Problems pile up for banks as bad loans rise sharply

PTI :BT :19 Nov 2012

In a worsening trend of companies failing to meet their financial obligations, the country's domestic banks have witnessed an increase of up to 85 per cent in their bad loans since the beginning of the current fiscal.

The sharp rise in bad loans for the banks comes at a time when the number of corporate debt restructuring (CDR) cases has also grown to record-high levels.

In the first two quarters of the current fiscal 2012-13, the banks referred a record number of 74 CDR cases, involving a total debt amount of Rs 40,000 crore, for restructuring.

At the same time, at least 35 banks have already reported an increase in their gross NPAs (Non-Performing Advances) from the levels recorded at the end of last fiscal, 2011-12, as per an analysis of the latest quarterly results announced by them.

The increase in gross NPAs has been as high as 60 per cent for lenders like PNB, Allahabad Bank and Lakshmi Vilas Bank, while the surge has been even higher for South Indian Bank (86 per cent) in the first half of current fiscal.

A few others like Bank of India, Indian Overseas Bank and Corporation Bank have also seen their bad loans grow by over 50 per cent in this period.

Collectively, these 35 banks have seen their gross NPAs grow by over 28 per cent or over Rs 32,000 crore in the first half of current fiscal, taking their total bad loans to Rs 1.47 lakh crore as on September 30, 2012, as per an analysis of financial results announced by the listed banks for the first two quarters of the current year.

The analysis does not include the foreign banks and unlisted domestic banks, as their figures were not available.

Incidentally, the collective gross NPA of these 35 banks at the end of first half of 2012-13 is higher than the total gross NPA at the end of last fiscal for the entire banking system, including foreign banks and unlisted domestic banks.

As per RBI data, the gross NPA for all the banks together in the country stood at Rs 1.42 lakh crore at March 31, 2012.
The Reserve Bank recently said the banks need to strengthen their due diligence and credit appraisal system along with overall monitoring mechanism to contain the rising bad assets seen in the banking system.

"Banks need to, not only utilise effectively, the various measures put in place by RBI and the government for the resolution and recovery of bad loans, but also have to strengthen their due diligence, credit appraisal and post-sanction loan monitoring systems to minimise and mitigate the problem of increasing NPAs," the RBI said in its report on 'Trend and Progress of Banking in 2011-12'.

Crisis of confidence hits banks, borrowers

BS :Manojit Saha / Mumbai Nov 21, 2012, 00:52 IST


Bankers say capital not an issue corporate lending is dry due to high interest rates and supply bottlenecks

Last month, senior executives of a foreign bank with significant presence in India met clients from key markets abroad to explain the implications of the reforms announced by the Indian government in early September. What they heard from their clients was simple: while there was a consensus that the announcements helped avert possibilities of a sovereign rating downgrade, hardly did anyone believe there was a realistic chance of these being implemented.

“Growth coming back to seven per cent in the next financial year is highly unlikely. At best, we can say, ‘next year may be better than the current one’. But the worst part is a crisis of confidence,” said a banker who attended the meeting. According to bankers, that precisely is the reason why corporate credit growth continues to remain sluggish. The Reserve Bank of India (RBI) has cut its growth projection for the current financial year to 5.7 per cent in October, from 7.3 per cent projected in April. Credit growth forecast has also been lowered to 16 per cent, compared to the 17 per cent projected earlier. The sluggish loan growth comes amid high interest rates and banks’ increasing reluctance to lend to the so-called stressed sectors such as telecom, steel, infrastructure, construction, and textile, among others. These are the sectors that have seen the sharpest rise in non-performing assets (NPAs)

State Bank of India Chairman Pratip Chaudhuri says the pipeline is almost dry in the commercial lending sector, as the growth outlook looks very slow. This is despite the fact that resources available with banks are adequate. “There are plenty of resources available with the SBI, so increasing the loan growth will not be a problem for us. But we want more cuts in the cash reserve ratio so that funds available for lending increases,” says Chaudhuri.

The country’s largest lender backs that argument with facts. Deposit accretion for SBI was robust in the first half of the current financial year. “We are sitting on deposits worth Rs 70,000 crore to Rs 80,000 crore,” he says, adding that loan growth was to the extent of six-seven per cent during April-October. As corporate demand continues to be sluggish, SBI has focused on beefing its retail portfolio by aggressively cutting interest rates.

State Bank of India Chairman Pratip Chaudhuri says the pipeline is almost dry in the commercial lending sector, as the growth outlook looks very slow. This is despite the fact that resources available with banks are adequate. “There are plenty of resources available with the SBI, so increasing the loan growth will not be a problem for us. But we want more cuts in the cash reserve ratio so that funds available for lending increases,” says Chaudhuri.

The country’s largest lender backs that argument with facts. Deposit accretion for SBI was robust in the first half of the current financial year. “We are sitting on deposits worth Rs 70,000 crore to Rs 80,000 crore,” he says, adding that loan growth was to the extent of six-seven per cent during April-October. As corporate demand continues to be sluggish, SBI has focused on beefing its retail portfolio by aggressively cutting interest rates.








































Chiefs of other public sector banks also say the government has indicated that capital will not be an issue for loan growth, and will ensure that banks are well-capitalised.

Bankers also say the asset quality concerns are being overdone. Listen to HDFC Bank managing director and CEO Aditya Puri: “We don’t need any hysteria on NPAs. While it is okay to raise concern on growing NPAs, we must realise that Indian banks are well capitalised, unlike the failed banking system of developed nations. The banking industry is growing year-on-year at the rate of 17-20 per cent, with healthy balance sheets,” Puri said at a banking conclave in Bhubaneswar in September. The overall consensus is that higher interest rates, which have deterred India Inc. from availing loans from banks, are expected to soften from the next financial year. But what is important is easing the supply bottlenecks to facilitate investment, particularly in the infrastructure sector, so that demand comes back.

“Inflation is a key reason for the high interest rate. Credit flow is muted as investments are not happening. While the interest rate will fall as inflation comes down, what is key is speeding up investments in infrastructure sectors like power and roads. The supply side bottleneck needs to be addressed, like fuel linkages in the power sector. Road projects also need speedy environmental clearances. If infrastructure investment is boosted, it will also have a favourable impact on sectors like steel and cement,” says M D Mallya, chairman and managing director of Bank of Baroda.

Latest data shows growth of credit to the infrastructure sector has fallen sharply to five per cent during the first six months of the financial year, compared to 7.3 per cent during the same period of the previous fiscal. On a year-on-year basis, loan growth to core sector has slowed down to 15 per cent from 20.3 per cent. Loan growth to the telecom sector has fallen in consecutive years (till September).

RBI has also noted that increasing risk aversion has hampered the flow of credit and as a result, banks parked their excess funds in government securities. “In contrast with the overall slowdown observed in the major balance sheet items of banks, growth in investments accelerated during 2011-12, compared with the previous year. This trend partly reflected increase in risk aversion by banks, with a growing preference to park funds in safer instruments, against the backdrop of weak macro-economic outlook as well as rising NPAs,” the central bank said.

With non-food credit declining to 16 per cent for the year till September, compared to 18.7 per cent in the previous year, banks have resorted to investing in safer government bonds, reflected in the rise in the statutory liquidity ratio (SLR) of banks. Bankers say that banks are holding excess SLR of six-seven per cent of their net demand and time liabilities against the mandatory requirement of 23 per cent.

Consumer Disputes Redressal Forum :Railways to pay compensation

 Financial Express :AGENCIES: Nov 20, 2012 at 1608 hrs IST

New Delhi: The Indian Railways Catering and Tourism Corporation (IRCTC) has been asked by a consumer forum here to compensate a woman and her son for harassment they underwent because of relegation of their reservation status due to which they could not travel to Mumbai as planned.

The New Delhi District Consumer Disputes Redressal Forum ordered IRCTC to pay them Rs 5,000 and said it was "obvious" that someone else was accommodated ahead of them.

"It is obvious that line was jumped and in place of waiting list 1 and waiting list 2, some other persons were accommodated, leading to him being pushed down. This is certainly unfair treatment to travelling public, who believe in the system of booking introduced by opposite party (IRCTC).

"We hold the IRCTC responsible for this practice leading to harassment and not explaining its position in court. We direct it to pay Rs 5,000 to complainants together, inclusive of litigation charges," the bench headed by forum's President C K Chaturvedi said.

The forum's order came on a complaint by Delhi resident Rakesh Kumar Jain who had booked tickets on the Garib Rath Express for himself and his mother for travelling to Mumbai on January 30, 2010.

Reservation status at the time of booking had showed he had advanced to waiting list (WL) 34 and 35 from WL 117 and 118 and then it had moved up to WL 1 and 2, Jain had said.

At the last minute the status slid down to WL 46 and 47 without any explanation, he had alleged adding his correspondence to IRCTC did not produce any result.