Get cracking on reducing bad loans, FinMin tells govt banks

SHISHIR SINHA : BL :APRIL;2013

Wants NPAs reduced to 1% of total advances by fiscal-end; suggests board-level monitoring of recovery

The Finance Ministry has asked all public sector banks to reduce their bad loans, or non-performing assets, to one per cent of their total advances by the end of the current financial year (March 31, 2014).

A senior Finance Ministry official hoped there will be “significant improvement” in the gross and net NPA position for fiscal 2012-13, which ended on March 31.

Talking especially about the nation’s biggest lender State Bank of India, the official said, it had managed to reduce its NPA by over 1 per cent in March alone.

That still leaves SBI with a fair bit to do to achieve its new NPA target. As of end-December 2012, SBI’s bad loans were at over 6 per cent (gross NPAs) of its advances.

The final figure will emerge when the bank announces its annual financial result for 2012-13.

With the economy registering the lowest growth in a decade, public sector banks have seen their NPAs go up significantly.

According to data collected for a meeting between Finance Ministry and public sector bank officials last month, bad loans with respect to the priority sector, which include agriculture and medium and small enterprises, had gone up during the quarter ended December 31 vis-à-vis the previous quarter.

Interestingly, however, the NPA position in relation to retail and real estate loans improved during the period.

Another highlight is that the top 30 non-performing accounts made up close to half (around 44 per cent) the bad loans of the 19 nationalised banks. While for the SBI group, this was around 19.3 per cent, for public sector banks as a whole they were around 34 per cent.

MULTI-PRONGED PLAN

Banks have been advised to adopt a multi-pronged strategy for loan recovery.

This includes constitution of a board-level committee for monitoring recovery, review of NPA accounts of Rs 1 crore and above by the board of directors, and the top 300 NPA accounts by the management committee of the boards, and guidelines for NPA management as part of an early-warning system.

Apart from restructuring, banks have been advised to initiate penal measures against wilful defaulters.

These include not granting them additional facilities and debarring the entrepreneurs/promoters of defaulting companies from getting institutional finance for floating new ventures for a period of five years.

FORMAL COMPLAINT

Banks have also been asked to lodge a formal complaint against the auditors of the borrowers with the Institute of Chartered Accountants of India, if it is observed that there was negligence or deficiency in the conduct of audit.

Set up cells for bad loans in banks, House panel tells RBI

BL :NEW DELHI, APRIL 23:2013

  

The Standing Committee on Finance has urged the Government and Reserve Bank of India (RBI) to set up a special ‘NPA management cell’ to review write-offs and restructured advances.

This cell – which should be set up at the highest level – should also monitor the pace of recovery of non-performing assets (NPAs), the Parliamentary panel said in a report tabled in the Lok Sabha.

The panel said that the results achieved through these steps may be submitted to it within three months.

In the meantime, the names of all wilful defaulters (companies/directors) should be published appropriately, the Standing Committee has said.

The panel noted that the trend of recovery of NPAs through various channels during 2009-10 to 2011-12 was not satisfactory.

It said there was enough data to debunk the Finance Ministry’s tall claim that the steps taken by the Government and RBI had resulted in year-on-year improvement in recovery of NPAs by public sector banks (PSBs).

The facts available with the panel show that PSBs had failed to arrest rising NPAs, it said and added that this had undoubtedly affected their overall performance and weakened their ability to expand credit to deserving areas/sectors.

End of the road for Kingfisher? Banks to start stripping down airline's assets

Simran Gill, ET Now | 23 Apr, 2013, 03.39PM IST

MUMBAI: The final end game for cash-strapped Kingfisher Airlines has begun. Lenders to the troubled airline will file the case in the debt recovery tribunal (DRT) and serve the SARFAESI notice this week, according to sources close to the development.

Following this, bankers will start the process of actually stripping down the airline's assets and selling them to recover their dues. 

The consortium will now start the process of selling the physical assets of the company which includes the office spaces in Mumbai and a villa in Goa. Banks have already started selling the pledged shares of United Spirit as well as Kingfisher Airlines.

According to sources in the know, banks will also now start invoking the corporate guarantee of UB Holdings as well as the personal guarantee of Vijay Mallya. The value of both these guarantees totals to Rs 3000 crore.

Kingfisher owes the consortium of banks over Rs 7500 crore and the value of the collateral totals to around Rs 6500 crore. Last week, SBchairman Pratip Chaudhuri said that the lenders weren't interested in any revival plan that the airline had to offer. "We have given them enough time. We will not spare any recourse in out recovery efforts," said Mr Chaudhuri.

After NPAs, Indian banks face rising credit card dues

Gayatri Nayak, ET Bureau | 19 Apr, 2013, 04.00AM IST

MUMBAI: Banks saddled with lakhs of crores of bad loans, mainly from corporates, are staring at a new problem on the retail front — rising credit card outstandings.

Significantly, credit card outstandings between December 2012 and February have risen by Rs 700 crore — from Rs 24,800 crore to Rs 25,500 crore. In August 2008, one of the worst years for the credit card industry, the outstandings stood at Rs 29,056 crore.

"I do not see the default rate going up because even if GDP grows by 5%, we do not expect unemployment levels to rise alarmingly," said Muge Yuzuak, country head - cards and personal loans, Citibank India.

"Growth in employment may not be as high as we would like it to be, but the default rate is not expected to be impacted until unemployment becomes an issue. Further, we expect the industry to behave maturely and grow its books responsibly," she said.

Credit card spends have also slowed down amid rising outstandings with banks, reminding one of 2007-08, when credit card delinquencies were at their peak.

Spends have actually dipped from Rs 11,256 crore in December 2012 to Rs 10,222 crore in February, but the industry attributed this to the seasonality in business, when spends tend to peak during December because of the festival demand and discounts at several merchant outlets. Though, spends on an annual basis rose 25% in February, it is still lower than the 32% in the same month a year ago.

Card issuers aren't reading too much into it and are not treating this as a repeat of 2008. Large card issuers, including HDFC Bank, Citi, ICICI Bank, SBI and Axis Bankhave actually expanded their card base over the past two years, though with caution.

Outstanding credit cards in the system have been rising steadily too. In FY13, between April and February, outstanding cards rose by 1.56 million. After having learnt their lessons, issuers say they are much better equipped to manage the quality of their portfolios. The country average in default of cards is approximately 4.3%, according to industry estimates.

"The reason why this market went through stress in 2008 was not just because consumers did not use credit responsibly, but also because the overall credit at the industry level was not robust. This resulted in loans way above the customers' ability to repay. The framework has been strengthened since then," said Yuzuak.

Besides, these days, there's a larger awareness of the credit bureau and the ability to use all the information about the customers' books. "We are focused on our defined customer segments across the wealth spectrum," she said.

"Higher outstanding could be a mix of credit card spends and issuances going up," said KVS Manian, group head— consumer banking, Kotak Mahindra Bank. "Banks build in 4-5% losses in their economics, but losses have been lesser than this in the past two years."

High court refuses to stay litigation against Deccan Chronicle

According to DCHL’s September-quarter results statement, the company had long-term borrowings to the tune ofRs.147.20 crore and short-term borrowings amounting to Rs.3,755.70 crore. Its total liabilities, both current and non-current, stood at Rs.4,207.54 crore.

Live Mint Yogendra Kalavalapalli :Wed, Apr 17 2013. 09 57 PM IST

Court asks the firm to issue notices to all creditors and direct them to file any objections to its petition by 5 June

Hyderabad: The Andhra Pradesh high court on Wednesday refused to stay any litigation pending against the financially troubled publishing firm Deccan Chronicle Holdings Ltd (DCHL).

The court was responding to a petition moved by DCHL for staying all civil and criminal proceedings pending against the company, its directors and officials in various legal forums including high courts and debt recovery tribunals in India and abroad.

Counsel for DCHL Harish Kumar said the company was in the midst of a restructuring exercise and pending agreement on the recast terms, the high court should issue an injunction restricting all legal proceedings against it. 

Twelve lenders represented by their respective advocates objected to DCHL’s petition.

Judge N.R.L. Nageswara Rao asked Deccan Chronicle Holdings to issue notices to all creditors and direct them to file any objections to its petition by 5 June, the next date for the hearing.

The publisher of Deccan Chronicle, Financial Chronicle and Asian Age newspapers and the Telugu dailyAndhra Bhoomi on 22 February informed the bourses that its board of directors had approved a scheme to restructure the entity and arrive at a compromise formula with its lenders to pay off debts amounting to over Rs.3,987.50 crore as of September. Subsequently, the Andhra Pradesh high court asked the company to convene a meeting of its shareholders and seek their approval for breaking up the business.

The company also owns stationery retail chain Odyssey, which has been incurring heavy losses, and lost its Indian Premier League cricket franchise Deccan Chargers last year after the Board of Control for Cricket in India terminated its ownership for failing to furnish a Rs.100 crore bank guarantee.

ICICI Bank Ltd, which has an exposure of about Rs.500 crore to DCHL, challenged the break-up plan in the high court saying the proposed scheme of arrangement should first be approved by market regulator Securities and Exchange Board of India before the court approves it.

Shares of Deccan Chronicle fell 0.63% to Rs.3.17 on a day the Sensex declined 0.07% to 18,731.16 points.

The company has been taken to court and the debt recovery tribunal by IFCI Ltd, Jammu and Kashmir Bank Ltd, Axis Bank Ltd, ICICI Bank, Kotak Mahindra Bank Ltd, Yes Bank Ltd, Tata Capital Ltd, PVP Capital Ltd, National Pension System Trust, and Royal Sundaram Alliance Insurance Co. Ltd seeking to strip the company of its assets.

Besides these institutions, Hong Kong-based newsprint supplier Adonis Ltd and Chennai-based print trader Photon Infotech Pvt. Ltd also moved the Andhra Pradesh high court.

Some of DCHL’s lenders have classified the loans as non-performing assets, and a few have even invoked promoters’ shares pledged as collateral leading to the stakes held by chairman T. Venkattram Reddy, vice-chairman T. Vinayak Ravi Reddy and managing director P.K. Iyer falling from 73.83% as of June 2012 to 32.66% as of March 2013.

According to DCHL’s September-quarter results statement, the company had long-term borrowings to the tune of Rs. 147.20 crore and short-term borrowings amounting to Rs. 3,755.70 crore. Its total liabilities, both current and non-current, stood at Rs. 4,207.54 crore.

HT Media Ltd, publisher of Mint and Hindustan Times, competes with DCHL in some markets.

Big West Bengal deposit-taking firm defaults on repayments

live Mint :Romita Datta  |  Manish Basu Wed, Apr 17 2013. 11 45 PM IST

CMD’s arrest ordered, Saradha Group on verge of collapse; more such firms likely to collapse in same way

Kolkata: The time bomb that has been ticking away in West Bengal may be about to go off.

One of eastern India’s biggest deposit-taking companies—the Saradha Group—is on the verge of collapse. The state administration has ordered the arrest of its chairman and managing director (CMD) Sudipta Sen for defaulting on repayments.

“The honeymoon is over—the chief minister (Mamata Banerjee) wants him arrested,” said a key government official who did not want to be identified. “We are confident that we will be able to nab him in a day or two.”

Sen, who according to the state administration is on the run, could not be contacted for comment.

More are likely to collapse in the same way even before the state promulgates a proposed law to contain the growth of deposit-taking companies, said a finance department official, asking not to be named.

This could happen within days, according to this official.

It isn’t immediately known how much money the Saradha Group owes its depositors. According to some estimates, including those of the state administration, it could run into thousands of crores of rupees.

Pressure on the group’s finances forced it to wind up, over the past few weeks, at least 10 media organizations—newspapers and television channels—that it had launched or acquired since 2010-11.

The closure made at least 1,000 journalists and technicians redundant in Kolkata, making it the biggest layoff in the media industry in eastern India.

Trinamool Congress leaders such as general secretary Mukul Roy and Partha Chatterjee, the state’s minister for commerce and industries, are looking for investors to rescue some of the media organizations that have closed.

The administration swung into action on Wednesday after at least 200 commission agents of the Saradha Group from across the state came en masse to Kolkata to meet Roy.

They asked for the state government’s immediate intervention to recover money from the group, which, according to these agents, started defaulting on repayments last month.

In the event of defaults, agents typically face the ire of depositors because they mobilize money largely on the strength of their own credibility.

The state government assured them that it will take necessary steps to seize all assets of the Saradha Group by the weekend, the agents said after their meeting with Roy. Even so, they fear the state may not be able to recover anything from the 100-odd companies that the group ran.

The group management had already started liquidating assets and there may not be much left on the books of its firms, they said.

Debasish Banerjee, an agent from Sonarpur in Kolkata’s suburbs, said Rs.6 crore was immediately required to repay matured deposits. “Our team leaders are scared of being lynched,” he added.

Another agent, Shaukat Ali from Murshidabad, said agents were initially asked to settle repayment claims on their own from fresh deposits collected by them, “but we soon realized that it was impossible for us to sustain that for a long time”.

Ali, who along with his sub-agents used to collect Rs.60-70 lakh a month until the end of last year, said he and other agents feared they would soon be driven from their homes by the depositors.

“Some agents have already fled their homes,” he said.

Agents from the northern part of West Bengal said the Saradha Group started defaulting on repayments in January. Some cheques bounced because there wasn’t enough money in the group’s bank accounts, they said. These agents refused to be identified.

Some agents managed to get an audience with Sen at his office in Kolkata last week. They were told they would be given power of attorney, or legal authority, to sell land held by the company to repay depositors, said an agent from Dakshin Dinajpur district. He did not want to be identified. It is not known how much land the group owns.

While the agents of the group fear an imminent collapse, this hasn’t stopped several other companies in West Bengal from raising public deposits in the name of fictitious business ventures, selling instruments that are beyond the jurisdiction of India’s securities market and banking regulators.

Most of the older deposit-taking groups were founded in 2007-08, and the instruments they initially sold were mostly of five-year maturity. These deposits are now due for repayment, according to the state finance department official.

Historically, the collapse of a deposit-taking company leaves a trail of ruin and suicide in its wake. The biggest such collapse in West Bengal thus far was that of Sanchayita Investments, a partnership firm that went bust in the early 1980s. A large number of its depositors killed themselves after they failed to recover their savings.

S. 269SS not applies to cash loan taken by Partner from firm

Issue - The assessee had taken the amounts from four firms which were found to be in cash and the Assessing Officer has considered these payments were in violation of Section 269SS of the Act. Stand of assessee is that the amounts were taken in his capacity as partner and it cannot be taken as an independent transaction and there is no violation of Section 269SS of the Act.

Held - Referring to R.M. Chidambaram Pillai (supra); Kum. A.B. Shanti (supra); Lokhpat Film Exchange (Cinema) (supra), Tribunal held that there is no separate identity for the partnership firm and that the partner is entitled to use the funds of the firm and that the assessee acted bonafide and that there was a reasonable cause within the meaning of Section 273B of the Act. We do not find any error or legal infirmity in the order of the Tribunal warranting interference. The substantial question of law raised in this appeal is answered in favour of the assessee and the Tax Case (Appeal) stands dismissed. No costs.

HIGH COURT OF MADRAS

Commissioner of Income-tax
v.
V. Sivakumar

Tax Case (Appeal) No. 279 of 2010
Date of Pronouncement – 11.02.2013

JUDGMENT

Mrs. R. Banumathi, J. – The Revenue has preferred this appeal on the following substantial question of law:-
“Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in deleting the levy of penalty by the Assessing Officer under Section 271D of the Income Tax Act, 1961, even though the advance has been accounted as loan and interest debited?”

2. The assessee was a partner in four firms and Proprietor in Reliance Realtors. In the assessment year 2005-2006, assessee had taken loan from the four firms which were found to be in cash. The Assessing Officer initiated penalty proceedings under Section 271D of Income Tax Act and imposed penalty of Rs. 18 lakhs. The Commissioner of Income Tax (Appeals) dismissed the appeal (ITA.No.68/07-08) and assessee preferred further appeal (ITA.No.142/Mds/08) before the Income Tax Appellate Tribunal. Tribunal remitted the matter to the Assessing Officer to give a definite finding whether the transaction was between the firm and partner. The Assessing Officer passed a fresh order (17.07.2008) that the assessee individual was a partner in four firms from where funds had been advanced to the assessee and imposed a penalty of Rs. 18 lakhs. In the appeal (ITA.No.89/08-09) preferred by the assessee, Commissioner of Income Tax (Appeals) allowed the appeal holding that the transactions between the partner and the firm do not partake the character of a Loan or Deposit and therefore, there is no applicability of the provisions of Section 269SS of the Act. The further appeal (ITA.No.408/Mds/2009) preferred by the Revenue was dismissed by the Tribunal on the finding that the assessee acted bonafide and that there was a reasonable cause within the meaning of Section 273B of the Act.

3. Mr. N.V. Balaji, learned counsel for Revenue submitted that though the assessee is partner of the firms, he has taken loan from the firms by cash in his capacity as Proprietor of Reliance Realtors and the Assessing Officer had recorded factual finding and in view of the consequences of violation of Section 269SS, justified in imposing penalty under Section 271D of the Act. Learned counsel for Revenue endeavoured to distinguish the cases relied upon by the Tribunal and submitted that the Assessing Officer has recorded factual finding that money has been advanced from the firms as loan and the same was debited from the accounts of the proprietary concern which would show that the transactions between the firms and the assessee were not in his capacity as a partner and while so, Commissioner of Income Tax (Appeals) and the Tribunal were not correct in saying that the transactions were between firms and partner and prayed that the substantial question of law be answered in favour of the Revenue.

4. We have heard Mr .M.P. Senthil Kumar, learned counsel appearing for the assessee.

5. The assessee had taken the amounts from four firms which were found to be in cash and the Assessing Officer has considered these payments were in violation of Section 269SS of the Act. Stand of assessee is that the amounts were taken in his capacity as partner and it cannot be taken as an independent transaction and there is no violation of Section 269SS of the Act. The partnership firm has no separate legal entity. There is no separate identification between the firm and the partner. Tribunal relied upon the decision in CIT v. R.M. Chidambaram Pillai [1977] 106 ITR 292 wherein the Hon’ble Supreme Court held that “there cannot be a contract of service in strict law between a firm and one of its partners, so as to consider the salary paid to the partner as income from the salary and held that for the purpose of Sections 269SS and 269T, the firm and partners cannot be considered to be separate entity”. The Hon’ble Supreme Court further held that “payment of salary to a partner represents a special share of the profits and salary paid to a partner retains the same character of the income of the firm” and deleted the penalty.

6. In CIT v. Lokhpat Film Exchange (Cinema) [2008] 304 ITR 172 (Raj), it was held that partnership firm is not a juristic person and for inter relationship different remedies are provided to enforce the rights arising out of their inter se transactions and that the inter se transactions between the partner and firm are not governed by the provisions of Sections 269SS and 269T of the Act.

7. Relying upon the decisions in R.M. Chidambaram Pillai’s case (supra); Asstt. DIT (Investigation) v. Kum. A.B. Shanthi [2002] 255 ITR 258; Lokhpat Film Exchange (Cinema)’s case (supra), Tribunal confirmed the finding of Commissioner of Income Tax (Appeals) that partnership firm is not a juristic person and there is no separate identity for the firm and partners and that the transactions between the firm and the partner cannot be brought within the meaning of Section 269SS of the Act.

8. Apart from the issue about the separate entity, being a partner the assessee had drawn amounts from the firms and there are no reasons to doubt the genuineness of the transactions. This Court in CIT v. Kundrathur Finance & Chit Co. [2006] 283 ITR 329 following the decision of the Hon’ble Supreme Court in. Kum. A.B. Shanthi’s case (supra) held that “if there was genuine and bonafide transaction and the tax payer could not get a loan or deposit by account payee cheque or demand draft for some bonafide reason, the authority vested with the power to impose penalty has a discretion not to levy penalty”.

9. In CIT v. Deccan Designs (India) (P.) Ltd. [2012] 347 ITR 580, loans were taken from sister concern under condition business exigency. Referring to Kundrathur Finance & Chit Co.’s case (supra); CIT v. Balaji Traders [2008] 303 ITR 312 (Mad) and CIT v. Ratna Agencies [2006] 284 ITR 609 (Mad.), the Division Bench of this Court dismissed the appeal holding that “there were enough reasons offered by the assessee to justify the cash transactions which it made with its sister concern” and that consequences of violation of Section 269SS is not attracted.

10. In CIT v.. Lakshmi Trust Co. [2008] 303 ITR 99, the Division Bench of this Court held that “if there were genuine and bonafide transactions and the tax payer could not get a Loan or Deposit by account payee cheque or demand draft for some bonafide reason, the authority vested with the power to impose penalty has a discretion not to levy penalty”.

11. Referring to R.M. Chidambaram Pillai (supra); Kum. A.B. Shanti (supra); Lokhpat Film Exchange (Cinema) (supra), Tribunal held that there is no separate identity for the partnership firm and that the partner is entitled to use the funds of the firm and that the assessee acted bonafide and that there was a reasonable cause within the meaning of Section 273B of the Act. We do not find any error or legal infirmity in the order of the Tribunal warranting interference. The substantial question of law raised in this appeal is answered in favour of the assessee and the Tax Case (Appeal) stands dismissed. No costs.