Banks try to clean books through settlements, NPA sales

Source:BS:Abhijit Lele / Mumbai March 17, 2010, 0:41 IST

With the financial year coming to a close,

commercial banks have hastened work on 

sprucing the health of balance sheets.


Many banks have floated one-time settlement (OTS)
schemes for small and medium enterprises and tring to
sell non-performing assets (NPAs).

State Bank of India, Corporation Bank, Karnataka Bank

and Karur Vysya Bank have already floated an OTS each. 

Many others are in the process of doing so.

TURNING BAD
Rs Crore	Gross Non  Performing  Assets	Net Non Performing  Assets
Dec ‘08	55280.37	24550.19
Mar ‘09	59368.59	27107.51
Jun ‘09	61626.83	28065.95
Sep ‘09	65537.51	29337.79
Dec ‘09	70781.35	33166.27
Common Sample for 39 Listed bank (standalone results)                                                                     Source Capitaline

Bankers said while such efforts (OTS and NPA sale) are
regular activity, the financial crisis and the recent regulatory
fiat for increasing the provision coverage ratio are also driving them.

The global financial crisis put a strain on corporate, small enterprises
and retail borrowers, leading to substantial addition to gross NPAs.
Plus, the Reserve Bank of India mandated banks to attain a 70 per
cent loan loss coverage ratio by September 2010.

SBI chairman O P Bhatt said the bank would offer a settlement for
bad loans to provide relief to small firms hit by the financial crisis.
"We have got a large number of units which are stressed...
We are trying to incentivise them with a one-time settlement," Bhatt said.

Karnataka Bank chief executive Jayarama Bhat said his bank
did not intent to sell NPAs, but had floated a one-time settlement
scheme from which it expects to recover substantial amounts.

This would also help to reduce outstanding NPAs.
Its gross NPAs rose to Rs 612.3 crore (4.5 per cent) in
December 2009 from Rs 451.2 crore (3.7 per cent) a year earlier.

Chennai-based Indian Overseas Bank has commenced
sale of NPAs for Rs 954 crore, involving 61 accounts.
Its gross NPAs rose in the 12 months ended December 2009
to Rs 3,218.3 crore as against Rs 1,718.1 crore in December 2008.

IOB executive director Y L Madan said the due diligence by
prospective buyers is through and bank hopes to strike a deal
soon. It would help to manage provision coverage.

Similarly, Federal Bank is in the market for sale of assets of
about Rs 80 crore. Its chairman M Venugopalan said, thebank
was trying to sell some NPAs, “but is not in a hurry.
It wants to get better value for assets put on the block”.
The outstanding gross NPAs of the Kerala-based private
bank stood at Rs 790.7 crore at the end of December 2009,
up from Rs 625.7 crore a year earlier.

A Mumbai-based asset reconstruction company said many
banks were in the market for a sale of NPAs, but there
was a gap between what value banks expect and the price
ARCs are ready to offer. Banks prefer cash deals, since the
payments are immediate, which add to the revenues for the year,
as against securities which could take time to realise gains, based
on resolution of NPAs.

An SBI official said his bank would not 

resort to large-scale sale of bad loans.

Instead, it would do continuous follow-up
with borrowers to ensure better recovery
than the income that could be earned by
offloading bad loans to other parties.

SBI, the country’s largest lender, saw a significant rise in
its gross NPAs to Rs 18,861 crore at the end of
December 2009 from Rs 12,723 crore a year earlier.


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RBI asks banks to give more info on NPAs

Source:Press Trust of India / Mumbai March 16, 2010, 16:07 IST

The Reserve Bank of India (RBI) has asked banks

to provide sector-wise details of their non-performing assets 

(NPAs) and exposures in the balance sheets from this fiscal.


The banks have also been asked to furnish details of any 
special purpose vehicles (SPVs) sponsored by the banks.

According to analysts, the move would bring in more
transparency in the banks' operations.

"It has been decided to prescribe the following additional
disclosures in the 'notes to accounts' in the banks' balance
sheets...(like) concentration of deposits, advances, exposures
  and NPAs, sector-wise NPAs, overseas assets, NPAs
and revenue, off-balance sheet SPVs sponsored by banks,"
the RBI said in an statement.

Banks would have to follow the format from the year ending
March 31, 2010, the RBI said.

Japanese partner drags Prithvi Info to Debt Recovery Tribunal, Bangalore

 Source: K V Ramana / DNA
Wednesday, March 10, 2010 2:22 IST


Hyderabad: Even as Satyam Computer Services struggles
to overcome the accounting scam,  
another Hyderabad-based information technology 
company has landed in a controversy over a supply contract.

IT and telecom services player Prithvi Information Solutions
is facing charges of criminal breach of trust and cheating from its Japanese supplier Sojitz.

The case pertains to a Rs 226 crore tender awarded by BSNL to Prithvi for supply of equipment. In turn, Prithvi roped in Sojitz for supply of the equipment and the two opened an escrow account in Punjab National Bank for receiving payments from BSNL against the supply value.

However, Sojitz has now taken Prithvi to court alleging it unilaterally diverted the money from BSNL to its own account instead of the escrow account.

The case is currently at the hearings stage in a local court in Hyderabad.

Prithvi managing director Satish Kumar confirmed that BSNL had indeed paid Rs 196 crore out of the total consideration and the money was sent into Prithvi’s account and not the escrow account. He, however, denied any wrongdoing.

“Sojitz had given us faulty documents while shipping the equipment. The faulty documents have landed us in the enquiry by the Directorate of Revenue Intelligence (DRI). The documents have also caused us a loss to the tune of Rs 97 crore. So, we had to hold back the money from BSNL,” Kumar said.

While Sojitz argues that there was no scope for ignoring the escrow account, Kumar said, “Owing to the breach of contract by Sojitz initially by not providing correct documents, we also get certain rights to protect our interests. We have used those rights to hold back the money from BSNL without depositing them in the escrow account.”

According to Kumar, DRI had seized the equipment supplied by Sojitz due to faulty documentation including improper way bills. “Even now, about 40% of the equipment supplied to BSNL is with DRI. BSNL, too, is yet to pay us about Rs 30 crore since the equipment is under seizure,” he said.

Prithvi claims that the defects in documentation were pointed out to Sojitz much before the equipment was shipped and delivered to BSNL. Oddly, however, Prithvi allowed the equipment to land on Indian shores despite noticing the discrepancy.

Sojitz was the first to seek a legal remedy for Prithvi’s action. It has approached the London Court of International Arbitration apart from taking it to a local court in Hyderabad.

“We are not keen on litigating it. We still hope to settle it through arbitration. But, we never cheated Sojitz and it was the non-performance of contract by Sojitz, which had created problems for us,” Kumar said.

The company has so far changed auditors thrice. “We had E&Y for 2007-08. PWC was brought in for 2008-09 since they are good at auditing IT companies. But, PWC was caught in other issues and we had to bring in Walker Chandiok. This firm wanted more time to audit the books and we did not have that much time. So, they resigned. There is no point in talking about the reasons. There is no problem with our accounts,” Kumar said.

Earlier, Deutsche Bank too had filed a case against Prithvi over a Rs 30 crore claim slapped by it on the bank through factoring of certain receivables. The bank proceeded against Prithvi after finding the receivables unrecoverable. The case is now in the Debt Recovery Tribunal, Bangalore.

“The bank failed in recovering the money. We had given the receivables to the bank for a discount and it is the bank’s responsibility to recover it,” Kumar said.

Prithvi had raised about Rs 135 crore through an IPO in 2005 for setting up an overseas development centre (ODC), among other things. However, the company is set to drop the ODC plan to prepare a plan for moving into an SEZ to offset the impact of sunset on the STPI Scheme.

Also, in 2007, the company had raised $50 million through an FCCB issue from Lehman to pursue acquisitions. Though it has spent about $14 million on acquisitions so far, the remaining funds are lying with the company.

“Now there is a liquidator taking care of Lehman affairs. We are talking to them to see if we can change the objectives of the funds raised and use the funds for other purposes also,” Kumar said.
The company is again working on a plan to raise funds through a rights issue. It has sought approval for an enabling resolution to mop up about Rs 250 crore.

UBI in talks with ARCs to sell-off bad loans

Source: Business Line/PTI
18th March,2010
 

MUMBAI: United Bank of India is negotiating with a clutch of 

asset reconstruction companies to sell a part of its bad loans

with a view to clean up its loan book, a top bank official said.

The Kolkata—based bank plans to sell off Rs 100—crore of its bad loans by end—March and has already sold Rs 200—crore worth bad assets so far in this fiscal, United Bank of India, Executive Director, Mr T M Bhasin said.

“We have received bids from ARCs to sell our bad assets. We are presently evaluating these bids and expect to sell Rs 100 crore worth bad loans by the end of this month,” Mr Bhasin told reporters here at the bank’s listing ceremony.

The decision to sell off its bad loans is part of restructuring its advance portfolio and also reduce the non performing assets burden, Mr Bhasin said, without detailing further on which segments have generated the bad loans most.

Presently, UBI has a gross NPA level of 2.4 per cent, while its net NPAs stands at 1.21 per cent. This is slightly higher as compared to many of its peer players.

United Bank currently has a loan book of Rs 43,000 crore, while its total deposit—base stands at around Rs 67,000 crore.

'Banks convert forex losses into term loans'

 Source:Partha Sinha, TNN, Mar 12, 2010, 12.20am IST

MUMBAI: A few leading banks, including some from

the public sector, have been converting losses arising 

out of exposure to foreign exchange derivatives contracts

into term loans for companies which had earlier entered into 

such contracts. In some cases, company officials from the

textiles hub of Tirupur in Tamil Nadu alleged, banks had even 

armtwisted these companies into converting such losses into 

loans despite an order from the banking regulator Reserve Bank of India (RBI).

A few months ago, in affidavits filed in relation to
a public interest litigation (PIL) in the Orissa High Court,
RBI as well as the Central Bureau of Investigation (CBI)
had accepted that several of those forex derivatives contracts
had violated foreign currency rules, including Foreign Exchange
Management Act (FEMA). In some cases, the banks have
also gone to debt recovery tribunals (DRTs) against companies
which had losses from these controversial contracts, alleged
officials of exporters which had signed such contracts.

Speaking to TOI, Raja Shanmugham, president,
Forex Derivatives Consumers' Forum said that in
Tirupur alone losses worth about Rs 132 crore have
already been converted into long-term loans.

These relates to forex derivatives contracts which were
sold to textile manufacturers in 2007 and 2008.
Interestingly, an RBI order of October 29, 2008,
signed by the then chief general manager-in-charge,
Prashant Saran, had barred banks from taking such steps.
The banking regulator had asked such losses to be kept in a separate account.

"Any amount, representing positive mark-to-market value
of the foreign exchange derivative contracts
(other than forward contract and plain vanilla swaps and
options) that were entered into during the period April 2007
to June 2008, which has already crystallised or might crystallise
in future and becomes receivable from the client, should be parked
in a separate account maintained in the name of the client/counterparty,"
the RBI had ordered.

It further added that the money, "even if overdue for a
period of 90 days or more, will not make other
funded facilities provided to the client, NPA on
account of the principle of borrower-wise asset
classification, though such receivable overdue for 90 days
or more shall itself be classified as NPA, as per the extant IRAC
(Income Recognition, Asset Classification and Provisioning) norms.
The classification of all other assets of such clients will, however,
continue to be governed by the extant IRAC norms."

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