RBI relaxes norms for provisioning of bad loans

Source:23 APR, 2011, 07.17AM IST,ET BUREAU 

The Reserve Bank of India has relaxed norms regarding setting aside money for bad loans - a move which has come as a major relief for all commercial banks. The banking regulator has said banks should maintain 70% of the provision coverage ratio (PCR) of their gross bad loans as on September 2010, but they do not have to maintain 70% of PCR on an ongoing basis. 

PCR is the amount that a bank expects to forgo from a loan if they have to writeoff that loan account. Thus if a Rs 100 loan has turned bad, setting aside 70% as PCR means that the bank has set aside Rs 70 as provision and it expects to recover Rs 30 of the loan. 

RBI has said September 2010 onwards, on incremental NPAs banks would have to set aside money based on the income recognition norms. This ranges from 10% in the initial months when the asset is classified as substandard to 100% when it is classified as a loss asset after a few years. 

Even now, banks follow income recognition norms for making provision on bad loans, however, the provision coverage ratio was over and above it. The central bank has said the surplus of provision under PCR should be segregated into a separate account called 'Countercyclical Provisioning Buffer'. 

The Reserve Bank has said this buffer will be allowed to be used by banks for making specific provisions for NPAs during any downturn in the economy. However, to dip into this, banks will require approval from the regulator. "Balance sheet planning will become easier. If a bank earns windfall profit, say from treasury operations, it can be set aside as a buffer and subsequently used during bad times," said MD Mallya, chairman of the Indian Banks' Association and CMD of Bank of Baroda . 

"Incrementally, it will bring down banks' requirement for making provisions," said Somnath Sengupta, executive director and chief financial officer of Axis Bank. The Reserve Bank of India has said the majority of the banks have achieved 70% of PCR and had represented RBI whether the prescribed PCR is required to be maintained on an on-going basis. 

While most banks already achieved 70% PCR, banks such as the State Bank of India has asked for time till September 2011. Its PCR stood at 64% as on December 2010.

Punjab Meats ordered to pay up Rs 27-cr debt

Source :IE:April,23,2011
 

In a blow to Punjab Meats Limited (PML), a company owned by Dr AS Bindra, the Punjab and Haryana High Court has given it a month’s time to repay a loan of more than Rs 27.25 crore to Assets Reconstruction Company of India Limited (ARCIL).

If the loan is not paid within a month, the High Court has ruled, an appeal filed by PML challenging the orders of Debt Recovery Appellate Tribunal (DRAT) will be deemed to have been dismissed. DRAT had passed an order in favour of ARCIL allowing it to recover the loan. DRAT, last year, had ruled that if the debt is not paid, ARCIL will be at liberty to take possession of PML.

Aggrieved, PML had moved the High Court which had ordered status quo on DRAT directions. The said appeal is pending before a single Bench. On the other hand, ARCIL had filed an appeal against the single bench’s order.

A division bench of the High Court on Friday allowed the appeal filed by ARCIL wherein it sought quashing of status quo granted by the single Bench. With the division Bench allowing an appeal filed by ARCIL, the company will be at liberty to take possession over PML if the industry fails to pay the loan within a month. It might be mentioned here that the High Court, on several occasions, had slammed PML on account of non payment of several crores by the industry despite repeated directions. The Court had asked the company to prove its bonafides.

Banks told to top up bad debt provision buffer at earliest

Source : BL: April 22:2011

The Reserve Bank of India has asked banks to top up at the earliest the buffer provision for bad debts.

Banks were to have achieved a provision coverage ratio (PCR) of 70 per cent of their gross non-performing assets (GNPAs) by September 30, 2010..

Banks that have not achieved this coverage should calculate the required provisions for 70 per cent PCR as on September 30, 2010, and compute the shortfall therefrom, an RBI notification said.

Banks should build up the shortfall in the buffer at the earliest or assess how much more time they would require beyond March 31, 2011, and seek approval from the RBI.

A majority of the banks achieved the PCR of 70 per cent by the September-end 2010 deadline.

But some such as State Bank of India and Bank of Maharashtra were not able to achieve the PCR target by the deadline. The regulator has given them time till September-end 2011.

PRUDENTIAL MEASURE

The RBI has prescribed the PCR as a macro-prudential measure to augment provisioning buffer in a counter-cyclical manner when banks are making good profits.

To banks' representation on whether the prescribed PCR is required to be maintained on an ongoing basis, the RBI said till such time it introduces a more comprehensive methodology of countercyclical provisioning, banks should calculate the PCR with reference to their gross NPA position as on September 30, 2010.

Further, banks have been advised that the surplus of the provision under PCR vis-a-vis as required under prudential norms should be segregated into an account styled “countercyclical provisioning buffer”.

This buffer will be allowed to be used by banks for making specific provisions for NPAs during periods of system-wide downturn, with prior approval, the RBI said in the notification.

stay of the order of DRT-II, Chennai

Source: DRAT ,chennai- 18th april 2011


A. Suganthi & Anr. Vs Karnataka Bank & 8 Ors.


MA 697/2010

The Ld. Counsel for the Appellants drew the attention of this Tribunal to the order of the Tribunal below and stated that a reading of the judgment and decree in OS No. 6310/1981 dated 19.1.1984 on the file of First Additional Judge, City Civil Court at Madras  and a reading of the compromise decree of the Hon’ble High Court of Madras in Appeal Suit No. 614/1984 would amply reveal that the 2080 Sq. ft. of the property was allotted to the share of A.V.K. Velusamy and Shri A.V.K. Velusamy and his six children including the appellants had become entitled to equal rights in the property and that they are all enjoying the property jointly and further that each of the appellants are entitled to 1/6^th of 2080 Sq. ft. of the property which was subject matter of O.S. No. 6310/1981 on the file of 1^st Additional Judge, City Civil Court at Madras. 

The Ld. Counsel stated that Shri A.V.K. Velusamy, the father of the appellants and two brothers of the appellants mortgaged the 2080 Sq. ft. property and their mortgage is improper as they could not have mortgaged the appellants’ share and that any proceeding based on such a mortgage would be illegal.  

The Ld. Counsel stated that the Ld. Recovery Officer notwithstanding the judgment and decree of the Civil Courts has brushed aside the claim of the appellants and that the Ld. Presiding Officer also erroneously dismissed the appeal by ignoring the fact that the competent civil courts have already established the rights of the appellant. 


 He stated that the Ld. Presiding Officer has not considered the pre-existing rights of the appellants and that if the operation of the order of the Ld. 


Presiding Officer is not stayed the appellants would be put to great hardship and suffering and that they will not be able to enjoy the fruits of the decree of the civil courts.  


The Ld. Counsel also prayed for an order of restraint upon the Ld. Recovery Officer from proceeding any further with the Recovery Certificate issued in this case.

The Ld. Counsel appearing on behalf of the respondent bank stated that the mortgage created with the bank has been property created and the application filed before the Ld. Recovery Officer by the appellants has been only filed for the purpose of delaying the recovery proceedings.  

The borrowers had earlier approached this Tribunal and also failed to comply with the conditional order passed by this Tribunal and equally the borrowers have also not abided by the orders of the Hon’ble High Court and stated that the bank has been making its efforts to recover public money and the borrowers have been successfully thwarting the same. 

 He stated that the order of the Ld. Recovery Officer and the Ld. Presiding Officer are proper and correct and prayed that the appeal may be dismissed and added that no orders in the nature of interim orders be granted in this case as the appellants have failed to make out a prima facie case in their favour.

Heard both sides.

In view of the facts and circumstances of the case, more particularly in view of the fact that the appellants became entitled to the property by virtue of orders passed by the civil courts and further in view of the fact that the applicants cannot be prevented from putting forth their case on the question of their ownership of 2/6^th share of the property, this Tribunal is driven to pass the following order: -

“Call this appeal for final hearing on 31.5.2011.  In the meanwhile there shall be stay of the operation of the order of the Ld. Presiding Officer, DRT-II, Chennai dated 18.11.2010 made in Appeal No. 03/2010 and equally there shall be a restraint upon the Ld. Recovery Officer from in any way proceeding any further pursuant to the Recovery Certificate issued in this case till 31.5.2011 in so far as the shares of the appellants are concerned.”

Bad debts of PSU banks hit Rs 30k crore

Source :NEW DELHI:TNN | Apr 15, 2011, 04.31am IST

 The government's agenda for inclusive growth and emphasis on priority sector lending is proving costly for the exchequer, with bad debts of state-run banks increasing to over Rs 30,000 crore till December, 2010. These bad loans — given to agriculture, small-scale enterprises and other priority sectors — are around half of the Rs 68,000 crore non-performing assets (NPAs) of government banks during the same period. 

The agriculture sector leads the pack, accounting for 70% of bad loans. In contrast, only 22% loans went bad in small-scale industries (  SSI) sector during April-December 2010 as against 65% of NPAs in 2009-10. This issue will come up for discussion later this month during a meeting of CEOs of PSU banks with top finance ministry officials, a ministry official said. The assets quality of these banks has also raised concern on efficacy of due diligence on lending. 

The review on credit lending will ascertain if the banks are meeting the 40% mandatory lending to priority sectors on their own, or they have been borrowing such loans from regional rural banks (RRBs) and  micro-finance institutions (MFIs). If larger NPAs are attributed to such borrowings, the government may restrict these options in future. 

In the Budget 2011-12, government enhanced agriculture credit limit to Rs 475,000 crore from Rs 375,000 crore in the previous year. Banks have been asked to step up direct lending for agriculture and credit to small and marginal farmers in a bid to increase farm productivity. But, considering that the banks have pressure from the government to meet the credit target within the financial year, the high-level of NPAs show the kind of compromise is being made on the eligibility criteria.  

A similar problem, which had occurred a few years ago nad impacted banks' credit lending and reserves, had to be compensated by government's recapitalization and reimbursement through a farm loan-waiver scheme. A farm loan-waiver scheme announced in 2008-09 to compensate banks made a dent on the exchequer to the tune of Rs 70,000 crore.  

Besides, the farm loans, PSU banks have consistently been writing off bad debts of more than Rs 10,000 crore every year to reflect a healthy balance sheet. The gross NPAs of all government banks have grown by 30% in 2009-10 to Rs 57,000 crore, and in the first nine months of 2010-11, it went up by more than Rs 10,000 crore to Rs 68,600 crore.