Willful defaulters face ban on loans

TNN : TOI :20 Oct 2012

NEW DELHI: The government is asking banks and financial institutions to prevent willful defaulters from floating new ventures for at least six years by choking the flow of funds, especially long-term capital. 

Even auditors of these companies, who are seen to be negligent, could face action with the finance ministry suggesting that lenders lodge complaints with the Institute of Chartered Accountants of India (ICAI), the regulator for the profession. 

The suggestions come at a time when there has been spurt in bad debt of banks with gross NPAsas a percentage of loans rising to 3.5% at the end of June 2012 from 2.6% a year ago. During this period, private sector players, both new and old generation banks, had witnessed a decline in the proportion of gross NPAs. 

Within the public sector fraternity, which accounts for around 70% of the total banking business, Bank of Maharashtra and Dena Bank witnessed a decline in NPAs, but at least five lenders — Central Bank of India, State Bank of Mysore, State Bank of India, Union Bank of India and IDBI Bank — saw an increase of at least one percentage point. For SBI, gross NPAs accounted for over 5% of the loans given by it. Apart from action against willful defaulters, the government has also suggested better monitoring and more stringent recovery.

As NPAs rise, stress on bank assets to stay for 12 months

B S :Neelasri Barman / Mumbai Oct 12, 2012, 00:03 IST

NPA percentage in loans may touch 10% by March 2013, up from 5% in March 2011

The non-performing assets (NPAs) of banks are set to rise. According to a report released by Standard & Poor’s (S&P) yesterday, the percentage of NPAs in total loans is likely to touch 10 per cent by March 2013, a huge jump from five per cent in March 2011.

“We expect NPAs for the banking industry to exceed Rs 5.8 lakh crore by March 31,” said S&P. Due to slow economic growth, banks are yet to see recovery on their assets quality. According to bankers, the NPA cycle will peak due to factors such as drop in the productivity of Indian companies, larger proportion of long-term loans, exposure to sectors which are cyclical in nature and aggressive lending to the agriculture sector.

“Economy has not improved and investments are not picking up. Also, interest rates have not come down to expected levels. Due to these factors, there will not be a significant drop in the current NPA levels. The stress on assets will continue for some more time to come,” said a senior official of a large public sector bank.

SECTORS THAT HAVE BEEN AFFECTED

Power Hotels Electrical products Textiles Building equipment

The stress on assets is expected to continue at least for the next 12 months. “The economy has bottomed out and NPAs will peak out in the next 12-18 months,” said a banker with a private sector bank. He pointed out that the economy has slowed and borrowers are not able to generate enough cash flows to repay the loans.

According to a Fitch Ratings report released on Monday, Indian banks will face sustained asset quality weakness over the next few quarters, although most banks have a reasonable buffer to withstand increased stress. Fitch expects the banking system’s gross NPA ratio to reach 4.2 per cent by March 2013, up from its earlier estimate of 3.75 per cent.

Emkay Global Financial Services expects gross NPAs growth to average around 40 per cent in the next two years, compared to the 30 per cent seen during FY09-FY12. “Effectively, we do not rule out gross NPA ratio rising from the 3.1 per cent in FY12 to 4-6.5 per cent in the next 12-24 months,” Dhananjay Sinha and Kashyap Jhaveri of Emkay Global Financial Services said in a report last month.

According to Sinha and Jhaveri, sustenance of high commodity prices, further weakening in fiscal conditions and extension of regulatory concession will stretch the NPA cycle, while tighter regulatory framework, correction in global commodity prices and aggressive fiscal consolidation will shorten the cycle.

However, the impact of economic slowdown is not witnessed in consumer loans, due to which even banks are in the process of growing their retail portfolios. “Banks’ consumer loans continue to perform well because a slowdown in economic growth hasn’t lowered India’s employment rate yet. Wages are also still rising, although inflation remains high,” said S&P.
Data released by the Reserve Bank of India (RBI) earlier this month showed that NPAs in the banking system were the highest in the past five years. Net NPAs rose sharply to 1.28 per cent in 2011-12 from 0.97 per cent a year ago.

However, there are a few bankers who are of the view that the incremental NPAs will be lower. “I am not saying that NPAs will come down. But the incremental NPA formation in the quarters going forward will be lesser than the June quarter for our bank,” said RK Bansal, executive director, IDBI Bank.

Is publishing photos of home loan defaulters correct?

Moneylife :VINOD KOTHARI | 15/10/2012 06:54 PM |


Some lenders are publishing photos of home loan defaulters, that too when the home is mortgaged with them and the borrower is reported to credit bureaus which ensures that he or she would not get funding from any legal sources

Several banks are publishing photos of borrowers who have defaulted. Every day there are advertisements by banks to dispose off properties of people who have taken a loan and could not repay in time. While banks have been publishing photos of corporate borrowers, who had defaulted, several lenders have now started publishing photos of home loan defaulters as well. There is a difference between a borrower who had taken loan for buying a home and other borrowers who got a loan for business purpose.

The question is—is it morally right on the part of the banks to publish photos of home loan defaulters. The recovery is being undertaken under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI Act). This Act was enacted presumably on the lines of the Article 9 of US Uniform Commercial Code (UCC). The Act is, actually, nowhere even close to that Code. In fact, UCC deals with personal property and not real estate, and therefore, home loans are not at all covered by US UCC Article 9. The Act was recommended before the Parliament as one which would help reduce the burden of bank NPAs (non-performing assets). The picture one got was those so-called ‘wilful’ defaulters who habitually over-borrow from banks, siphon off the money, possibly even before the loan repayment starts, and enjoy life at the cost of banks. In other words, the objective was to be stern against promoters of companies that go sick while promoters enjoy the pink of their own health. Little did the parliamentarians who passed the law realise that the law will be used, as it is being done, vehemently to drag home loan borrowers out of their homes. 
 
No one contends that a borrower should be allowed to go scot free after having borrowed money from a bank or housing finance company, even if it was purchase of a residential house. But is a default of a home loan a case of wilful default that was in the minds of the lawmakers when the SARFAESI Act was enacted? Is it difficult to envisage that there may be zillion reasons for which a borrower may be forced to default on loan EMIs (equated monthly instalments)? Once again, financial discipline is important, and it is a settled fact that home borrowers who are unable to pay their EMIs have to suffer foreclosure at some stage. There are hundreds of thousands of such homes under foreclosure action in the US today, and therefore, no one should shed tears if borrowers have to face a mortgage foreclosure on account of default of a home loan.

But then, the SARFAESI Act puts a non-judicial route to mortgage foreclosures. The way the section is worded, a home borrower will first have to lose the roof over his head before he can run to his lawyer to take an action in a DRT (debt recovery tribunal). One just needs to take a practical stock of the situation—a person having a salary income of Rs30,000 per month takes a loan that has an EMI of Rs10,000 per month. The ratio works perfectly fine since a debt to income ratio of 33% is one of the best a lender can expect. Also, given that a household can easily manage living costs within a range of Rs10-Rs15k per month, there is sufficient scope for the individual to pay his home loan without default. Now, say, he loses his job. It obviously will take a few months before he can get a replacement job, particularly in a market as the present one. So, three EMIs missing, and the bank classifies the loan as a NPA. The bank sends a loan recall notice, demanding not just three EMIs, but the whole of the loan. And in the meantime, the bank starts adding penal interest, which is much higher than the loan interest rate.
The issue is, where does the individual, out of job and facing his own worries in life trying to find a new job, get the money from, to pay the bank? Not just the EMIs, but the lethal penal interest rate too. So, as would always happen—debt begets debt. He would possibly run to a usurious lender, and borrow at excessive interests to pay the bank off, but sooner or later, will get into a default at both the places.

Here comes the bank with a SARFSAESI notice—pay off the entire loan, along with penal interest and all other charges within 60 days, or face repossession.

The tragedy is that the individual can run to no one for rescue. He would often run with a pleading face to the branch manager, but the manager would say—the matter is out of control now.

Now think of remedies available. Is it unlikely that the borrower may have questioned the very claim of the bank? Is it unlikely that the bank might have added wrongful costs or charges which the individual may be disputing? Thanks to the Supreme Court ruling in Mardia Chemicals, the law gives the borrower a right of representation, but the right of representation is a mere lip-service, as the representation goes to the very bank or bank manager with whom the borrower has an issue. The law does not even require the borrower’s grievance to be handled by a senior office which can examine the matter dispassionately. Invariably, if at all the borrower makes a representation the answer from the bank is going to be mechanical—turning down the representation with a stereotyped rebuttal of whatever the borrower might have said.

So, can the borrower approach his lawyer and seek a redressal? Unfortunately, as the law seems to say, the borrower must first allow the bank to take action (read, take away the borrower’s house) and go for redressal before a DRT. DRT action may stretch for months together. To add to the injury, the DRT may also pass an order for pre-deposit of a large part of the amount demanded by the bank before the application can proceed. The irony is—if the borrower had the money to pre-deposit, why would he let the loan default anyways? But law is merciless, regardless, and concern-less.

Banks are also publishing photos of corporate loan defaulters. Almost every day you would find ads with names and photos of small time firms, traders, owners of SMEs and so on.



Banks are adding insult to the injury by publishing the borrowers’ photographs in the newspapers. This is simply outrageous. The matter was discussed in a Madras High Court ruling where the high court affirmed of the practice, but the issue was mainly on the grounds of borrowers’ privacy rights, bank secrecy laws, and so on. Our courts have still not got rid of the mindset that when a borrower defaults, he is not necessarily defaulting because he is not wanting to pay, but because he is unable to pay. Also, over the decades of the way the banking system has worked, courts are simply unable to appreciate the miseries of the retail borrower failing to pay a consumer loan. Therefore, it is a little surprise that the Madras High Court judge said: “If borrowers could find newer and newer methods to avoid repayment of the loans, the banks are also entitled to invent novel methods to recover their dues.” This indicates that the publication of the photo of the borrower is also a recovery device, whereas, it was not pointed out before the court that the photo is published only after the recovery action has been taken.

Repossession action having been taken, the question is—why would a bank at all want to do a further damage to the borrower by publishing his photograph too? Surely enough, it is not the photo of an India’s most-wanted terrorist to caution the public. If the idea is to caution other lenders, that is taken care of by credit information bureaus like CIBIL or Experian as the financial system is anyway entitled to their database. In any case, other lenders don’t lend by looking at the photo of the borrower. One would understand if default of a loan was a criminal offence, but first, a loan default is a civil wrong and not a criminal wrong, second, no one could hold a person liable of having done a crime other than a criminal court, let alone a commercial bank, and third, even in criminal wrongs, for the most heinous crimes, courts do not go all out to publish photographs.

Irrespective of legality involved in such publication, what is happening currently is outright wrong. Our brethren who have fallen victims of bad times and are anyway deprived of the roof over their head are being further driven into ignominy by putting their photographs in the newspapers. This is so very cruel, so very inhuman, at least in case of residential mortgage loans. The Reserve Bank of India and the National Housing Bank should put an end to this practice immediately.

"சத்யம்' ராமலிங்க ராஜூவின் ரூ. 822 கோடி சொத்து முடக்கம்

• 

By dn, ஹைதராபாத்/புது தில்லி ;

 19 October 2012 12:13 AM IST

சத்யம் கம்ப்யூட்டர்ஸ் நிறுவன முன்னாள் தலைவர் பி. ராமலிங்க ராஜுவுக்குச் சொந்தமான ரூ. 822 கோடி சொத்துகளை அமலாக்கத்துறை முடக்கியுள்ளது.

நிதி நெருக்கடியில் சிக்கி திவாலாகும் நிலைக்கு சத்யம் கம்ப்யூட்டரைக் கொண்டு சென்றவர் ராமலிங்க ராஜு. பின்னர் இந்நிறுவனத்தை அரசு ஏற்று அதிலுள்ள முறைகேடுகள் ஆராயப்பட்டன.

பின்னர் அந்நிறுவனத்தை மஹிந்திரா நிறுவனம் கையகப்படுத்தி நடத்தி வருகிறது.

இந்நிறுவனத்தில் நிகழ்ந்த முறைகேடு தொடர்பாக அதன் முன்னாள் தலைவர் ராமலிங்க ராஜு மீது அன்னியச் செலாவணி மோசடி வழக்கு நடைபெற்று வருகிறது. ஆந்திர வங்கி, பாங்க் ஆப் பரோடா, ஐடிபிஐ மற்றும் ஐஎன்ஜி வைஸ்யா ஆகிய வங்கிகளில் இவருக்குள்ள கணக்குகள் முடக்கப்பட்டன.

 சத்யம் கம்ப்யூட்டர்ஸ் அண்ட் சர்வீசஸ் லிமிடெட் (எஸ்சிஎஸ்எல்) நிறுவனத்தின் சொத்துகளும் முடக்கப்பட்டன.

இந்நிறுவனத்தின் பங்குகளை வேண்டுமென்றே உயர்த்தி முறைகேடு செய்ததாக இவர் மீது வழக்குப் பதிவு செய்யப்பட்டுள்ளது. இதன் மூலம் ராஜுவும் அவரது குடும்ப உறுப்பினர்களும் முதலீட்டாளர்களுக்கு நிறுவனத்தின் நிதி நிலைமை குறித்துத் தவறான தகவல்களை அளித்து கொள்ளையடித்துள்ளதாக அமலாக்கப் பிரிவு தெரிவித்துள்ளது. 

இப்போது முடக்கப்பட்ட சொத்துகளின் பலன்களை ராஜுவோ அவரது குடும்ப உறுப்பினர்கள் எவரும் அனுபவிக்க முடியாது.

இது தொடர்பான வழக்கின் தீர்ப்புக்குப் பிறகே இத்தொகையை அவர்கள் பயன்படுத்த முடியும். இந்த வழக்கை சிபிஐ ஏற்கெனவே விசாரித்து வருகிறது. சிபிஐ அளித்த முதல் தகவல் அறிக்கையின் அடிப்படையில் அமலாக்கப் பிரிவு வழக்குப் பதிவு செய்துள்ளது. ஏற்கெனவே இந்த வழக்கு தொடர்பாக 354 சொத்துகளை அமலாக்கத் துறை முடக்கியுள்ளது. அவற்றின் மதிப்பு ரூ. 250 கோடியாகும்.

HC objects to goondaism to recover loans

 B L :PTI : Madurai :19 oct 2012

Madras High Court on Friday observed that finance firms giving loans for vehicle purchases should follow legal procedure for recovery of the dues and not resort to goondaism in seizing the vehicle.

“If a debtor fails to pay the monthly instalments for one or two months, there is a procedure. The firms should follow that procedure,” Justice N Kirubakaran said.

He was admitting a petition by one Kannan who submitted that he had taken Rs.20,000 loan from a finance firm here for purchasing a two-wheeler which had to be repaid in 24 instalments of Rs.1,224 each.

Due to “unforeseen” developments in his family, he could not pay the instalments for July and August 2012.

On August 23, when he was on way to his office, five persons (goondas), assaulted him and took away the vehicle.

He lodged a complaint with Police but they did not take any action. He had also petitioned the Police Commissioner.

However, no action was taken against the goondas who assaulted him, he submitted and prayed to the court to direct the police to take action against the finance firm and the goondas.

Petitioner’s counsel Pandian said if a borrower did not pay three instalments continuously, he should be informed and a case be filed in court, which alone could order for the seizure of the vehicle.

DGCA suspends Kingfisher’s flying licence

PTI:NEW DELHI, OCTOBER 19:2012

 

Aviation regulator DGCA today suspended the flying licence of the beleaguered Kingfisher Airlines for failing to come up with a viable plan for its financial and operational revival and resolve the impasse with its employees over payment of their salary dues.

The Directorate-General of Civil Aviation (DGCA) has suspended the Scheduled Operator Permit of Kingfisher Airlines till further orders, Civil Aviation Ministry officials said.

Suspension of the flying licence implies an immediate halt to all bookings on the entire Kingfisher network as well as through travel agents, the officials said.

The liquor baron Vijay Mallya-owned carrier has been saddled with a loss of Rs 8,000 crore and a debt burden of another over Rs 7,524 crore, a large part of which it has not serviced since January. The airline currently has only 10 operational aircraft compared to 66 a year ago.

Asked why the licence was suspended, the officials said the Government did not want a situation where the airline, which was on cash-and-carry mode for almost all service providers, re-starts operations and then keeps flying in fits and starts, as has been happening since the last year-end.

The airline, under a lockout since October 1 and resultant suspension of entire operations, had yesterday sought more time to respond to the DGCA’s showcause notice but did not give any timeline by which it would do so.

The DGCA had issued the show-cause notice on October 5 to the crisis-ridden carrier asking why its flying licence should not be suspended or cancelled as it was not adhering to its flight schedule and “abruptly cancelling its flights time and again during the last 10 months,” causing great inconvenience to the travelling public.

The aviation regulator had given the airline 15 days to respond, the deadline for which expired today

Single-name concentrations and infrastructure loans have weakened Indian banks' credit profile: Study

18 OCT, 2012, 10.35PM IST, PREETI KULKARNI,ET BUREAU 

MUMBAI: The credit profile of a few Indian banks has weakened due to high single-name concentrations and stress in infrastructure loans, a study conducted by India Ratings, a Fitch group company, has found. "By mid-2012, infrastructure loans at 14.5% had replaced residential mortgage and agriculture as the single largest sector exposure of Indian banks. Together with growing corporate exposure, the resulting single-name concentration in the Indian banking system is now significant enough to generate spikes in stressed assets," the report said. 

As corporate performance is affected by the weakening economic scenario, profitability and interest cover have only slightly improved since the days of the 2008 economic crisis. "A continued slowdown in demand means that corporate performance may continue to suffer till early-2013, putting further cyclical pressure on banks' asset quality," the study said. 

According to India Ratings, the resultant asset quality pressures are reflected in the rise in restructured loans, which, at an estimated 6% of loans by March 2013 (restructured in 2011 and 2012), is already 1.4 times the amount of restructured loans in the aftermath of the 2008 crisis. 

"Regulatory forbearance of restructured loans means that most of this pressure is not reflected in the reported credit cost. The government's ownership of some of the weak borrowers and viability of infrastructure projects in India help mitigate the ultimate loss expectations on some of these loans," it pointed out. 

However, the study has also found that Indian banks can 'absorb stressed credit costs through profits and general loan loss reserves, leaving common equity largely unimpaired'. "Only five out of the 22 banks studied show capital impairment above 10%, with the highest reduction under stress being 36% of existing common equity. The stressed common equity Tier 1 (CET 1) ratios of 20 banks remain above 6% and only one bank (government-owned) is below the regulatory minimum of 4.5%," it noted.