CBI case on Usha Martin, ex-govt officer in graft case

The CBI has registered a corruption case against a former senior officer of the Jharkhand government and a Ranchi-based private firm — Usha Martin Limited — in connection with its investigation into the alleged irregularities committed in grant of iron ore mining lease in village Ghatkuri of Singhbhum (West) in the state in 2005.

The agency sleuths also conducted searches at three locations in Kolkata, Chaibasa and Dhanbad in connection with the case.

According to sources, case has been registered against I.D. Paswan, former director (mines), Jharkhand government, the private firm and other unknown persons. “The case relates to grant of an iron ore mining lease to Usha Martin Ltd in 2005 in village Ghatkuri of Singhbhum West district. There were five applicants over this iron ore mine. However, the state government recommended to Central government for grant of mining lease in favour of Usha Martin Ltd on the undertaking of the Company that it will use iron ore in its steel plant situated at Gamahria. This undertaking of the company led the state government invoke section 11(5) of MMDR Act, 1957 in favour of Usha Martin Ltd for recorded special reason of captive consumption,” sources said.

Article – http://www.asianage.com/india/cbi-case-usha-martin-ex-govt-officer


India hands over Vijay Mallya extradition plea to UK

Almost a year after liquor baron Vijay Mallya left the country, the government on Thursday handed over to the UK an extradition request for the absconding businessman who is facing cases of loan default and other financial irregularities. There are already 15 extradition requests pending with the British government. The Ministry of External Affairs official spokesperson Vikas Swarup said, “Today, we handed over the request for extradition of Vijay Vittal Mallya which we received from the CBI to the UK High Commission here. We have requested the UK side to extradite him to face trial in India.”

Stressing that India has a “legitimate” case against Mallya, he said if an extradition request is honoured, it shows their “sensitivity towards our concerns”. “We have made the extradition request in prescribed format and it is for the UK to deliberate on the request and take further action,” he added.

Swarup also said India is yet to make an extradition request for former IPL chairman Lalit Modi. Last month, a CBI court had issued a non-bailable warrant against Mallya in the Rs 720-crore IDBI Bank loan default case. Mallya, whose now-defunct Kingfisher Airlines owes more than Rs 9,000 crore to various banks, had left India on March 2.
Union Minister of State for External Affairs V K Singh, in written reply to a question in Rajya Sabha, said that during the British Prime Minister’s visit nearly three months ago, she and Prime Minister Narendra Modi had agreed that fugitives and criminals should not be allowed to escape the law.

“As of February 4, 2017, there are 15 extradition requests pending with the UK government which are at various stages of execution,” the minister said. The two leaders also expressed their strong commitment to facilitate outstanding extradition requests from both sides, he added.

Officials said that in the case of Vijay Mallya, based on the investigation initiated by the CBI in July 2015, the Enforcement Directorate started its probe under the Prevention of Money Laundering (PMLA) Act in January 2016. Several summons were issued by the ED in March and April 2016 but Mallya failed to appear in person before the investigating authority. A non-bailable warrant was issued by the designated court in April 2016.

“At the request of the Enforcement Directorate and following due process, the passport of Vijay Mallya was revoked on April 23, 2016. A formal request was also made to the Government of the United Kingdom on April 28, 2016 to deport him to India. In response, the Foreign & Commonwealth Office of the UK conveyed that under the 1971 Immigration Act, the UK does not require an individual to hold a valid passport to remain in the UK if they have extant leave to remain, as long as their passport was valid when leave to remain or enter the UK was conferred. Such leave is granted to the individual and therefore does not automatically expire upon the cancellation or expiry of the passport in which it is endorsed. The UK Government, however, acknowledged the seriousness of the allegations and expressed its readiness to consider the request under the Mutual Legal Assistance Treaty or extradition,” the official said.

Article- http://indianexpress.com/article/india/india-hands-over-vijay-mallya-extradition-plea-to-uk-4516850/

Indian Bank’s gross NPA could peak at 6%: India Ratings

Government-owned Indian Bank’s gross non-performing assets (GNPAs) might rise to around six per cent of the total in the medium term, says India Ratings.

The Chennai-based lender had reported GNPAs of 4.4 per cent in March, up from 3.7 per cent in March 2014 and 3.3 per cent in March 2013.

T M Bhasin was heading the bank as managing director and chief executive officer (MD & CEO) till June 10, before moving to the Central Vigilance Commission as a vigilance commissioner. Mahesh Kumar Jain, executive director, is holding additional charge as MD & CEO.

India Ratings said though NPA accretion tapered in 2014-15 (which ended on March 31), stress in some large corporate accounts could push the gross NPA ratio higher. Over the medium term, these are expected to peak around six per cent.

For public sector banks (PSBs) as a group, gross NPAs had gone up to 5.2 per cent in March from 4.7 per cent a year before. They were at 3.8 per cent in March 2013. The stressed assets of PSBs have been rising with the sluggishness in domestic growth and a general slowing in the global economy’s recovery. Indian Bank’s long-term issuer rating is ‘AA+, with a stable outlook’. The ratings show it is consistently above average on capital buffers and in a comfortable liquidity position compared with peers, India Ratings said. The capital adequacy ratio in March was 12.86 per cent, with tier-I capital at 10.6 per cent.

The ratings are constrained by weakening profitability and a modest franchise due to regional concentration.

 The restructured loan book was 9.7    per cent of the total at end-March, higher than most peers. Around 41 per cent of the incremental restructuring in FY14 came from state power distribution companies; the power sector comprises 52 per cent of the restructured book.

The bank has reduced its exposure to infrastructure and other stressed sectors. So, incremental restructuring could get slower.

India Ratings warned that negative rating action could result from a significant erosion of the capital buffers, due to consistent decline in asset quality. The crucial aspect for rating would be the performance of restructured assets.


The bottom line has been under pressure for two years. Net profit declined 13.3 per cent to Rs 1,005 crore in 2014-15 from Rs 1,159 crore in 2013-14. It was Rs 1,581 crore in 2012-13.

Another indicator of efficiency, the return on assets, has also been weak for two years. It was 1.02 per cent in FY13, a rare feat among PSBs. However, this came down to 0.67 per cent in FY14 and to 0.54 per cent in FY15, show finance ministry data.

The rise in NPAs has impacted the margins, as the bank had to reverse part of the interest income booked for loans which turned into these. The net interest margin fell to 2.6 per cent for FY15, from 2.7 per cent in FY14 and three per cent in FY13.

Profitability was also impacted by higher operating costs, led by revisions in pay and a relatively low proportion of fee income, India Ratings said.

The bank plans to focus more on high-yielding agriculture and small business loans. However, the high proportion of restructured assets and increasing slippage could keep yields under pressure over the medium term.

Article- http://www.business-standard.com/article/finance/indian-banks-gross-npa-could-peak-to-6-india-ratings-115071500896_1.html

The Indian Banking Sector Report: NPA Shocks Continue As Banks Struggle to Provision Enough

P/B And P/E Ratios:

P/B ratio indicates the price to book ratio – or the market cap of the company compared to (Equity plus reserves). P/E or Price to Earnings ratio (market cap divided by net profit) denotes the future earning expectations of the company.

The graph below denotes investors are ready to pay higher price only on in either of two conditions viz. the first being cleaner balance sheet (lesser NPA’s) or the bank should have a larger asset or liability size (Deposits and Credit).

Banks like Kotak, J&K, IndusInd, HDFC, Federal have comparatively high P/E’s due to  cleaner balance sheets. Where as SBI has comparative high P/E due to larger book and controlled NPA’s.

But even some banks with large books are not valued that much. Take an example of Bank of Baroda, which is third largest in terms of  (Deposits + Credits) in India. It gets a low P/E mainly because of its relatively high NPAs and losses in past few quarters.

The other interesting case to look is at IDBI bank. The P/E ratio will be very  (when absolute EPS is taken into consideration), but here the P/B ratio is higher than P/E ratio.


Note: P/B values are as on 19th Sept 2016


Note: P/E value are as on 19th Sept 2016; Some P/E values are negative due to negative trailing EPS.

Revenue And Profit Growth

Most of the banks have marginal increase or de-growth in terms of revenue, except for few banks like Yes, Kotak, Indusind and HDFC, which have a high net interest margin (above 3.4%). As credit growth has slowed, most public sector banks have seen a revenue cut. Banks which are mainly in the retail sector and have lesser exposure towards corporate lending are not taking a hit on their credit growth.

The profits of the public sector banks have also taken a hit, due to higher provisioning (still most of them have not completed their provisioning quota) and more accounts going into NPA. This applies to ICICI and Axis Bank as well.


Interesting Facts:

  • The total revenue of above said 37 banks together is at Rs. 2.59 Trillion and it grew by 4.16% YoY.
  • The total net profit of above said 37 banks together is at Rs 8862 cr. A contraction of 53.20% YoY.
  • SBI and its subsidiaries accounted for 21.73% of all the revenue generated (last year same quarter 20.88%). And in terms of profit, SBI and its subsidiaries accounted for 12.23% of the profits (last year same quarter 21.85%)

Largest And Smallest Banks


Did you realize HDFC Bank was the second largest in terms of deposits?

Deposit And Credit Growth.

Yes Bank, Lakshmi Vilas, Kotak, Indusind, HDFC, DCB and Axis have more than 15% growth in terms of deposits and credits. In most cases, credit growth has been better than deposit growth, as loans are cheaper now and deposits are not worth it! RBI has cut rates by 1.5% in last two years.

Please refer the MCLR post to check the latest MCLR and deposit rates.

Despite this some banks like UCO, Syndicate, IOB, Corporation Bank, Central Bank of India, Canara Bank, BoI, BoB have cut down on credit. The banks have been more cautious and cutting on lending, they want to clean their books before getting into fresh lending.


Note: Deposits and Credits were not available for following Banks – Dhanlaxmi Bank, SBBJ, SBT

Credit growth also slows as you recognize NPAs and write them off.

Interesting Facts:

  • The total deposits taken by the above 34 banks (excluding Dhanlaxmi, SBBJ, SBT) is Rs 89.04 Trillion. The deposits grew by 6.57% YoY.
  • The total credit given out by the above 34 banks (excluding Dhanlaxmi, SBBJ, SBT) is Rs 69.70 Trillion. The credit growth stood at 5.27% YoY.
  • For the current quarter, SBI and SBM together accounted for 20.84% (Last year same quarter 20.13%) of total deposits undertaken. And in terms of credit, both accounted for 21.11% (Last year same quarter 20.12%)

Net Interest Margin

Net interest margin is just interest earned (loans) minus interest paid (deposits). It typically boils down to their efficiency in revenue; Higher the net interest margin, higher the revenue generation. The industry average lies between 2-2.6%.

Think of this as a “management fee” for your deposits. You give a bank money. It lends it onward. It gets 10% but pays you 7%. You have some guarantees etc and don’t have to take risks if there are defaults, but the effective fee you pay is of the order of 3%.

Kotak, HDFC, DCB, CUB have a very high net interest margin (above 4%) and have been doing outstandingly well in this parameter. And in the red are United Bank of India, UCO Bank and IOB (all below 2%). This happens when credit growth shrinks too much and deposits increase.


Note: Net Interest Margin figure was not available for the following banks – Dhanlaxmi Bank, SBBJ, SBT

Gross NPA % and Net NPA %

An account is considered NPA (a Non Performing Asset) if no payment has been made towards loan servicing for more than 90 days. Gross/Net NPA % is percentage of Gross/Net NPA towards the gross advances. NPAs indicate the quality of loan book. The higher NPA is a double whammy for the bank, as they do not get income on loans classified under NPA (lesser revenue) and they need to set aside provisions (lower profits) for the NPA identified.

Banks which have very minimal exposure to corporate loans (high retail loans), have the least NPAs. Yes Bank, IndusInd, HDFC, Kotak, Axis, Federal, Lakshmi Vilas, DCB and CUB all have gross NPA’s below 3%.

ICICI Bank and SBI despite large credit lending have managed to keep NPAs in sustainable limits. It might be because of the high volume of credit lending they undertake every quarter which offsets the NPA growth.

IOB, UCO Bank, United Bank of India, PNB, Central Bank of India and Bank of India have alarmingly high level (>13%) of Gross NPA%. IOB (gross NPA at 20.48%) will not be able to sustain if it goes above its current level, unless it brings in more cash infusion.



NPA Slippages:

Gross NPA growth and Net NPA growth are indicative of further slippages. Higher slippages needs to be offset with higher provisioning, which again is going to take a toll on bank profits. But after four quarters (after the RBI’s clean up drive) of NPA recognition, do the slippages really need to increase now? Well since the banks have time till March 2017, they have another three quarters to go. But ideally by next quarter most of the NPA’s have to be identified and the provisioning might take till March 2017.

The NPA growth has been below 15% (QoQ basis) for most of the banks. But their have been exceptional cases. SBT, Andhra Bank and Axis Bank have seen a drastic increase in NPA recognition. Even SBBJ, J&K Bank, bank of Maharashtra, SBM, Oriental bank of Commerce, DCB and Allahabad Bank are having higher slippages.

SBI, South Indian bank, PNB, Indian Bank, Federal bank, Dhanlaxmi bank, Canara, BoI and BoB have reported NPA slippages well within 8%, indicative that, they are comparatively more stable with NPA recognition and might not add higher NPA’s in coming months.


Interesting Facts:

  • The Gross NPA of the above 37 banks together stands at Rs 6.24 Trillion, it grew over 9.65% from the previous quarter.
  • The Net NPA of the above 37 banks together stands at Rs 3.66 Trillion, it grew over 10.15% from previous quarter.

Provision Coverage Ratio And Provision Growth

Provision Coverage Ratio aka PCR indicates the percentage of provisions done for the outstanding NPAs. The RBI prescription (though not mandated) is at 70%, but many banks are struggling to reach this target. Higher provisioning takes a hit at the profits, and hurts capital – a very high provisioning will hit their capital hard and thus reduce their capital adequacy ratio (CAR).

Most of the banks PCR lies in the range of 45% to 55%, indicating the banks aren’t anywhere close. Rather than provisioning for the NPAs, they bet on a recovery (the rest they can write off as bad debt, rather than provisioning for the whole NPA).

Provision requirements are like this: 15% where no money has come from the borrower in 180 days or lower. More than 180 days, you have to provision 40% of the loan, and for more than 2 years, it’s 100%.

The idea is that the bank may have collateral that it can exercise to get back some money. But banks think they have so much collateral that they won’t even put 70% of the required provisions (which are in turn a low percentage of the loan) thinking that they will recover money somehow. This habit has to change – and banks need to get to PCRs of 70%.

Some banks which have lower NPAs and have good profits are comfortable with higher provisioning, like DCB (75.25%), Dhanlaxmi (75.54%), Federal (72.09%), Axis (69%). These banks have already reached their provision quota, they will have an upper hand in the coming quarter, as there be very minimal provisioning and further their might be cases of write back.

(If you lend Rs. 100,000 and provision Rs. 40,000, you are effectively at 100% PCR on this loan, and you’ve decided that you can recover only 60,000. In a few months you might recover Rs. 80,000 from the collateral, and you will “write back” Rs. 20,000 as excess provisioning since you didn’t lose as much as you thought you would)

The under performers (less than 50%) are South Indian Bank (42.55%), Allahabad Bank (46.03%), Indian Overseas Bank (47.61%), Vijaya Bank (48.55%), Oriental bank of Commerce (49.33%). These banks have still lot of ground to cover and need more provisioning in coming quarters.

In terms of provision growth SBT (151.37%), SBM (293.96%) and SBBJ (207.46%) have seen a huge spike in terms provisioning (even the NPA’s have seen increase). They might have been waiting for the merger thing to finalize. But its never too late to make things right.

The other interesting thing to look at is the so called “Safe Banks” like HDFC, Axis and Lakshmi Vilas Bank, which are having the lowest NPA %, have shown a higher degree of provisioning. The banks might be provisioning either to reach the PCR target or taking a cautious approach for the future NPA’s about to come.


Note: PCR was not available for the following Banks – Bank of Maharastra, HDFC Bank, Karnataka Bank, Kotak Bank, Lakshmi Vilas Bank

Interesting Facts:

  • Rs 42,477 cr. was the total provisioning done by the above 37 banks for the reported quarter. The provisioning declined by 44.60% compared to last quarter.
  • For the reported quarter, the total provisions of the above said 37 banks accounted for 16.37% of their revenue. For the last quarter it was 30.78%.

Capital Adequacy Ratio

Capital Adequacy ratio (CAR) is the risk weighted capital the banks need to maintain. The current RBI mandate puts it at 9.6%. If the banks CAR is below that level, then they have too little capital to support their operation – and RBI could enforce restrictions on it.

(RBI had done so with United Bank of India, stopping it from lending further, until the government managed a cash infusion and let the bank get back in shape – a process still far from completion)

For CAR, anything above 14% is outstanding (a bank can sustain for another couple of quarters even with higher provisioning). Kotak, ICICI, Indusind, Yes, HDFC, City Union, SBI, Axis, BoB fall in this safe category.

Dhanlaxmi Bank is way out of league with a CAR of 7.44%. This has been the case for last one year (below 9.6%), and we don’t know how the bank has been surviving for last one year with such a low CAR!

Indian Overseas Bank also is in serious trouble until it infuses some capital. It is below the prescribed 9.6%. It needs to raise capital, before things start turning against it. The other banks in danger zone (below 10.5%) are United bank of India, UCO bank, Central bank of India, Corporation Bank.



“The” Performers




The Curious Cases

  • SBT, SBBJ and SBM have shown a sudden spike in terms of NPA and provisioning; whether it was to safeguard themselves for the merger or they were little late in recognizing NPAs and provisioning is unknown.
  • Dhanlaxmi Bank which has an outstanding PCR of 75% is bleeding in terms of capital ratios. It has achieved well over the target of 70% (when most banks are below 60%) at the cost of its CAR – meaning, it has provisioned more than the RBI demands, but then the capital remaining has fallen below RBI standards. The bank has recently raised 84 cr . But was this move necessary? This question the bank needs to answer.
  • Indian Overseas Bank has been a disaster, The bank has very high gross NPA of 20.48% i.e IOB is unable to recover Rs 20 for every Rs 100 of loans given!. Its CAR has plunged below the Lakshman Rekha (of 9.6%) at 9.47%. Its Net interest margin is at 1.87%, PCR at 47.61%. With so many NPAs on the books, was the bank sleeping till now? UCO Bank too is in similar shape.
  • Banks which have very low NPA% like HDFC, Indusind etc. have shown a higher provisioning.

Our View

The NPA issue has been running havoc in banking sector, and some banks like IOB have taken too much of a hit – they are tottering and the only reason they aren’t insolvent is some of these banks are government owned.

Banks like HDFC Bank haven’t seen much damage as the issue seems to be more industrial and less about retail.  Bank PCRs, though, are below 60% and that needs to change fast.

There are tailwinds. With the steel industry picking up, the govt’s Rs 25000 Cr cash infusion into public sector banks and govt’s initiative to clear construction companies arbitration claims to help them pay their debt has temporarily bought relief to the banks.

But banking as a sector sees new competition from newer banks – both the small banks (Equitas etc) and the payment banks (Paytm, Post office etc) will start eating the deposit pie. The lending pie seems to be sitting with NBFCs which are seeing roaring business as banks refuse to lend. The RBI may try and cut rates, but banks which simply do not lend will not see any relief – they will need to recognize their bad loans, write them off, raise equity and then move forward.

Meanwhile, the RBI is making it very easy for consumers to bank with any one bank and use the banking facilities (ATM, Online payments, cards etc) with common infrastructure. It doesn’t really matter which bank you are with – the central infrastructure for banking seems to have become common – and with TReDS and BBPS, even bill payments and working capital loans (factoring) will ensure that more banking goes into common infra. Paying a high premium for a bank may not be a wise strategy going forward. In fact, it may be better to bet on a small player taking advantage and eating a big part of the larger players’ pie.

Article- https://capitalmind.in/2016/09/indian-banking-sector-report-npa-shocks-low-provisions/

At Rs 4 lakh crore, bad loans exceed market value of PSU banks

NEW DELHI: For every Rs 100 parked in shares of public sector banks, investors carry the burden of Rs 150 as bad loans, which have cumulatively ballooned to Rs 4 lakh crore or 1.5 times the market value of these lenders.

In comparison, bad loans of private sector banks are just about 6.6 per cent of their total valuation.

In case of PSU banks, if loans that face the risk of being declared NPAs (Non Performing Assets) going ahead are also taken into account, their overall stressed advances are estimated to be almost double at over Rs 8 lakh crore.

The problem appears less acute at private sector banks as their gross NPAs are only about one-eighth at about Rs 46,000 crore, which is also well below their total market value.

The Reserve Bank has set March 2017 as deadline for banks to clean up their balance sheets, forcing them to promptly disclose NPAs, take remedial measures and also make adequate provisions in their financial statements. The banks have began complying with effect from their latest set of financial results, which are for the quarter ended December 31, 2015.

The gross NPAs of banking sector are estimated at over 5 per cent of total loans, while overall stressed assets (including declared and potential bad loans) are at about 11 percent.

An analysis of their latest quarter results shows that the cumulative gross NPAs of 24 listed public sector banks, including market leader SBI and its associates, stood at Rs 3,93,035 crore as on December 31, 2015.

This is nearly 1.5-times of their total market value, which currently stands at Rs 2,62,955 crore.

This also marks a rise of over 50 per cent from their gross NPAs totalling Rs 2,61,918 crore a year ago.

As per RBI, an asset becomes non-performing when it ceases to generate income for the bank. The banks need to declare a loan as NPA which remains overdue for more than 90 days.

Except for State Bank of India (SBI), and a few smaller ones, all listed public sector banks have gross NPAs in excess of their market capitalisation. In most cases, the quantum of bad loans is more than double the market value, while some lenders have gross NPAs as high as four or five-times of their respective market valuations.

In comparison, most private sector banks have gross NPAs well below their market values, although the quantum of bad loans have risen for them as well in a big way.

The gross NPA of 16 listed private sector lenders stood at Rs 46,271 crore as on December 30, 2015. This compares with their total market value of over Rs 7 lakh crore.

Taken together, the cumulative gross NPAs of all listed banks – public and private – has risen to Rs 4.4 lakh crore, while their total market value stands at Rs 9.6 lakh crore.

The banks have taken a big beating on their valuations in recent weeks on investor concerns over bad loans.

The country’s most-valued private sector lender HDFC Bank alone commands a market value of about Rs 2.5 lakh crore, which is not far below the total market value of all listed state-run banks. Besides, SBI alone accounts for almost half of the total valuation of all public sector banks.

In terms of gross NPAs also, SBI comes on top (Rs 72,791 crore) and is followed by Bank of Baroda (Rs 38,934 crore). Others with high NPAs include Bank of India, PNB, Indian Overseas Bank, IDBI BankBSE -0.54 %, Canara BankBSE 0.57 %, Union Bank, Central Bank, Uco Bank and Corporation Bank.

Among private sector lenders, ICICI BankBSE -1.23 % comes on top with Rs 21,149 crore of gross NPAs, while others with high levels of such bad loans were Axis BankBSE 0.73 %, HDFC Bank, Federal Bank, Karnataka Bank and IDFC Bank.

Raising concerns about the ballooning bad loans, eminent banker and HDFC Ltd Chairman Deepak Parekh said last week that the health of banking sector is one of the key issues impacting the Indian economy.

As at September 30, gross NPAs of banks stood at 5.1 per cent while stressed advances stood at around 11 per cent. The stressed advances of PSUs stood even higher at about 14 per cent, as per RBI.

The quarter ended December 31, 2015 has been even more brutal for banks, with at least ten lenders posting gross NPAs in excess of 8 per cent and 22 others of more than 5 per cent.

“The RBI has clearly articulated that band aid solutions no longer work and that deep surgery is needed. I agree. The RBI went on further to state that the recognition of NPAs was the anesthetic needed for the surgery.

“While I absolutely do not wish to second guess the regulators and I do not at all doubt their competence in assessment of the situation, I only wish to caution that too much of anesthesia can also result in a patient becoming comatose!” Parekh cautioned.

“The banking sector cannot afford another quarter like the one just gone by, but banks have already warned that the next quarter may also look dismal. In just 40 days, listed banks have lost more than Rs 1.80 lakh crore in their market cap,” he added.

Changes in recovery law to expedite disposal of 70k NPA cases

NEW DELHI: Far-reaching changes in the loan recovery law will help expedite disposal of over 70,000 pending cases involving more than Rs 5 lakh crore and ease the NPA situation, official sources said.

The amendment law, which received presidential assent on August 16, sets time limit for disposal of debt recovery cases and seeks to improve ease of doing business by ensuring speedier resolution of defaulted loans.

The highlights of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 are expansion of definition of security interest, inclusion of debenture trustees and strengthening of asset reconstruction companies (ARCs).

Besides, secured creditors like banks and financial institutions (FIs), ARCs and debenture trustees will get priority over any other dues, including taxation ones of central and state governments or any local bodies, the sources said.

Now, a district magistrate has to decide on applications by banks and FIs within a specific time limit of 30 days.

However, this period may be extended by another 30 days further in exceptional situations for reasons recorded.

The legislation provides stamp duty exemption on loans assigned by banks and financial institutions to asset reconstruction firms.

Around 70,000 cases involving more than Rs 5 lakh crore are pending in Debt Recovery Tribunals (DRT) and the proposed amendments will facilitate expeditious disposal of recovery applications.

The Act also proposes creation of a national database. Currently, security interests created in favour of banks and FIs are registered with the central registry CERSAI.

Now, all secured creditors and taxation authorities issuing attachment orders are enabled to register with CERSAI and this will help in creating a national database of encumbrances on property rights.

The Act, approved by Parliament earlier this month, amends four laws — the Sarfaesi Act, the DRT Act, the Indian Stamp Act and the Depositories Act.

“So far, the laws were in favour of the defaulters. We tried to correct the balance. There should be firmness, coupled with fairness in recovery of loans,” Finance Minister Arun Jaitley had said.

The move assumes significance as it comes against the backdrop of the episode involving liquor baron Vijay Mallya, who owes Rs 9,000 crore to banks, but has left the country to take refuge in England.

PSBs gross NPA hits 9.83% in FY16; rises to 11.82% by September 2016

NEW DELHI: Bad loans of public sector banks stood as high as 9.83 per cent of gross advances in previous fiscal, while that of private sector banks were restricted to 2.70 per cent, government said today.

For fiscal 2015-16, public sector banks had gross advances of Rs 51,04,915 crore, of which Rs 5,02,068 crore (9.83 per cent) was categorised as gross non-performing assets (GNPA), Minister of State for Finance Santosh Gangwar informed the Lok Sabha in a written reply.

Gross NPAs of private sector banks were Rs 48,380 crore, meaning just 2.70 per cent of gross advances of Rs 17,91,681 crore during the fiscal 2015-16.

Till September in the current fiscal, public-owned banks’ gross NPAs rose further to Rs 5,89,502 crore, with a ratio of 11.82 per cent. The gross NPAs, when combined with restructured advances, rose further to 15.88 per cent as on September 30, 2016, the minister added.

Gangwar said government has taken sector-specific measures — infrastructure, power, road, textile, steel — where incidence of NPA is high.

The Insolvency and Bankruptcy Code (IBC) has been enacted and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) and The Recovery of Debts due to Banks and Financial Institutions (RDDBFI) Act have been amended to improve resolution/recovery of bank loans, he said.

In a separate reply, Gangwar said government introduced Indradhanush Plan in 2015 for revamp of public sector banks.

The plan has agenda related with appointment, Bank Board Bureau, capitalisation, de-stressing of PSBs, empowerment, framework of accountability, governance reforms under it, he said.

At the end of March 2016, PSBs, write offs were to the tune of Rs 59,547 crore.

For the current fiscal, the write offs stood at Rs 25,825 crore till September-end 2016, the minister said further.

NPA norms to keep exerting pressure on banks’ profit: RBI Deputy Governor S S Mundra

MUMBAI: Reserve Bank guidelines on providing adequate provisioning to cover bad loans would continue to put pressure on banks’ profitability for some time, even though some banks are witnessing reduction in proportion of NPAs, RBI Deputy Governor S S Mundra said today.

Mundra was responding to media queries in a press conference post RBI’s sixth bi-monthly monetary policy review here.

“Overall, the (banking) system has shown an improvement in operating profit. But on the back of our provisioning, I think some of the pressure on net profit would continue,” Mundra said.

Briefing about the asset quality in banking system, Mundra said: “We are yet to receive the results from all the banks for the third quarter…while there is some elevation in gross NPA ratio in the banking system across category, whether it is public sector banks or private sector banks, but for the first time in few quarter, this time it is seen that in few banks the ratio has come down vis-a-vis the preceding quarter.”

Likewise, on the net NPAs front, Mundra said in consistent with gross NPAs, there would be an elevation, but in a large number of banks, the ratio has come down.

“…(it) is clearly showing that the level of provisioning is quite adequate. Also, there has been conversion of restructured assets falling into NPA category and as a result, across the industry there is a reduction in the percentage of restructured assets,” said the deputy governor.

During April-September period of the current fiscal, public sector banks’ gross NPAs have hit Rs 5,89,502 crore, about 11.82 per cent of the gross advances they furnished, according to a recent government data.

In previous fiscal, public sector banks had gross advances of Rs 51,04,915 crore, of which Rs 5,02,068 crore (9.83%) was categorised as gross non-performing assets (GNPA), Minister of State for Finance Santosh Gangwar informed the Lok Sabha last week.

On the other hand, gross NPAs of private sector banks were Rs 48,380 crore, meaning just 2.70 per cent of gross advances of Rs 17,91,681 crore during the fiscal 2015-16.

On capital adequacy ratio, Mundra stated most of the banks were well placed to meet the regulatory norms they were required to have at the current point of time.

“But going forward, quite a few number of banks would be required to raise the additional capital,” he added further.

Article- http://economictimes.indiatimes.com/industry/banking/finance/banking/npa-norms-to-keep-exerting-pressure-on-banks-profit-rbi-deputy-governor-s-s-mundra/articleshow/57042083.cms

NPA growth is slowing, but still a worry; RBI open to idea of creating a bad bank

Mumbai: The Reserve Bank of India is open to creating an agency to hold non-performing assets of banks, an idea most recently highlighted by chief economic adviser Arvind Subramanian, to relieve the banking sector of its biggest burden.

Central bank officials said they are open to all solutions on solving the NPA problem of banks, including shifting their NPAs into a so-called bad bank. However, such an entity should be designed well so that these loans are attractive to buyers.

Though the pace of additions in NPAs has slowed, the high amount of bad loans on bank balance sheets is a concern. Resolving this problem and recapitalisation of the lenders are crucial for timely transmission of policy rates and ultimately revive lending to some industries, the central bank said in its monetary policy statement.

Deputy governor SS Mundra said the gross NPA ratio for some banks has come down for the first time in many quarters, but that isn’t enough to mitigate all worries.“The level of stressed assets in the industry is slightly above 20%; it would not be fair to say that there is no concern. There is concern,“ he said. The RBI has given a number of tools to banks for resolving the problem and “our sense is that a combined use of these tools is something that we will continue to monitor,“ he added.

On having a bad bank, as suggested by Subramanian in the Economic Survey , RBI’s new deputy governor Viral Acharya said for such an entity to work, it has to be designed right. “The big piece of the problem is getting banks to sell the assets at a right price to asset reconstruction companies and private investors who want to come in.How to get that right price to come in by using a portfolio or a bad bank kind of an approach, I think that is going to be key,“ he said.

The RBI will think about how such an entity can be designed to attract maximum investors. In fact, the idea of a bad bank has been around for some time but has not taken off due to a variety of issues.

“Bad bank is a good idea but the consensus on it has been delayed,“ said Saurabh Tripathi, director at Boston Consulting Group. “If banks can consolidate all their bad assets, then it will help in quicker resolution because right now there are differences between banks in resolution of assets. These differences won’t be there if these assets are transferred to a bad bank and managed professionally .”

Focus on NPA recovery; disclosure of defaulters’ names less important: SC

NEW DELHI: The Supreme Court on Friday asked the government to focus on the recovery of nonperforming assets at banks and tighten rules to ensure that the problem does not recur, shifting the focus of the debate from naming the big defaulters.

“Disclosure of names leads us nowhere. We want to find out the root cause for the malaise in the system,” a bench led by Chief Justice TS Thakur said. “We want to know why NPAs are accumulating. And, what are the reforms being undertaken to ensure that NPAs do not recur.”

The court had earlier insisted that there was no reason to withhold information on the big defaulters from the public. It had even insisted that disclosing such information would have a salutary effect on the system, a suggestion that the government had rejected.

Solicitor General Ranjit Kumar had in fact submitted, in a sealed cover, a list of those who owed banks more than Rs 500 crore, but had urged the court not to make it public so as not to undermine public confidence in the banking system.

On Friday, however, the three-judge bench, which also included Justices AM Khanwilkar and DY Chandrachud, changed the paradigm of the debate by asking the government to focus on recoveries. “What are the deficiencies in the recovery system,” the CJI demanded to know.

He, however, refused to jump into the issue without first awaiting a report by a committee set up by the government to examine it. Kumar, the second top-most law officer of the government, insisted that the court await the report before acting on the claims made in a public interest petition that the NPAs had reached massive proportions.

The finance ministry is also independently examining the issue. The government is in the process of examining all the deficiencies in the process as well as tightening the statutory regime to ensure recoveries.

The Debt Recovery Tribunal and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 would be strengthened, Kumar said. The government had also brought in the bankruptcy code as a step towards dealing with the problem, he said.

The SG said a committee, predominantly comprising leading bankers, was examining these issues.

The case will now come up for hearing on December 12, after the committee submits its report.