Corp Bank defaulters find their photos on hoardings

Source :Mayur Shetty, TNN | Apr 30, 2011, 05.40am IST

The Corporation Bank has decided to name and shame defaulters publicly to build pressure and make them repay loans. While some banks put out notices and advertisements naming defaulters in newspapers, the Mangalore-based bank has taken it a step ahead by putting up their photographs on hoardings.

"We put up the photographs of willful defaulters in our branches and on hoardings. 

We are not doing anything illegal because at the time of disbursement of loan, we obtain the photographs of borrowers and an authorization which allows us to take action if there is a default," said Ramnath Pradeep, chairman, Corporation Bank. 

According to Pradeep, publishing the photographs has helped improve loan recoveries. Reduction in bad loans through recovery and upgrade has improved to Rs 627 crore in 2010-11 from Rs 320 crore last year.

According to Pradeep, one woman who had a loan account in Delhi called him up and threatened to commit suicide if her photographs were not removed from a hoarding. "She did not commit suicide, but she did repay her loan," he said.

Bus this recourse is only possible when the borrower is an individual.

 The bank publishes the borrower's photographs ostensibly to announce to the general public that the bank is attaching his or her assets and people not to deal with him/her in any way. "We give them enough notice and enough opportunities to start repaying. It is only when we are set to take action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act that we publish photos," said H M A Khan, general manager, Corporation Bank.

In case of companies, since the borrower is a corporate entity it is not possible to publish individual photographs.

 However, the bank does send the names to a database of willful defaulters, which is published by the Credit Information Bureau of India.

Identifying willful defaulters is tricky business. 

Although RBI has come out with some guidelines, it broadly defines someone who is able to repay his loan but chooses not to. In terms of RBI's definition, it also includes those who have raised loans on false pretences or diverted funds.

Many years ago, officials of another south-based lender, Vijaya Bank, took to the streets to demonstrate outside the office of willful defaulters

 RBI has since strengthened the hands of lenders by helping to introduce new legislation that allowed them to attach the property of borrowers and sell them.

Banking: Easier provisioning

Source :BS :Malini Bhupta / Mumbai April 26, 2011, 0:07 IST
Banks will benefit from the changed norms as credit costs will come down.


The Reserve Bank of India (RBI) unexpectedly relaxed the provisioning norms for non-performing loans (NPLs) last week.


Unlike the past, banks will now have to maintain a provisioning coverage ratio (PCR) of 70 per cent for gross NPLs as on September 30, 2010, after which they would be free to make provisions for incremental NPL formation, in accordance with their internal policies.


Definition of NPLs differs from bank to bank, depending on the NPL’s age. Effectively, this means that every quarter, banks would no longer have to provide Rs 70 for every Rs 100 in bad loans. This will enhance profitability, particularly of PSU banks.




The central bank has eased the 70 per cent NPL coverage norm it had introduced as a macro-prudential measure in December 2009. This requirement will no longer apply to NPLs built up after September 2010. The central bank had asked banks to maintain a PCR of 70 per cent (including technical write-offs in total provisions). 


Religare considers this a positive development for banks, as it would lead to lower credit costs on incremental NPLs. State Bank of India would probably be the biggest beneficiary, as analysts believe the bank was struggling to meet the enhanced requirements. Over the next five quarters, SBI’s provisioning expense will be lower by Rs 2000-2500 crore.


However, banks will not be able to reverse the excess floating provisioning they have already made. Indian banks had increased their internal provisioning requirement or, had made a floating provision, to meet the 70 per cent PCR requirement. 


Surplus provisions (floating provisions for advances not used as tier II capital) provided against the prudential norms adopted by banks so far, would now have to be segregated into an separate account named as ‘countercyclical provisioning buffer’. 


This buffer could be used by banks for making specific provisions for NPAs during periods of a system-wide downturn, with prior approval of the RBI. We believe this could lead to smoothening of earnings for Indian banks.


Credit Suisse says that while private banks have historically maintained coverage well above regulatory norms, PSU ones are now unlikely to follow through on their plans of raising coverage levels to 80-85 per cent. Consequently, the brokerage has upgraded PSU banks earnings by 6-14 per cent for FY12, and 2-9 per cent for FY13. However, no re-rating of the banking sector is likely just yet.