is entirely legal, up to the point that a customer's debts are officially erased by a bankruptcy judge.

Capital One is accused of filing claims to get debts that were previously discharged in some cases.

There is a lucrative niche in collecting even small amounts from debtors in the window between when a bankruptcy proceeding is filed and when it is completed.

About $120 billion in debt will wind up in Chapter 7 or Chapter 13 bankruptcy proceedings this year, estimates Sean McVity, a debt broker in Harrison, N.Y. Portfolio Recovery Associates Inc., based in Norfolk, Va., bought $1.52 billion of bankruptcy debt in the first nine months of 2011, paying nine cents on the dollar, according to a securities filing.

Buyers are hungry for bankruptcy debt because they often wind up doubling their initial investment, according to Mr. McVity.

William Weinstein, chief executive of Weinstein & Riley, a debt-collection company in Seattle, said he proceeds carefully when buying bankruptcy-related debt because some firms "aggressively pursue payments in violation of the law."

For example, collectors sometimes report erased debts to credit bureaus, a pressure tactic that is in violation of the law if the debt has been discharged.

About 1.4 million Americans filed for Chapter 7 or Chapter 13 bankruptcy-court protection in the fiscal year ended Sept. 30, down 8% from a year earlier but nearly double the number of bankruptcy filings in 2007.

In 2008, a U.S. bankruptcy trustee in Massachusetts accused Capital One of illegally trying 5,600 times to collect debts already wiped out by a bankruptcy judge.

The trustee, who declined to comment, said the wrongful claims were the result of Capital One's failure to keep track of bankruptcy filings by its customers. The trustee began investigating the company when it allegedly sought $5,542.50 from a couple 14 years after the debt was erased.

Capital One denied any wrongdoing but agreed to turn over internal records detailing 2.2 million filings of bankruptcy-court claims between 2005 and 2010.

The company also agreed to supervision from a court-appointed monitor that will last until the auditor has completed a review of the bankruptcy-collection records.

So far, the auditor has identified 15,500 allegedly erroneous claims.

The Capital One spokeswoman wouldn't comment on the allegations, settlement or ongoing scrutiny. In a court filing, Capital One said it beefed up record-keeping procedures before being prodded by the bankruptcy trustee.

SBI V/S M/s.Open 2 all systems (Bangalore) Pvt. ltd & ors

M.A:147/2009

R1 to R9 are already called absent.

Ld. Counsel Shri Sunder appearing on behalf of the appellant bank stated that a reading of  the order of the Ld.  Presiding Officer, DRT, Bangalore reveals that the same is not based on any material but based on the Ld.  Presiding officer’s conjectures.  

 Ld.  Counsel drew the attention of this Tribunal to paragraph 4 of the order under appeal and stated that the Ld.  Presiding Officer has come to the conclusion found therein based on his own assumptions and presumptions that the bank is intending to prolong the litigation and that the order under appeal is perverse and further that it is liable to be set aside as the same is not passed on the basis of any material. 

 Ld.  Counsel further stated that the Ld.  Presiding Officer has neither gone through the averments made in the petition nor gone through the averments made by the respondents in their counter before the Tribunal below and that he has proceeded to pass orders on his own assumptions. 

 Ld.  Counsel also drew the attention of this Tribunal to the imposition of cost of Rs.50,000/- and stated that no circumstances warranted  imposing of such a condition and that the imposition of cost of Rs.50,000/-  is absolutely uncalled for in this case. 

He added that the State Bank of India being a premier bank in the country has only sought to enforce its rights to protect the economy of the nation. 


Ld. Counsel stated that the order as seen in paragraph 4 of the order under appeal is liable to be set aside and that the reasons set out therein for the dismissal of the petition are unjustifiable.   

Ld.  Counsel prayed that the Ld.  Presiding officer, DRT, Bangalore may be directed to go through the averments made in the petition and the counter and give a proper hearing to both the parties and thereafter proceed to pass orders.

Heard the Ld. Counsel.

In view of the facts and circumstances of the case more particularly in view of the fact that the Ld. Presiding officer has neither gone through the averments made in the petition nor the averments made in the counter of the respondents for the purpose of adjudication this Tribunal is compelled to remit the matter to the Tribunal below to be disposed of in accordance with law. 

 Accordingly the following order is passed.

“The order of the Ld.  Presiding officer, DRT,Bangalore dt 6.8.2009 passed in IA 2680/08 in OA 408//08 is hereby set aside.  Further the order of imposition of cost of Rs.50,000/- is also set aside. The Ld.  Presiding officer, DRT, Bangalore is requested to take up IA No.2680/08 in OA No.408/08 for disposal and dispose of the same in accordance with law within a period of one month from the date of the receipt of a copy of this order”

This MA is disposed of accordingly.

IA 1281/09 (stay);  MA is disposed of today. Hence this is closed.

 THE HON'BLE CHAIRPERSON OF DRAT CHENNAI PASSED THIS ORDER ON 21/12/2011

 

Govt, RBI must find a lasting solution to tackle NPAs

source : BL :T.V. GOPALAKRISHNAN :18 Dec2011

With the high interest rate regime, persisting inflationary and near recessionary conditions in the domestic economy, and discouraging economic scenario in the US and Europe, the chances of generation of more NPAs in the coming months cannot be ruled out.

The NPA (non-performing asset) menace which was kept under some check for a few years has again started raising its ugly head disturbing the peace of mind of the Government and the Reserve Bank.

More NPAs mean, more resources the banks have to find to maintain capital adequacy. As long as lending remains an inevitable function of banking and banks have to deal with human beings as borrowers, this problem will continue to haunt the banks.

Further, the changes in economic scenario which is influenced by several micro and macro economic factors, on both domestic and international fronts, such as declining GDP growth, high inflation, financial instability, exchange and interest rate volatility and monsoon conditions also affect the working of banks adversely and result in increased level of NPAs.

PRESENT APPROACH

The present approach by the regulator to expect the banks to make good the loss on account of NPAs by charging to banks' profit and loss account at the cost of all stakeholders of banks that is depositors, borrowers, shareholders, employees and ustomers, is neither ethical nor prudential.

Further, the loss to the economy on account of NPAs is unfortunately made to bear by the tax payers as the Government loses its revenues on account of reduction of GDP because of non-performance of assets and also is made to contribute to capital through budgetary provisions to enable the banks maintain the capital adequacy standards according to Basel norms. The position of public sector banks NPAs vis-a-vis advances, deposits and investments for the period 1993 to 2011 is show in the accompanying chart.

It can be observed that the gross NPAs as percentage of gross advances have drastically come down from 23.2 per cent in March 1993, (when the concept of NPA was first introduced in terms of financial sector reforms) to 2.2 per cent in March 2011. Working of banks got further streamlined based on banking sector reforms introduced in 1998. The results are very encouraging. In the decade 2000 to 2010s, banks could bring down considerably their NPAs.

Many factors have come to the rescue of banks in keeping the NPAs down. The banks were identifying the NPAs through manual process all these years and it was humanly impossible to assess the correct position of such assets . The banks could manage to keep many NPAs under the carpet and the hidden NPAs were difficult to be identified as banks had umpteen ways to camouflage them. The boom in real estate prices came handy for banks to bring pressure on borrowers who also found it advantageous to sell off their assets and come out of banks' clutches.

Further, Debt Recovery tribunals, Lok Adalats, implementation of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 for recovery of dues, improved performance of the economy and banks' own performance in terms of better profitability on account of enhanced efficiency, productivity, competition, better return out of investments and diversification of operations greatly contributed to bringing down NPAs.

Huge write-offs of NPAs at the cost of shareholders who include the Government, effective regulation and supervision of the Reserve Bank also played an important and effective role in keeping down the level of NPAs.

The provisioning requirements in particular compelled banks to be vigilant in minimising the bad loans . Added to this, the permission granted by the Reserve Bank in August 2008 to restructure some of the accounts (though strictly need to be classified as NPAs) and treat them as standard assets if found viable, limited the growth of gross NPAs. With all aforesaid adjustments, NPAs stood at Rs 71,047 crore as at end March 2011, but are still staggering and causing concern.

The steep increase in advances since 2005 onwards (CD ratio increased from 61.8 in 2005 to 75.6 in 2011) is something abnormal and how much of this would turn out to be NPAs is worth watching. With the recent switch over to computerised system to identify the NPAs, the position has been moving from bad to worse.

With the high interest rate regime, persisting inflationary and near recessionary conditions in the domestic economy, and discouraging economic scenario in the US and Europe, the chances of generation of more NPAs in the coming months cannot be ruled out.

The fact that NPAs affect the economy in general and all stakeholders of banks in particular and finally lead to bail out of banks with budget allocations has been the trend and has to be recognised and this approach to manage NPAs needs to be done away with.

NEW FUND

Time has come to give a serious thought to this NPA menace and find a lasting solution to put up with them. Since only banks and borrowers do figure in the generation of NPAs, the ideal way to come out of this problem is to have a built-in mechanism to liquidate NPAs by means of creating a Precautionary Margin Reserve Fund (PMR) involving all borrowers and banks. This has to be done on a systematic and scientific basis.

Over a period, this fund will be more than the formation of NPAs, and this approach can strengthen the vitally missing credit discipline among the borrowers. Banks will have to tighten the monitoring of accounts on a continuous basis to rate the borrowers, discipline them and levy the contribution towards the PMR Fund based on borrowers' rating.

Bankers are generally inclined to satisfy the borrowers and do not want to incur any displeasure by being strict and vigilant with them for fear of losing the account when the going is good.

Borrowers will oppose creation of this fund as it adds initially to their cost of funds and expects them to adhere to strict credit discipline though they can derive the benefit in the long term. Besides, the rating will have reputation risk with attendant consequences.

It is for the Government and the Reserve Bank to seriously view the NPA menace and introduce a solution perhaps acceptable to all stakeholders of banks other than borrowers.

This suggestion developed through a statistical model has been found workable resulting in disciplining the borrowers and making the balance sheet of the banks strong. The Government is the major beneficiary in case the solution is introduced.

(The author is a consultant and views expressed are personal)

(This article was published on December 18, 2011)