Record number of cos in ‘lenders ICU’

FE :GEORGE MATHEW:3 April 2012

 

Mumbai: Stuck in a financial quagmire, an increasing number companies is seeking loan bailouts from banks and institutions. With high interest rates, waning business confidence and subdued macroeconomic environment playing havoc, a record number of 389 companies with loans amounting to Rs 2,05,692 crore had approached the corporate debt restructuring (CDR) cell of the banks and financial institutions (FIs) during the fiscal ended March 2012, which is a 45.71 per cent jump from Rs 1,41,158 crore in the same period of last fiscal.

The CDR cell of banks and FIs are yet to finalise the debt recast requests of 47 companies involving an amount of Rs 35,878 crore. “We had rejected the recast requests of 56 companies involving an amount of Rs 19,589 crore. Normally we reject the requests of companies which are beyond recovery or where fund diversion or fraud is suspected,” a senior official of the CDR cell of banks told The Indian Express

. As of now, the cell has approved the recast requests of 286 firms for loans of Rs 1,50,225 crore (Rs 1,10,914 crore last year). Normally, banks and FIs refer a company to the CDR when the borrower finds it difficult to repay the principal and interest within the stipulated period of 90 days and the borrower has a genuine difficulty in making the repayment.

“Of late we are seeing a rise in companies coming to the lenders’ ICU from sectors liked power, steel, sugar, textiles and infrastructure. This is worrisome,” the official in the CDR cell said. Steel and infrastructure together accounted for nearly 38 per cent of the cases — involving Rs 55,000 crore — referred to the CDR cell. There are nine telecom borrowers with an overdue amount of Rs 9,199 crore.

The CDR cell received some high profile CDR requests from India Inc recently. HCC owned by Ajit Gulabchand is now in the CDR cell with loans involving Rs 8,300 crore. Bharati Shipyard has also come to loan restructuring with a loan of over Rs 5,600 crore. Hotel Leela has sought loan recast for over Rs 3,000 crore loan. The biggest loan recast this year is from the GTL Group for over Rs 17,000 crore. The only aviation account that has come for recast is Deccan 360 with a loan of around Rs 500 crore. “Kingfisher has not come to the CDR approval table as of now,” he said.

The CDR scheme covers only multiple banking accounts, syndication/consortium accounts, where all banks and institutions together have an outstanding aggregate exposure of Rs10 crore and above. The CDR is approved when 75 per cent creditors by value and 60 per cent by number approves the recast request. Their decision will be binding on the remaining 25 per cent by value and 40 per cent by number. Once approved, the borrower can get sops like cut in interest rates and extension in repayment period.

New Union Bank chief to focus on NPAs, retail biz

BS Reporter / Mumbai Apr 03, 2012, 00:15 IST





With economic slowdown pushing up the tally of bad loans, Union Bank of India will focus on improving the management of non-performing assets (NPAs) and bolster its financial profile, said the new chairman and managing director, D Sarkar.


The emphasis will be on monitoring NPAs, including recoveries. The bank will have to study the sharp rise in NPAs due to system-based recognition of bad loans, he said on Monday.


Moody’s had downgraded the ratings of Union Bank in March due to weak asset quality and inadequate loss absorption capacity. The bank’s financial strength was cut from “D+” to “D”. The global local currency deposit is down to Baa3/Prime-3 from Baa2/Prime-2.


M V Nair, the former CMD, had told Business Standard in March that gross NPAs declined in December 2011 to 3.33 per cent after peak of 3.49 per cent in September 2011. It is expected to fall below 3 per cent for the quarter ended March 2012. The asset quality is expected to deteriorate further against the backdrop of a slowing economy and high interest rates, Moody’s had said.


Referring to the room to increase retail business, Sarkar said the bank has good network of branches and sound technology platform, which can be used to increase retail business, which is low now.


The share of outstanding retail loans at Rs 15,005 crore was about 9.61 per cent in loan book at the end of December 2011.


The share of low-cost deposits — savings and current account — at around 32 per cent of deposits is comparable with peers. The emphasis is to keep the cost of funds low, he added.


The coverage ratio for non-performing assets increased in December 2011 to 63.14 per cent (70.2 per cent in year ago) from 60.52 per cent in September 2011. It is expected to rise hereafter to touch 66 per cent by March end.

Quotes Gems - Determination

"I learned about the strength 


  you can get from a close family life.

  I learned to keep going, 


  even in bad times.



I learned not to despair, 


even when my world 


was falling apart. 


I learned that there are no free lunches. 


And I learned the value of hard work."

Lee Iacocca

 Lee Iacocca was instrumental in the success of two automobile giants: Ford and Chrysler.

 Iacocca achieved professional excellence through intelligence, conviction, and perseverance. 

 Ford owes its success to Iacocca's intrepid decisions.

 Chrysler Corporation also benefited tremendously from his able direction. 

Pending DRT cases spike by 70% in 2011 to Rs. 1.57 trn amid slowdown, inefficiency

Live Mint : Kian Ganz & Remya Nair (Mint)  | Wednesday,


 28 March 2012 12:32

The number of pending cases at India’s debt recovery tribunals (DRT) has increased by almost 70% in about a year, with the economic slowdown affecting the repaying capacity of borrowers and thus worsening the asset quality of banks.

Also, slow clearances of cases in the tribunals is adding to the pendency, say lawyers and analysts.

In response to a question in the Lok Sabha on 23 March, the finance ministry said 63,669 cases were pending in the tribunals as of 31 January. On 31 December 2010, 37,616 cases were pending, according to a Right to Information (RTI) request filed by Prashant Reddy, an intellectual property (IP) lawyer who also blogs on industry blog Spicy IP.

There are 33 DRTs in India, with three each in Chennai, Delhi, Kolkata and Mumbai—the last three having the maximum number of pending cases. The amount locked in as a result was Rs1.57 trillion as on 31 January, against Rs1.13 trillion as on 31 December 2010.

DRTs are semi-judicial authorities that help banks by speeding up the recovery process through steps such as issuance of attachment orders.

An official with the Indian Banks’ Association, who did not want to be identified, cited two reasons for the sharp increase in the number of pending cases at the debt tribunals.

“First is that more banks are approaching the DRTs to recover their bad debts,” this official said. “The second reason is that borrowers are also going to DRTs to challenge actions taken by banks under the Sarfaesi Act.”

The Sarfaesi Act, or Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, allows banks to auction properties of borrowers who fail to repay their loans, or recover their loans through securitization and asset reconstruction.

Of the 63,669 pending cases, 37,654 have been pending for more than a year. The finance ministry said a committee headed by a chairperson of the debt recovery appellate tribunal is examining the “legal, structural, administrative, monitoring and supervisory systems” of DRTs and will recommend measures to make these tribunals more effective and efficient.

“It is often challenging for DRTs to get all the interested parties together at one time. Hence, it becomes a long-drawn process. Banks facing large downside risks (dilution of market value of loan assets) try to settle NPAs (non-performing assets or bad loans) through one-time settlements or corporate debt restructuring,” said Robin Roy, associate director (financial services), at PricewaterhouseCoopers Pvt. Ltd. “Banks do a cost-benefit analysis before taking cases to DRTs as there could be substantial costs attached (long waiting periods) to going to DRTs.”

Banks have three legal options for resolving NPAs—the Sarfaesi Act, DRTs, and Lok Adalats, which are non formal alternative court, he said, adding that while loans above Rs10 lakh go to DRTs there is no sector-specific condition for approaching the tribunals.

Dushyant Kumar Mahant, a lawyer who has represented borrowers in the DRTs several times, said the case load has risen dramatically particularly because of the steep increase in property prices, which has resulted in many borrowers taking loans that they end up not being able to service.

The low disposal rate at the DRTs was caused by infrastructure problems, inadequate staffing also at senior levels, and non-cooperation by borrowers’ lawyers, said Navneet Gupta, Delhi-based partner at law firm SNG & Partners and who often represents banks.

Another lawyer who did not want to be identified blamed the bodies overseeing the DRTs and other tribunals. “The main problem is the appointments. It takes them 6 or 7 months to appoint the presiding officer and then the presiding officer has only a term of five years under the recovery of bad debt Act (Recovery of Debt due to Banks and Financial Institutions Act, 1993,) and they will start looking for a new guy after the old guy retires,” this lawyer said.

“It’s very lacklustre,” said one DRT lawyer about the presiding officers at many DRTs. “You go over there and even if (you) ask to present an argument over there, the matter is adjourned for one reason or another—(the officers) don’t have the bent of mind for disposal rate. It is very difficult for pendency to go down (this way).”

Students' corner

Business Standard / Mar 29, 2012, 00:57 IST




 Do you think banks rating B-school students will solve the bad loans issue?




BEST RESPONSE

As the number of bad loans are increasing, banks need to seek some measures for respite. By rating B-school students, banks can accordingly fix terms and conditions for them as well as track down the particular student’s performance. Thereby they can analyse students’ future ability to repay loans. This will help banks in minimising cases of bad loans, at least in the education sector.

Shivam Chhabra, Integral University, Lucknow

OTHER RESPONSES

The bad loan issue not only affects banks but also the whole economy. B-school are now emphasising on credibility and worthiness of loan seekers. Moreover, customer relationship is getting increased weightage on educational campuses. Perhaps, an increased level of knowledge in these areas in B-schools may help banks solve the bad loans issue to some extent. Jimit Parikh, St Kabir Institute of Professional Studies, Ahmedabad There are surfeit causes for bad loans — default on education loans being one of them. By rating educational institutions on placements, academic standards, intellectual capital and connection with industries as well as rating students on the basis of marks obtained in the qualifying exam, banks can structure their loan product better. These measures will definitely mitigate the issue of bad loans in the education sector and will also contribute to achieving inclusive growth. Though this is a step in the right direction, government also has to take some sector wise specific decisions to mitigate bad loans. Only then the problem can be solved.

Nilaya Mitash Shanker, Shanker, Shri Ram Swaroop Memorial College of Engineering and Management (SRMCEM), Lucknow

The quarter by quarter increase in non-performing assets (NPA) is a major concern for banks which leads to tightening of screws on the common man. According to the Reserve Bank of India, a major chunk of NPA include loans given to the agricultural sector whereas the proportion to the retail sector, especially educational loan, is very minimal. Thus, these does not make any huge difference in the overall kitty of loans provided by banks in the education sector. However, bank rating of B-schools gives the former a surety that their dues will be received on time and working capital of banks maintained.

Harsh Mehta, St. Kabir Institute Of Professional Studies, Ahmedabad

More trouble for Kingfisher

BS Reporters / New Delhi/ Bangalore Mar 29, 2012, 00:50 IST

Kingfisher Airlines’ problems seem to be never ending: While an income tax (I-T) tribunal directed it to clear its dues in weekly installments from April 7, a government official said the civil aviation regulator might take action against the troubled airline, if its employees and vendors were not paid soon.

But the cash-strapped carrier is likely to get more time to repay its service tax dues. Also, it named three independent directors on its board to comply with rules, after the last of its independent directors quit last week amid growing concerns over its survival.

The Bangalore bench of the I-T Appellate Tribunal directed Kingfisher to pay the remaining amount of the outstanding demand of Rs 349 crore to the I-T department in weekly installments of Rs 9 crore, starting from April 7. Kingfisher was also directed to furnish a bank guarantee against the weekly installments.

The bench had ordered Kingfisher to make a payment of Rs 44 crore of the outstanding demand on or before yesterday, which the airline complied with. It directed the department to lift the attachment of bank accounts immediately, so that Kingfisher could start smooth functioning and would be in a position to make the payments.

Spelling more troubles for Kingfisher, a government official in the know said: “The directorate general of civil aviation is likely to take action against Kingfisher, if it does not clear the dues of vendors or make salary payments to its employees soon. There is a concern whether the airline will be able to operate even the current truncated schedule.” He said the decision was likely to be conveyed to the airline chairman, Vijay Mallya, at a meeting that could happen as soon as this week.

Meanwhile, Kingfisher named Manmohan Singh Kapur, Lalit Bhasin and Shrikant Ruparel as new independent directors on its board.

While Kapur is a former chairman and managing director of Vijaya Bank, Lalit Bhasin is an accomplished lawyer and head of law firm Bhasin & Co. Ruparel is a former managing director of Kolhapur Sugar Mills and was on the State Bank of India board for 18 years. Indian rules require at least half of the directors on a publicly listed company to be independent.

“We cannot kill Kingfisher. We might give it some more time, if it pays some dues by March 31,” an official said. Kingfisher, which has cut down its operations substantially and has asked most staffers to stay at home, has agreed to pay Rs 10 cr of its Rs 76-cr service tax dues this financial year.

SBI rolls out one-time settlement scheme for small units

BL :K. Ramkumar & Priyanair:26 Mar 2012

State Bank of India has launched a one-time settlement (OTS) scheme for recovering bad loans in its micro, small and medium enterprises portfolio. To make the scheme attractive, the bank is also offering discounts to borrowers.

India's largest bank has seen a net increase of Rs 3,902 crore in bad loans in its MSME portfolio in the first nine-months of the current financial year.

Given the increase in bad loans, the bank has launched a non-discretionary and non-discriminatory scheme of OTS to give relief to MSME borrowers affected by the downturn in the economy.

Chronic, non-performing assets (doubtful or loss) in the MSME sector with investment in plant and machinery of up to Rs 10 crore are covered under the OTS scheme, said a bank official.

Many MSME units have been affected by the sharp rise in interest rates and fall in demand for their products.

CORPORATE PORTFOLIO

In the first nine-months of the current financial year, the highest net increase in bad loans for SBI was in the corporate portfolio (Rs 6,469 crore), followed by the MSME portfolio.

It is difficult to give corporates an OTS as banks usually have large exposure to them. Hence, banks prefer taking the legal recourse to make recoveries, said a senior banker.

Overall, SBI has recorded a net increase of Rs 14,772 crore in bad loans in the first nine-months of the current financial year.

As on December-end 2011, MSME advances accounted for 16 per cent of the bank's overall lending portfolio of Rs 8,46,266 crore.

As per the terms of the OTS, the application for compromise will be processed on deposit of a minimum of 5 per cent of the amount outstanding as on the date the account is declared an NPA.

The deposit is to commit the borrowers to the OTS process. 

The bank will receive applications for compromise settlement up to July 31, 2012.

A borrower has to pay 25 per cent (including the 5 per cent already deposited at the time of application) of the compromise amount upfront on sanction of the OTS by the bank.

 The balance amount of the compromise has to be paid within six months of the date of sanction without interest or 12 months with interest.

The bank has also thrown in an incentive to make the OTS attractive. It will give 15 per cent and 10 per cent discount on the OTS amount to those borrowers who make full payment within one month and three months, respectively, from the date of approval of the OTS.