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

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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
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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.