Fix NPAs, Pranab tells banks

 

PTIFinance Minister Pranab Mukherjee with Bank of India CMD Alok K Misra and Bruno Guilloton, shareholder representative for AXA Investment Managers, at a function in New Delhi on Monday.

PTI : May 29,2012

Several companies are opting for corporate debt restructuring

Concerned over rising bad loans, Finance Minister Pranab Mukherjee, on Monday, asked banks to take steps to manage their non-performing assets (NPAs), which have grown on account of economic downturn.

“NPAs have grown at an uncomfortable and unacceptable rate in the past couple of years. The RBI has recently advised the selected banks to take necessary steps for appropriate NPA management. I hope the banks concerned will act on the advice of the RBI,” he said.

The banks, he added, “have to tread cautiously in the risks confronting the banking sector, especially the risks arising out of the asset quality, market volatility and the global downturn.''

The Minister talked about rising bad loans of the banking sector at a function to launch the 4001st branch of the Bank of India (BoI). Mr. Mukherjee inaugurated the branch at Manipur by pressing a button from here.

NPAs of public sector banks stood at about 3.3 per cent of the assets in 2011-12 as against 2.3 per cent a year ago.

Several companies are opting for corporate debt restructuring (CDR) to tide over the difficult financial situation in the backdrop of slowdown.

Later talking to reporters, Financial Services Secretary D. K. Mittal said that while NPAs were a concern, there was ‘nothing to panic'.

“NPAs is not something which means that assets are lost. It only means that these asset is not able to pay me for 90 days,” he said adding that recovery by banks in the last quarter of 2011-12 was highest ever.

When asked about segments where there were maximum bad loans, Mr. Mittal said 7-8 sectors, including power and distribution companies (discoms), civil aviation and textiles were under large stress.

He said real estate lending by the banking sector had been restricted for quite sometime. “So the real estate sector is managing its resources by not borrowing from the banking sector, but outside the banking sector,” he added.

The Secretary emphasised that the Indian banking system was much more robust than in Europe.

“To say that the Indian banking sector is at a difficult stage is not fair. It is much sounder than what is there in the European banking system,” he said.

He further said the NPAs were generated in the banking system and there was no scope for ‘window dressing'.

“NPA is across the board and we are trying to manage it, but nothing to panic.''

While addressing the function, the Finance Minister, said net NPAs of Bank of Indai had increased from Rs.1,945 crore (0.91 per cent) in March, 2011, to Rs.3,656 crore (1.47 per cent) in March, 2012.

However, neither Mr. Mukherjee nor Mr. Mittal named the banks which had been advised by the RBI on the NPAs.

ich had been advised by the RBI on the NPAs.

Banks step up loan recovery by auctioning mortgaged property

BL: Naga sridhar :4 june 2012

Sarfaesi Act is now being called into play even for dues as low as Rs 1.5 lakh

Think twice before defaulting on your home/property loan. You might simply lose your asset.

Unlike earlier, banks are now increasingly resorting to the use of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi) 2002 to recover their dues.

MORTGAGING PROPERTY

The Act empowers banks and financial institutions to auction mortgaged residential/commercial property when borrowers fail to repay their loans.

The Act, which was enacted when the economy (including banking) was booming, has been rarely used to recover smaller dues; it can be applied to any loans/dues over Rs 1 lakh.

But now one can find many possession notices in banks/newspaper even for dues as low as Rs 1.5-2 lakh.

“This is because of the worrisome increase in the non-performing assets and the Reserve Bank of India's constant goading to keep NPAs under manageable limit,” a top official of Canara Bank said. According to Mr B. A. Prabhakar, Chairman and Managing Director, Andhra Bank, the Sarfaesi Act has proved to be a “very effective instrument” for recovery.

“A substantial amount of dues have been recovered using this Act in the recent past,” he said.

POSITIVE RESPONSE

Mr Krishna Kumar, Managing Director, State Bank of India, told Business Linehere recently that use of the Act was also prompting the customers to go all out to pay the dues.

“Some customers, though few, respond to possession and auction notices triggering some settlements and restructuring,” he said.

Mr Shiv Kumar, Managing Director, State of Bikaner and Jaipur, said deployment of the Sarfaesi Act was one of the last but effective recovery tools for banks.

“But one should ensure proper repayment in home/property loans while remembering that a bank is also under obligation to recover the dues,” he said.

NPAs set to increase at SBI

BS Reporter / Mumbai Jun 01, 2012, 15:05 IST Bank not likely to gain from large recoveries and upgrades seen in March 2012 quarter

Non-performing loans for SBI are expected to increase going forward as the bank will not have the benefit of large recoveries and upgrades it witnessed in the March 2012 quarter. SBI management, while speaking at the Citi India Investor conference said that it is looking at asset quality improving in FY13.

On slippages the management is confident of containing it at the March 2012 quarter level. Its restructuring pipeline is around Rs 3500-4000 crore which will be undertaken over the next two quarters.

SBI managements said that it maintains its loan growth rate at 15-16% in FY13 and expects deposit rates to grow at the same rate. Slowdown is expected in infrastructure loan, which will be compensated by an increase in off-take in retail and agriculture loan portfolios.

SBI says that its net interest margins (NIMs) are expected to moderate by 10-15 basis points if interest rates fall relatively sharply, otherwise it would remain stable. Recent capital infusion and cuts in CRR (cash reserve ratio) should support NIMs going ahead.

The bank has assessed its total capital requirement at Rs 98,000 crore (for Basel III) over the next 6 years. In the next three years the requirement will be low and will start kicking in only with the application of the Capital conservation buffer from FY15 onwards.

Its international book is well hedged with nearly 80% of its borrowers having a currency hedge either naturally or explicitly. The remaining are with large corporate where, SBI says, the risks of defaults are much lower. However, growth in lending is expected to slow down as lending rates are expected to remain high.