Restructured loans will account for 3.5% of total advances: Crisil

BL:MUMBAI, APRIL 24:2012


The total amount of loans that are likely to be restructured by banks over 2011-12 and 2012-13 is estimated at nearly Rs 2-lakh crore, said Crisil.


Pointing out that a sizeable proportion of the restructuring comprises large-ticket corporate exposures, the credit rating agency said the total restructured loans will account for 3.5 per cent of the total advances as at March 2013.


Furthermore, banks' gross non-performing assets are set to increase to 3.2 per cent by March 2013, from 2.9 per cent as at December 2011.


Crisil has assessed that the large quantum of restructuring reflects the prevailing stress on corporate India's credit quality because of lower profitability, weak demand, and tight liquidity

Contempt notice to DRT PO Hydrabad

• April 19, 2012 
• DC 
• Hyderabad

Justice L. Narasimha Reddy of the High Court on Wednesday issued a contempt notice to E. Jacob R. Daniel, presiding officer of the Debt Recovery Tribunal, Hyderabad, and chief manager of the Indian Bank. The judge was dealing with a plea by one Kishore Pokala, challenging a GO issued by the government on November 7, 2007 not to register a property located at Road No. 10, Banjara Hills, belonging to N. Sarasa Devi, the alleged kingpin in the Sarva Shiksha Abhiyan scam.

The petitioner claimed that he had purchased the property in an auction conducted by the Indian Bank and when he approached the joint sub-registrar, Hyderabad (south), he refused to register it as it was under attachment by the Crime Investigation Department. The CID approached the government, seeking sanction to attach her properties as they were acquired through her having embezzled government funds.

The government gave the sanction and the CID approached the Chief Judge, City Civil Court and the court granted the order to attach the property. Meanwhile, Indian Bank approached the Debt Recovery Tribunal to auction the property as Sarasa Devi had mortgaged it with the bank to secure a loan which she had failed to repay.

Sarasa Devi brought to the notice of the Tribunal that the property was under attachment with the police. However, the Tribunal held that the civil court order was not binding on the Bank and it was not valid. After seeking assistance from the special counsel for the government N. Sridhar Reddy, the judge decided to initiate proceedings for blatant violation of orders of the Civil Court and issued notices under the Contempt of Court Act.

Give flats to those who paid in full: HC
Justice L. Narasimha Reddy of the AP High Court directed the principal secretary to the housing department and the managing director of Rajeev Swagruha Corporation Ltd to ensure that the possession of flats is allotted to the members of the Sathbhavana Township Allottees Welfare Association.

The judge ruled that the allottees should be given the possession without insisting on registration of the documents, provided the entire consideration was paid. The judge granted the interim direction while dealing with a plea by the association, challenging the failure of the authorities to hand over possession to those who were allotted the flats despite payment of the final cost. The judge said that the members of the association had responded to the notification issued by the housing department, which had promised that flats would be sold at 25 per cent less than the market value and possession of the flat would be handed over within 24 months.

Though more than four years have elapsed, construction had not been completed. In the meanwhile, the members of the petitioner-association had paid the entire amount.

Security for Surekha to continue
Justice R. Subhash Reddy of the High Court on Wednesday directed the police to continue providing security to former MLA Konda Surekha, at her own cost, until an assessment of the threat perception had been done before a final decision was taken. The judge granted the order while dealing with a plea by Ms Surekha.

System-Based NPA Reporting Improves Transparency

Abhishek Raval 12th April, 2012 in BFSI



When recently asked about the reason for spike in Non Performing Assets (NPAs) of select Indian banks, RBI's Deputy Governor Subir Gokarn attributed it to the migration of NPA calculation from manual reporting to an IT system-based approach . By bringing to the fore previously unreported NPAs the system based approach led to an increase in the overall NPA reporting.


The recent Financial Stability Report points out a 25.5% growth in NPAs in the first half of 2011-12, the highest in the past six years. NPAs continue to be a grave area of concern for the banks and regulators alike. And, the key to addressing this issue lies in having a correct picture of NPAs. After all, unreported NPAs mean unaddressed NPAs.


Manual Reporting: Where Is Transparency?


"Manual system, due to lack of visual ease, involves going through scores of ledgers, manuals etc. Due to lack of scope for verification this gives leeway to banks to show a rosy picture about the financial numbers. On the other hand, software based system gives a single window view of the lifecycle of the loan from the day it is disbursed. This avoids manipulation of any kind and ensures complete transparency," explains R.B.Barman, Former ED- RBI.


A rulebased tool providing an organised display replacing the wide ledgers also enables the employees of RBI's Department of Banking Supervision to quickly check the veracity of the account entries and numbers and find if there are any aberrations.


As a result, both the finance ministry and RBI have directed Indian banks to automate NPA management and eliminate manual intervention. Moreover the implementation date for BASEL III norms is around the corner. Indian banks should abide them between 2013 and 2019. 


How System-Based Approach Works


IT Tools have features to act as a repository of the payment history of the borrowers. Thus, pre-emptive action can be taken when there is a possibility of an account entering the NPA category . Various categories of loans and the rules and payment periods associated with them can be tracked using a tool, as opposed to a manual system where one has to scan through scores of manuals, ledgers, etc.


To quote an example, the NPA norm for an agricultural loan for a crop of a long gestation period is different from a loan relating to an industry product of short gestation period. These complex rules can be better taken care of by a software tool than handled manually. Moreover there are various stages of NPA management requiring with different approaches required at each stage. For instance, a different approach is required at a stage when the account is categorised as an NPA than at a stage when the borrower is relentless and not making payments, which requires a legal notice to be sent. The rule based system triggers the alert.


Besides building greater transparency moving to a system based approach has its advantage in reducing the cost of NPA management. A manual setup requires large scale hiring of manpower while a technology tool streamlines the process using much lesser resources. Also, there is a possibility of slippages in people-managed systems, whereas a technology tool will improve productivity by managing set processes on rule-based systems.


Cosmos Bank And Indi Soft Partner For NPA Management


Urban Co-operative Banks (UCBs), which form a significant part of the lending community in India, are also stressed with high NPAs. Targeting the co-operative banking sector Indisoft Consultancy has recently launched an Indian version of its NPA management product, i.e. 'Rx Office NPA'. The product is customised for the Indian market based on the incumbent law viz. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) that government uses for NPA management, informs Prasad Nagool, CEO-Indisoft Consultancy Services.


Cosmos Bank has provided the business knowledge and regulatory know how for designing the product. "The team from Cosmos gave insights of business services from a co-operative bank perspective. Working with the Cosmos team enabled us to design the product from a user angle," shares Nagool. The bank is also using the product for their NPA management. "Rx Office NPA will help banks to reduce their NPAs to a great extent," states Sunil Sabnis, Director- Cosmos Co-operative Bank. 


Cosmos Bank is running on Infosys' Finacle Core Banking Solution (CBS), which is unable to handle NPAs on its own and manual intervention is required. "After implementing Rx Office NPA there is seamless bidirectional data transfer between the CBS and Rx Office NPA eliminating manual intervention. It has benefited in terms of regular tracking of the lifecycle of default. Meanwhile, the Finacle system is also updated accordingly so as to provide an end-to-end view from the loan disbursal date to the latest update of loan default," explains Sanjeev Dahiwadkar, CEO, Indisoft LLC. 


There are four pillars of 'Rx Office NPA' - Information management, document management, rule based workflow management and communication

Is Kingfisher Airlines really in trouble?

Rumi Datta Hardasmalani / Mumbai Apr 13, 2012, 00:57 IST


It may just be a well-crafted strategy by Vijay Mallya to sail through the current crisis

While everyone seems to be in a mood to write him off with headlines about his airline on the verge of collapse, Vijay Mallya may well be right on track in executing his plans to get back a leading position in the aviation space.

Mallya may already have a foreign airline partner by his side, perhaps a cash-rich one, something that he has already hinted at in the recent past. All he has to do is clear the regulatory hurdles for the entry of his new airline partner in india. This is what may help him survive the current crisis.

Today, he is doing just that with ultimate precision. Mallya is actually firing on all cylinders. Grounding over 75 per cent of the airline’s fleet, rolling-back almost all international operations, not paying his employee’s salaries till sometime back and delaying outstanding payments are some of the pressure points he has managed to create for the government to clear the FDI policy on aviation.

The overall impact of all these moves on increased air fares is only adding fuel to the fire, further mounting pressure on the government to clear the policy, while it keeps consumers’ interests in mind.

Why is he doing this all by himself? The answer is simple. No other airline in India today is in real need of this new proposed FDI policy that will allow foreign airlines to pick up a stake in an indian carrier.

Jet Airways seems well funded, with Naresh Goyal in no mood to raise fresh equity as he sits tight on a promoter holding of over 80 per cent in his airline. Indigo is well on track with its IPO plans and a time-tested, profitable expansion plan. Spicejet’s largest shareholder, Kalanithi Maran is in no hurry to either cash-out or launch aggressive expansion plans given the airline is making money. Wadia-controlled GoAir has always been in a wait-and-watch mode, with little or no muscle power to impact regulatory norms, particularly given its size.

This leaves Kingfisher Airlines — the only one that is not only bleeding but requires a massive revamp and fund infusion. Having exhausted all fund raising options, roping in a foreign airline is Mallya’s only way out.

For those who think that the cash-strapped Kingfisher Airlines will have no takers, consider this: KFA has a fleet comprising 12 owned aircraft, owns substantial prime slots on trunk routes like Mumbai-Delhi and had a market-share of around 29 per cent prior to shrinking its operations. Kingfisher has tactfully given up unprofitable slots in smaller cities or excess ports, and is expected to find them vacant once it resumes full-fledged operations in its new avatar.

And now, by leveraging this crisis, it has not only managed to cut excess flab but has also cut down non-profitable route operations besides re-negotiating high-cost lease rentals while returning expensive wide body aircraft.

The timing too seems favourable, as Mallya’s plan coincides with India’s own slow growth story, high inflation and political scandals. Also, his lying-low strategy augurs well with adverse conditions like rising fuel prices, a depreciating rupee and cut-throat competition due to excess capacity. Keeping all this in mind, despite its outstanding debt of about Rs 7,000 crore and accumulated losses of Rs 6000 crore, Kingfisher may attract an international airline keen to get a toehold in the indian aviation market.

For the foreign airline waiting in the wings to partner Mallya in India, it not only means a potentially big market share, but a clear first-mover advantage in a market that today flies around five million people a month and is projected to grow 7.5 times by 2020.

Don’t forget that Naresh Goyal had paid Rs 2,200 crore for AirSahara that was much smaller in size in terms of operations and market share and had almost no tangible assets. It was a loss Goyal has managed to absorb as he is back in a leadership position.

Perhaps this is the only way to take on rivals like Jet Airways and Indigo Airlines, head-on.

Just think about it. Only days before the IPL season, Mallya successfully managed to placate his agitated airline employees by paying them their salaries. Within a span of one week, the dgca was satisfied with the airline's explanation on why its licence should not be cancelled, Mallya's leading bankers came out in the open to say that KFA can be revived, and tax authorities un-froze his account.

Now with the ground work already in place, Mallya is only waiting for the FDI policy announcement which the relevant ministries have already said is under active consideration.

Kingfisher Airlines’ billionaire chairman continues to own one of the world's most expensive yachts, a luxury Kingfisher villa in goa, dozens of vintage cars worth millions, and a cricket as well as a Formula One team. His $4-billion group comprising breweries, biotechnology and real estate businesses continue to remain technically unaffected.

So, if you thought mallya stopped dining with football and formula one stars, shooting with super models on exotic locations, think again.

All he has managed to do is use the media most effectively.

A king-size bailout for the maharaja

BS Reporter / New Delhi Apr 13, 2012, 00:50 IST


Air India to get Rs 30,231-crore infusion till 2020-21 restructuring of debt approved 19,000 employees to be moved to two new subsidiaries

After more than three years of discussions, the Cabinet Committee on Economic Affairs (CCEA) on Thursday approved an infusion of Rs 30,231 crore in Air India till 2020-21 as part of its turnaround plan. The government has already infused equity of Rs 3,200 crore in the last two financial years

.

The government also approved the restructuring of the airline’s debt of Rs 18,000 crore, the formation of two subsidiaries for ground-handling and engineering, and the contentious shifting of over 19,000 of the 27,000 permanent employees to these new operations.

“All this infusion of money is conditional and the performance of Air India will be monitored by a committee formed by the ministry,” said civil aviation minister Ajit Singh.

Singh said there were stiff performance riders put in place for additional equity. These include improving the airline’s on-time performance to 90 per cent in two years from 71 per cent now. It also has to improve its passenger load factor to 73 per cent by 2015, and to further increase it to 75 per cent beyond 2015, from 69 per cent currently.


Based on the plan, Singh said the airline would have operational profit by 2018. Its interest payment outlay is estimated to come down by Rs 1,000 crore after the debt restructuring. The airline has an annual interest outlay of Rs 1,700 crore.


Banks are restructuring the airline’s loans of Rs 18,000 crore. Of that, Rs 10,500 crore will be converted into long-term loans, with a repayment period of 15 years, and the rest Rs 7,400 crore will be repaid to banks through a government-guaranteed bond issue
.
The Cabinet was able to push through the formation of the engineering and ground-handling subsidiary. It took the tough decision of bringing the employee-to-aircraft ratio on a par with that of profitable international airlines. With the shifting of staff to the two new companies, Air India’s employee-to-aircraft ratio will be 60 per aircaft if only permanent employees are taken into consideration. However, a large part of the work is outsourced to contract workers. If they are included, the ratio will be 142 employees per aircaft, much better than the average international norm of 150 employees per aircraft.

Air India will initially be looking for a joint venture for the engineering subsidiary.


The Cabinet also cleared the long-awaited deliveries of the Boeing 787 Dreamliners. “All the 27 Dreamliners and three Boeing 777-300 ERs will be inducted by the national carrier but that will happen on sale and lease-back,” Singh said. Air India is to take the deliveries of seven Dreamliners by January next year.

Banks on a debt rejig spree to avoid accumulating bad loans

FC : R Srividhya: Apr 06 2012 , Chennai

Most CDRs take place in manufacturing, telecom, aviation sectors; private players too affected

Officials at public sector banks have been meeting corporate clients more often over the past two-three quarters than they used to do any other time in recent memory.

 With high interest rates and slower economic growth causing a strain on loan repayment for many corporate borrowers, the focus is on extending the tenure of repayment or providing a brief repayment holiday to clients to ensure that loans do not end up becoming non-performing assets (NPAs).

Public sector banks have been restructuring corporate loans to various sectors such as manufacturing, telecom and aviation in a big way to ensure that they do not end up landing in their bad loan books. 

State Bank of India has restructured loans to the tune of over Rs 3,000 crore till the third quarter of this financial year, while Punjab National Bank and Indian Bank have restructured loans of over Rs 6,000 crore.

“I would be lying if I say that there is no concern over asset quality. There is some stress on asset quality and some accounts have gone for corporate debt restructuring. The situation is not alarming though. 

We have restructured loans to the tune of Rs 400 crore in the fourth quarter alone,” said TM Bhasin, chairman of Indian Bank.

Usually nationalised banks perform loan restructuring in a big way since they are the ones who lend significantly to businesses.

Private banks largely lend to retail borrowers. Defying that belief, players like ICICI Bank went for restructuring of loans to the tune of Rs 1,300 crore in Q4 alone.

“Of the total number of loans restructured, usually about 20 per cent end up becoming NPAs. In many cases, restructuring helps genuine borrowers come out of bad times and repay the loans. 

There will be slippages, but it does not appear to be alarming at this point of time,” said Vaibhav Agarwal, a banking analyst at Angel Broking.

However, Indian Overseas Bank chairman M Narendra pegged the slippage levels of restructured loans even lower at 4-5 per cent.

“Restructuring does not mean the quality of asset is bad, but it could be because of a slowdown in cash flow, lower profitability or lower sales. In such cases, restructuring becomes essential. 

It only means that the repayment tenure is being extended. Out of 100 accounts that are restructured, only 4-5 tend to become NPAs,” Narendra claims.

Sectors such as power, aviation and telecom have been the biggest party poopers for banks in 2011-12 and a large part of the restructuring has happened in these sectors, bankers said.

“Exposure to the struggling sectors such as aviation and state power utilities may be restructured in 2012 together with growing exposure to infrastructure projects that face teething troubles. 

As a result, banks may see the share of loans restructured in 2011 and 2012 rise to 7-8 per cent of loans, significantly higher than 4.4 per cent seen in the aftermath of the 2008 crisis,” Fitch Ratings said in its outlook for the banking sector in 2012.

As credit offtake has not been significant over the past few months, banks had to exercise caution over existing assets and the focus naturally shifted to credit monitoring, reasoned a senior official at Punjab National Bank.

With the Q4 numbers of banks yet to be out, it remains to be seen if the restructuring efforts need to continue going forward and if slippages into NPAs has increased.

A lot would depend on what happens on April 17, when RBI would announce its annual monetary policy review for 2012-13 and possibly, a much-awaited interest rate cut.

Govt monitoring efforts to recover NPAs of banks

Mr D.K. Mittal, Additional Secretary, Ministry of Commerce and Industry, Govt of India.


BL :PTI: APRIL 4,2012

With bad loans of banks touching Rs 1.27 lakh crore during April-December 2011, the Government today said that it is monitoring the efforts for the recovery of non-performing assets (NPAs) by lenders.

“(We are) aggressively looking at efforts to recover NPAs,” the Financial Services Secretary, Mr D.K. Mittal, told reporters here.

High interest rates and lower economic growth has impacted the repayment capacities of borrowers, pushing up the NPAs of banks to Rs 1.27 lakh crore in the first nine months of 2011-12 fiscal.

Banks’ bad loans stood at Rs 94,084 crore in 2010-11, Rs 81,813 crore in 2009-10 and Rs 68,220 crore in 2008-09.

Mr Mittal further said that “some more capital” would be infused in the country’s largest public sector lender State Bank of India in the current fiscal.

Also, the Government “will ensure 11 per cent Tier I capital (equity) for SBI in the next two years’’, he added.

Currently, the Tier-I capital of SBI is around 9 per cent.

On March 30, the SBI executive committee had approved issuance of 3.65 crore equity shares at Rs 2,191.69 a piece through preferential allotment to the Government to raise about Rs 7,900 crore.

The Government has recapitalised public sector banks over a period to enable them to maintain Tier I CRAR (capital to risk assets ratio) at 8 per cent, and also to increase its holding in them to 58 per cent.