Sunday, December 25, 2011
Spike in bad loans worries RBI
MUMBAI: Bad loan growth in Indian banks this year has been over thrice the average growth in the preceding five years. While most bad loans are in retail, priority sector and infrastructure, RBI is worried about the power sector which is going through a high level of stress.
RBI on Thursday released its Financial Stability Report, which assess the ability of the financial sector to survive various types of stress. The stress test results show that bad loans will reduce bank profits and may also force some of them to raise capital. Besides rising bad loans, the financial system could come under stress because of a falling rupee and fleeing foreign investors.
RBI's stress test shows that if bad loans were to increase 150%, 20 banks representing 46% of bank lending in India would be forced to seek capital support as their core capital adequacy would fall below the prescribed 6%. Considering that gross non-performing assets of banks were at 2.01% in March 2011, a 150% increase would translate to a gross NPA ratio of 5.02%.
"If GDP growth slows down, there could be some downstream impact on asset quality. At the same time, additional capital will need to be raised due to the compulsions of implementation of Basel III, a growing (albeit at a potentially decelerated rate) economy and financial inclusion," the RBI report said.
The central bank's warning comes at a time when the country's largest lender State Bank of India is awaiting capital infusion from the government to bring its tier-one capital adequacy to over 8%. However, SBI will not be among those whose capital will be impaired even in the worst case scenario for bad loans.
According to RBI, slippages (good loans that have turned bad) has outpaced credit growth and have grown 92.8% (year on year) as on end-September 2011. Although the share of infrastructure is relatively lower than retail or priority sector loans, RBI has warned that there is high level of impairments and restructuring in power. "With losses among state electricity boards and coal supply issues faced power projects, high concentration of bank credit in power generation is a matter of concern," RBI said.
Margins of public sector banks will be the worst affected if they respond to competitive pressures from their private peers on savings account rates.
RBI's observation comes at a time when private sector lender Yes Bank has taken the rate war further by hiking its savings deposit rate to 7% from 6% earlier. Most large banks continue to offer 4% while some banks with lower share of current and savings account such as Kotak Bank are offering 6%.
According to RBI calculations, PSU banks will see their margins shrink by over 22 basis points as against private banks whose margins will shrink by only 15-17 basis points. RBI has said that after deregulation of the savings rate, some churn in customers can be expected. But for PSU's it is a difficult situation as they stand to lose more than private banks if they raise deposit rates.
While falling interest rates may ease the pressure, banks are seeing a rate war in the non-resident external (rupee) deposits. On Thursday, HDFC Bank increased its NRE deposit rates by over 2.5 times to 9%.
Sarfaesi laws may lessen banks' bad loan burden
Avinash Celestine, ET Bureau Dec 23, 2011, 03.22am IST
NEW DELHI: Banks will be allowed to take property seized from defaulting borrowers onto their own books, or in effect 'buy' the asset they sequester, thus reducing their non-performing loans, according to a revised securitisation law awaiting parliamentary sanction.
In effect, this would allow banks to clean up their books but at the risk of being saddled with an asset worth far less than what the bank paid for it.
This change, which forms a part of the proposed amendments to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi), introduced last week, comes at a time when banks face the risk of rising non-performing loans, and of being saddled with property seized from borrowers unable to pay back their loans.
Worse, a weak property market means that banks may be unable to find buyers for the property they have seized — at least at the price they want.
The same set of amendments also propose to give the finance ministry wide-ranging powers to notify certain types of banks to whom the provisions of Sarfaesi will not apply, or apply only with certain 'exceptions, modifications and adaptations'.
It also brings multi-state co-operative banks within the ambit of Sarfaesi and allows asset reconstruction companies (ARCs) to convert debt into equity as part of a restructuring. At present, Sarfaesi allows banks and ARCs to seize assets from loan defaulters, which in many cases include immoveable property. Banks then typically hold an auction to sell the property.
However, if a bank is unable to find buyers willing to bid above the reserve price, or the minimum bid amount, it currently has little option but to postpone the auction to a future date, and hope for a better bid.
Under the proposed changes, in case of a failed auction, the bank can depute one of its own officers to bid for the property at the reserve price at any future auction. If there are no other bidders yet again, or the bank's own bid is the highest, the property stands 'sold' to the bank. Under current law, a bank is not allowed to bid for property it puts up for auction.
"This is allowed under the Civil Procedure Code and the incometax recovery laws," said MR Umarji, chief advisor-legal, Indian Banks' Association. The changes also apply to ARCs.
NEW DELHI: Banks will be allowed to take property seized from defaulting borrowers onto their own books, or in effect 'buy' the asset they sequester, thus reducing their non-performing loans, according to a revised securitisation law awaiting parliamentary sanction.
In effect, this would allow banks to clean up their books but at the risk of being saddled with an asset worth far less than what the bank paid for it.
This change, which forms a part of the proposed amendments to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi), introduced last week, comes at a time when banks face the risk of rising non-performing loans, and of being saddled with property seized from borrowers unable to pay back their loans.
Worse, a weak property market means that banks may be unable to find buyers for the property they have seized — at least at the price they want.
The same set of amendments also propose to give the finance ministry wide-ranging powers to notify certain types of banks to whom the provisions of Sarfaesi will not apply, or apply only with certain 'exceptions, modifications and adaptations'.
It also brings multi-state co-operative banks within the ambit of Sarfaesi and allows asset reconstruction companies (ARCs) to convert debt into equity as part of a restructuring. At present, Sarfaesi allows banks and ARCs to seize assets from loan defaulters, which in many cases include immoveable property. Banks then typically hold an auction to sell the property.
However, if a bank is unable to find buyers willing to bid above the reserve price, or the minimum bid amount, it currently has little option but to postpone the auction to a future date, and hope for a better bid.
Under the proposed changes, in case of a failed auction, the bank can depute one of its own officers to bid for the property at the reserve price at any future auction. If there are no other bidders yet again, or the bank's own bid is the highest, the property stands 'sold' to the bank. Under current law, a bank is not allowed to bid for property it puts up for auction.
"This is allowed under the Civil Procedure Code and the incometax recovery laws," said MR Umarji, chief advisor-legal, Indian Banks' Association. The changes also apply to ARCs.
Axis Bank, SBI, ICICI Bank, PNB stock futures crash on rising bad loans & high rates
Nihar Gokhale, ET Bureau Dec 20, 2011, 07.00am IST
MUMBAI: Futures prices of select bank stocks crashed on Monday as fears of rising non-performing loans and high interest rates turned sentiment against the sector.
While bank stocks in the cash market have been touching record lows over the past week, investors offloaded long positions and went short on contracts of large banks like SBI, ICICI Bank, Axis Bank and Punjab National Bank.
At the end of trading hours on Monday, Axis Bank stock futures closed at Rs 835.55, at a significant discount of Rs 15 to the underlying cash price, which hit a 52-week low of Rs 850.65. Axis has been hit by heavy short selling since Friday, when a record 20% addition in open interest positions was accompanied by widening discounts.
"There was a combination of short selling and reduction in long positions, as those overweight on the banking sector cut down on their holdings," said Monal Desai, VP and head – institutional equities (derivatives) at broking house Prabhudas Lilladher.
State Bank of India saw a cut-down in over 1.3 lakh positions in open interest. The contract closed at Rs 1,626.85, down 2.6%. A discount of Rs 10 in early trade shrank to zero later in the day which means that traders closed their short positions. Likewise, ICICI Bank open interest reduced by 2.3 lakh, while the contract price declined by 2.3% to Rs 659.90.
Some of these banks also have huge exposure to the weak power and infrastructure sectors, worrying investors about a possible rise in the number of bad loans. "Large banks always have a large exposure to the corporate sector. When you've an overall negative sentiment, the same will spread to the large banks," said Saday Sinha, analyst at Kotak Securities.
Other stock futures facing the heat were Punjab National Bank, which closed at 3.5% down at Rs 790, and a discount of Rs 5 to the underlying stock.
Shares of large banks, both private and public sector, have plunged in recent days with ICICI Bank and HDFC Bank dipping to their 52-week lows of Rs 641 and Rs 400.25 on Monday.
SBI also slumped to its 52-week low Rs 1,598. SBI too hit a 52-week low of Rs 1,598, accompanied by a large pack of other public sector banks like Canara Bank, Punjab National Bank, Bank of Baroda, Union Bank of India, Indian Overseas Bank, among others. Bank Nifty index too touched its 52-week low of 7,801 on Monday.
But it was Axis Bank which continued to face the maximum heat, at least in futures trading. It continues to trade at a discount of Rs 15. The contract saw 20% addition in open interest on Friday, leading to a record high of over 90 lakh positions. While 6.8 lakh open interest was added on Monday, the total hovered around 90 lakh. This indicates both short selling and exiting in long positions.
Amit Gupta, head, derivatives, ICICI Direct advised clients in a morning strategy report to go short on Axis Bank futures, and long on Bank Nifty. This means Axis Bank may underperform Bank Nifty during the life of the strategy.
MUMBAI: Futures prices of select bank stocks crashed on Monday as fears of rising non-performing loans and high interest rates turned sentiment against the sector.
While bank stocks in the cash market have been touching record lows over the past week, investors offloaded long positions and went short on contracts of large banks like SBI, ICICI Bank, Axis Bank and Punjab National Bank.
At the end of trading hours on Monday, Axis Bank stock futures closed at Rs 835.55, at a significant discount of Rs 15 to the underlying cash price, which hit a 52-week low of Rs 850.65. Axis has been hit by heavy short selling since Friday, when a record 20% addition in open interest positions was accompanied by widening discounts.
"There was a combination of short selling and reduction in long positions, as those overweight on the banking sector cut down on their holdings," said Monal Desai, VP and head – institutional equities (derivatives) at broking house Prabhudas Lilladher.
State Bank of India saw a cut-down in over 1.3 lakh positions in open interest. The contract closed at Rs 1,626.85, down 2.6%. A discount of Rs 10 in early trade shrank to zero later in the day which means that traders closed their short positions. Likewise, ICICI Bank open interest reduced by 2.3 lakh, while the contract price declined by 2.3% to Rs 659.90.
Some of these banks also have huge exposure to the weak power and infrastructure sectors, worrying investors about a possible rise in the number of bad loans. "Large banks always have a large exposure to the corporate sector. When you've an overall negative sentiment, the same will spread to the large banks," said Saday Sinha, analyst at Kotak Securities.
Other stock futures facing the heat were Punjab National Bank, which closed at 3.5% down at Rs 790, and a discount of Rs 5 to the underlying stock.
Shares of large banks, both private and public sector, have plunged in recent days with ICICI Bank and HDFC Bank dipping to their 52-week lows of Rs 641 and Rs 400.25 on Monday.
SBI also slumped to its 52-week low Rs 1,598. SBI too hit a 52-week low of Rs 1,598, accompanied by a large pack of other public sector banks like Canara Bank, Punjab National Bank, Bank of Baroda, Union Bank of India, Indian Overseas Bank, among others. Bank Nifty index too touched its 52-week low of 7,801 on Monday.
But it was Axis Bank which continued to face the maximum heat, at least in futures trading. It continues to trade at a discount of Rs 15. The contract saw 20% addition in open interest on Friday, leading to a record high of over 90 lakh positions. While 6.8 lakh open interest was added on Monday, the total hovered around 90 lakh. This indicates both short selling and exiting in long positions.
Amit Gupta, head, derivatives, ICICI Direct advised clients in a morning strategy report to go short on Axis Bank futures, and long on Bank Nifty. This means Axis Bank may underperform Bank Nifty during the life of the strategy.
Shorts surge on ICICI Bank on bad loan fears
Nihar Gokhale, ET Bureau Dec 14, 2011, 01.29am IST
MUMBAI: Traders mounted their bearish bets on ICICI Bank on Tuesday, taking cues from the plunge in its American Depository Receipt (ADR) the previous night, as they speculated that the private lender's bad loans may increase with the Indian economy weakening.
Short positions in ICICI Bank stock futures surged after the five-year credit-default swaps (CDS) on the lender rose 88 basis points to 483 points in a week--one of the fastest increases among Asian banks.
ICICI December stock futures, which closed at Rs 708 against the share price of Rs 709.30, added around 4,500 contracts in open interest. While the contract was trading at a premium of almost Rs 4 for most of the day, it slipped into a discount of Rs 1 at close. ICICI Bank shares hit a 52-week low of Rs 690.25 earlier in the day.
"It is the largest private sector bank and when sectors like power, infrastructure and aviation are stressed, it is bound to increase worries about asset quality," said Saday Sinha, analyst at Kotak Securities.
ICICI Bank's CDS —the cost of insuring debt of the lender against non-payment— is still 13 points away from the record level of 496 on October 10. The country's largest lender State Bank of India's CDS, which has risen 43 basis points to almost 370 points, is about 26 points away from the high of 396 in October.
Analysts said the sudden pessimism about ICICI Bank has resulted in traders incurring losses in a trading strategy involving SBI. Many derivatives traders have been selling SBI contracts and buying ICICI Bank contracts, as part of a pairtrade strategy. They expected SBI to outperform ICICI Bank.
"There have been renewed concerns over ICICI Bank, and this is unlike a few weeks ago when it was trading at comfortable levels. Its correlation with SBI futures has been disturbed," said a derivatives head of a Mumbai-based institutional brokerage, who declined to be named.
A recent study by IDBI Capital Market shows the estimated Corporate Debt Restructuring (CDR) referrals of ICICI Bank in the second quarter of 2011-12 was Rs 1,170 crore.
The percentage of ICICI's estimated CDR referrals to its cumulative restructured book was at 46.9% in the quarter, the brokerage said. In comparison, this ratio was 2.5% for SBI, with its estimated CDR referrals at Rs 900 crore.
The percentage of ICICI's estimated CDR referrals to its cumulative restructured book was at 46.9% in the quarter, the brokerage said. In comparison, this ratio was 2.5% for SBI, with its estimated CDR referrals at Rs 900 crore.
"Our estimated Q2FY12 CDR referral as a percentage of cumulative restructured assets for some of the banks is quite high. This estimated CDR amount is likely to have been referred in Q2FY12, so banks are staring at atleast this amount for conversion to either restructured assets or NPAs in coming quarters," said Sandeep Jain, analyst at IDBI Capital, in a client note.
Some analysts are less worried about the likelihood of the surge in bad debts of Indian banks. "There are asset quality issues and if people are worried about it, then it is rightly so. But, we are of the view that Indian banks, and especially ICICI, will manage these asset issues well.
Here, the question is whether there will be earnings growth or not," said Rajat Rajgarhia, head – institutional research at Motilal Oswal Financial.
MUMBAI: Traders mounted their bearish bets on ICICI Bank on Tuesday, taking cues from the plunge in its American Depository Receipt (ADR) the previous night, as they speculated that the private lender's bad loans may increase with the Indian economy weakening.
Short positions in ICICI Bank stock futures surged after the five-year credit-default swaps (CDS) on the lender rose 88 basis points to 483 points in a week--one of the fastest increases among Asian banks.
ICICI December stock futures, which closed at Rs 708 against the share price of Rs 709.30, added around 4,500 contracts in open interest. While the contract was trading at a premium of almost Rs 4 for most of the day, it slipped into a discount of Rs 1 at close. ICICI Bank shares hit a 52-week low of Rs 690.25 earlier in the day.
"It is the largest private sector bank and when sectors like power, infrastructure and aviation are stressed, it is bound to increase worries about asset quality," said Saday Sinha, analyst at Kotak Securities.
ICICI Bank's CDS —the cost of insuring debt of the lender against non-payment— is still 13 points away from the record level of 496 on October 10. The country's largest lender State Bank of India's CDS, which has risen 43 basis points to almost 370 points, is about 26 points away from the high of 396 in October.
Analysts said the sudden pessimism about ICICI Bank has resulted in traders incurring losses in a trading strategy involving SBI. Many derivatives traders have been selling SBI contracts and buying ICICI Bank contracts, as part of a pairtrade strategy. They expected SBI to outperform ICICI Bank.
"There have been renewed concerns over ICICI Bank, and this is unlike a few weeks ago when it was trading at comfortable levels. Its correlation with SBI futures has been disturbed," said a derivatives head of a Mumbai-based institutional brokerage, who declined to be named.
A recent study by IDBI Capital Market shows the estimated Corporate Debt Restructuring (CDR) referrals of ICICI Bank in the second quarter of 2011-12 was Rs 1,170 crore.
The percentage of ICICI's estimated CDR referrals to its cumulative restructured book was at 46.9% in the quarter, the brokerage said. In comparison, this ratio was 2.5% for SBI, with its estimated CDR referrals at Rs 900 crore.
The percentage of ICICI's estimated CDR referrals to its cumulative restructured book was at 46.9% in the quarter, the brokerage said. In comparison, this ratio was 2.5% for SBI, with its estimated CDR referrals at Rs 900 crore.
"Our estimated Q2FY12 CDR referral as a percentage of cumulative restructured assets for some of the banks is quite high. This estimated CDR amount is likely to have been referred in Q2FY12, so banks are staring at atleast this amount for conversion to either restructured assets or NPAs in coming quarters," said Sandeep Jain, analyst at IDBI Capital, in a client note.
Some analysts are less worried about the likelihood of the surge in bad debts of Indian banks. "There are asset quality issues and if people are worried about it, then it is rightly so. But, we are of the view that Indian banks, and especially ICICI, will manage these asset issues well.
Here, the question is whether there will be earnings growth or not," said Rajat Rajgarhia, head – institutional research at Motilal Oswal Financial.
Tuesday, December 13, 2011
Govt tables Amendment Bill to deal with recovery of bad loans
The government on Monday introduced an Amendment Bill in Parliament to
enable banks and financial firms to effectively deal with the problem of
bad loans.
The move could help bring down lending rates for home and corporate loans, experts said. Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011, which was introduced by minister of state for finance Namo Narain Meena in the Lok Sabha, seeks to strengthen recovery process of secured loans.
It seeks to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 and Recovery of Debts due to Banks and Financial Institutions (RDBF) Act 1993.
The amendment in SARFAESI Act will "provide for conversion of any part of the debt into shares of a borrower company and such conversion shall be deemed always to have been valid as if the provisions of said conversion were in force at all material times."
Besides, it seeks to bring multi-State cooperative banks under the category of the bank.
At the same time, it will enable to increase the period of response to be sent by the banks or financial institutions to the representation of the borrowers to 15 days from 7 days.
It will also empower banks or financial institutions to accept the immovable property in full or partial satisfaction of the claims of the bank against the defaulting borrower.
The amendment will allow district magistrate or the chief metropolitan magistrate to authorise any subordinate officer to take possession of assets or forward assets to the secured creditors.
The Bill has also proposed to amend the RDBF Act 1993 that among other things would "enable the banks and financial institutions to enter into settlement or compromise with the borrowers and also to empower
Debts Recovery Tribunals to pass an order acknowledging such settlement or compromise."
It also seeks "to permit the multi State Cooperative banks, with respect to debts due before or after the commencement of the proposed legislation, to opt either to initiate proceedings under the the Multi-State Co-operative Societies Act 2002 or to initiate proceedings before the Debt Recovery Tribunal."
To ensure expeditious adjudication and recovery of dues of banks and financial institutions, remove legal anomalies and strengthen the Recovery Tribunal, the RDBF Act was amended in the years 1995, 2000 and 2004, the Bill said.
"Once the Bill is cleared, procedural changes in loan recovery is expected to lower the cost of funds for borrowers," Ernst & Young partner Ashvin Parekh said, adding that risk premium on secured loans will soften.
The move could help bring down lending rates for home and corporate loans, experts said. Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011, which was introduced by minister of state for finance Namo Narain Meena in the Lok Sabha, seeks to strengthen recovery process of secured loans.
It seeks to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 and Recovery of Debts due to Banks and Financial Institutions (RDBF) Act 1993.
The amendment in SARFAESI Act will "provide for conversion of any part of the debt into shares of a borrower company and such conversion shall be deemed always to have been valid as if the provisions of said conversion were in force at all material times."
Besides, it seeks to bring multi-State cooperative banks under the category of the bank.
At the same time, it will enable to increase the period of response to be sent by the banks or financial institutions to the representation of the borrowers to 15 days from 7 days.
It will also empower banks or financial institutions to accept the immovable property in full or partial satisfaction of the claims of the bank against the defaulting borrower.
The amendment will allow district magistrate or the chief metropolitan magistrate to authorise any subordinate officer to take possession of assets or forward assets to the secured creditors.
The Bill has also proposed to amend the RDBF Act 1993 that among other things would "enable the banks and financial institutions to enter into settlement or compromise with the borrowers and also to empower
Debts Recovery Tribunals to pass an order acknowledging such settlement or compromise."
It also seeks "to permit the multi State Cooperative banks, with respect to debts due before or after the commencement of the proposed legislation, to opt either to initiate proceedings under the the Multi-State Co-operative Societies Act 2002 or to initiate proceedings before the Debt Recovery Tribunal."
To ensure expeditious adjudication and recovery of dues of banks and financial institutions, remove legal anomalies and strengthen the Recovery Tribunal, the RDBF Act was amended in the years 1995, 2000 and 2004, the Bill said.
"Once the Bill is cleared, procedural changes in loan recovery is expected to lower the cost of funds for borrowers," Ernst & Young partner Ashvin Parekh said, adding that risk premium on secured loans will soften.
Banks may be allowed to accept immovable property to settle claims
Banks and financial institutions may soon be allowed to accept immovable
property in full or partial satisfaction of claims against defaulting
borrowers. A proposal to this effect has been made in a new Bill
introduced in Lok Sabha on Monday to amend the existing Sarfaesi law.
Currently, banks are not empowered to accept immovable property in full
or partial satisfaction of the claim against the defaulting borrower, if
no bidder comes to bid or banks are unable to find a buyer for such
assets. Banks, as secured creditors, are, however, permitted to sell the
securities to realise the defaulted loans.
This Bill — The Enforcement of Security Interest and Recovery of Debt
Laws (Amendment) Bill 2011 — was introduced by Mr Namo Narain Meena,
Minister of State for Finance.
It provides for mandatory registration of all securitisation,
reconstruction and creation of security interest transactions in the
Central registry. All such transactions that are subsisting on or before
the establishment of the Central registry will also have to be
registered, the Bill has said.
The Bill would also enable securitisation firms to convert any part of
debt into shares of the borrowing company. At present, reconstruction or
securitisation firms cannot convert their debt into equity in cases of
business reconstruction, rehabilitation or revival.
Another significant proposal relates to allowing multi-state
co-operative banks to initiate proceedings through debt recovery
tribunals (DRTs). Also, banks or any person will soon be empowered to
file a caveat so that before granting any stay, they are heard by the
DRT.
The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act 2002 (Sarfaesi) was enacted to
regulate securitisation and reconstruction of financial assets and
enforcement of security interest.
Finance ministry pushes banks to fast-track bad loan recovery
Sangita Mehta, ET Bureau Dec 12, 2011, 01.30am IST
MUMBAI: The finance ministry is pushing capital-strapped public sector banks to hasten recovery of bad loans to improve health, and has promised to fill vacancies at debt recovery tribunals (DRT) across the nation, partly responsible for inordinate delays in ending disputes.
"Needless to say that Rs2 lakh crore (of bad loans) are a drag on the capital of banks," a bureaucrat from the finance ministry wrote to bank chairmen recently.
MUMBAI: The finance ministry is pushing capital-strapped public sector banks to hasten recovery of bad loans to improve health, and has promised to fill vacancies at debt recovery tribunals (DRT) across the nation, partly responsible for inordinate delays in ending disputes.
"Needless to say that Rs2 lakh crore (of bad loans) are a drag on the capital of banks," a bureaucrat from the finance ministry wrote to bank chairmen recently.
Central Bank drops pre-closure charges on home loans
New Delhi, Dec 11:
Central Bank of India has decided to waive pre-payment penalties on floating rate housing loans with immediate effect.
“In
deference to the Reserve Bank of India’s suggestions, the bank has
decided to waive penalty on pre-payment of all floating rate housing
loans irrespective of the source of funds of the borrowers,” Central
Bank of India said in a statement.
With this waiver,
there will be no pre-payment penalty on all floating rate housing loans
of the bank for both new as well as existing borrowers, the Central Bank
of India Chairman and Managing Director, Mr M.V. Tanksale, said.
The
Mumbai-based state—owned lender had already waived pre-payment penalty
on foreclosures where the borrowers were making payments from their own
sources.
Last month, State Bank of India and ICICI Bank decided to abolish prepayment penalty.
Housing finance companies has already been barred from charging foreclosure charges.
In
October, the sector regulator National Housing Bank (NHB) directed all
the housing finance companies to desist from imposing a pre-payment
penalty on home loan borrowers.
The levy of charge on
borrowers for pre-closure of housing loans by housing finance companies
has been considered further by the NHB in the light of subsequent
developments and it has been decided that hereafter, housing finance
companies should not charge a pre-payment levy or a penalty on
pre-closure of housing loans, the regulator had said in a notification.
In
addition, the NHB has also directed all the housing finance companies
to have a uniform and not differential rates of interest for old and new
borrowers that have the same credit or risk profile.
Saturday, December 10, 2011
Risks in lease rental discounting loans: Fitch Ratings
Fitch Ratings has come out with its special research report on 'risks in lease rental discounting (LRD) loans'. As per the rating agency the failure to appreciate the inherent risks of LRD loans may leave market participants exposed to stress in commercial rental market in an economic downturn.
Percieved as Less Risky: Lease rental discounting (LRD) loans are widely perceived by lenders to have lower risks than construction loans or direct lending to real estate corporates. The structure of a typical LRD loan ensures relatively higher availability of cash to service the loan and easier access to collateral in the event of default. Furthermore, anecdotal evidence suggests that the performance of such loans has been significantly better than other real estate loans (see Appendix 1: Survey of Institutional Lenders of LRD Loan).
Lenders Underestimate Risks: While LRD loans have a lower risk profile than other real estate loans, most such loans are unlikely to have medium to high investment-grade credit profile. As shown in Fitch Ratings survey (see Appendix 1) in some cases, the pricing of such loans is comparable to the loan pricing of high investment grade corporates. Strong linkage of a typical LRD loan to the corporate owner of the property and a relatively low cash cushion may limit the credit profile of such LRD loans.
Credit Linkage of LRD loans: Long-term lease contracts with high quality corporate tenants provide strong cash flows to service debt, while mechanisms such as rent deposits in an escrow account reduce commingling risk. However, linkage of the LRD cash flows with the credit of the borrower (who is often the owner of the building and is a real estate corporate) remains strong in a many LRD transactions. As such, if the borrower enters into bankruptcy proceedings or debt restructuring, the LRD cash flows would be affected by a time lag.
Low DSCRs: In many transactions, the implied debt service coverage ratio (DSCR) may be lower than the DSCR of similar structures rated investment grade. This is because the typical implied DSCR range of 1.1 to 1.3 seen in Indian LRD loans may not provide a sufficient cushion to debt payments during (even moderate) economic downturns. As such, over the last 10 years the Indian market has experienced downward rent revisions in the range of 10% to 40% (depending on location).
CMBS vis-vis LRD Loans: Significant similarities exist between Indian LRD transactions and CMBS transactions, particularly in the Asia-Pacific region. CMBS transactions with investment-grade ratings usually have a DSCR above that of a typical Indian LRD loan. As such, they are able to withstand much higher volatilities in rental cash flows. However, many CMBS transactions are exposed to refinancing risk at maturity, since the principal is usually not fully amortised.
LRD Loan StructureFitch has been presented with a wide variety of real estate financing structures. In addition to LRD loans, proposals include CMBS and construction-linked loans (also known as progress payments in other jurisdictions). To develop a complete view of the variety of LRD structures in the market, Fitch surveyed market participants.
The typical LRD structure consists of a real estate loan with a charge on a commercial property, along with an assignment of the future lease receivables. Thus the debt obligation is serviced by the rent/lease payments of tenants occupying the commercial property. These features ensure significant cash flow visibility for debt servicing, particularly if the tenants are financially stable corporates and are likely to remain in the property well beyond the initial lock-in period. Additionally, if the lender is a bank, the lender then draws comfort from its ability to enforce security (the underlying commercial property) under SARFAESI Act in the event of default.
Such features result in LRD loans having a relatively lower likelihood of default than a loan extended directly to a real estate corporate. The key structural features of an LRD loan are provided below.
Discounted Rent Value (DRV)The rent contractually received from the tenant (also known as gross rent) is adjusted for taxes, maintenance and other administrative costs to calculate the net rent. Where there are separate payment arrangements by means of a Common Area Maintenance (CAM) agreement between the tenant and the owner, less weight may be given to maintenance and administrative costs. However, while calculating net rent for LRD loans with a tenure greater than five years, not all lenders explicitly consider major maintenance expenses. As such, periodic capital expenditure will likely have a significant impact on cash flows. The net rent, thus calculated, is discounted by the interest rate of the loan over the life of the loan to determine the discounted rent value.
Volatility in Occupancy LevelsCorporate tenants in India typically stay the full term of their contract, owing to lock-in periods (usually three years), high upfront set-up costs (ranging from 18 months to 40 months of rent) and social costs (eg proximity to business partners/customers and employee convenience). To ensure occupancy levels are maintained over the tenure of an LRD loan (particularly loan tenures exceeding five years) it is important to evaluate the attractiveness of the business district and the supply of commercial real estate in the locality. An excess supply of commercial real estate at relatively lower rental rates is likely to result in a downward renegotiation of rents, or an increase in vacancy rates; either would affect the DSCR of an LRD loan.
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To read the full report click on the attachment
Risks_LRD_Loans_Fitch_091211.pdf
Tuesday, December 6, 2011
Big borrowers of India Inc default on Rs 47,000 crore loans
Pradeep Thakur, TNN | Dec 6, 2011, 04.31AM IST
NEW DELHI: Large borrowers, who took loans of Rs 10 crore or more, have defaulted on payments to the tune of Rs 47,000 crore, with banks not even pursuing cases to recover over half the amount.
Data available with the finance ministry shows that least 700 defaulters who had borrowed Rs 10 crore or more from public sector banks and cumulatively owe over Rs 26,000 crore have gone scot free despite not clearing their dues. In another 3,400 cases where loans are of the order of Rs 1 crore or more, the lenders have moved courts and tribunals to recover Rs 21,400 crore.
But there are still concerns over the way banks are using options such as one-time settlement scheme to recover the dues. Investigations have shown that in several instances, it was not a simple case of default but even cheating was involved. Bank executives failed to attach personal assets of directors of companies that had defrauded the banks, sources said.
NEW DELHI: Large borrowers, who took loans of Rs 10 crore or more, have defaulted on payments to the tune of Rs 47,000 crore, with banks not even pursuing cases to recover over half the amount.
Data available with the finance ministry shows that least 700 defaulters who had borrowed Rs 10 crore or more from public sector banks and cumulatively owe over Rs 26,000 crore have gone scot free despite not clearing their dues. In another 3,400 cases where loans are of the order of Rs 1 crore or more, the lenders have moved courts and tribunals to recover Rs 21,400 crore.
But there are still concerns over the way banks are using options such as one-time settlement scheme to recover the dues. Investigations have shown that in several instances, it was not a simple case of default but even cheating was involved. Bank executives failed to attach personal assets of directors of companies that had defrauded the banks, sources said.
Sunday, November 27, 2011
CIBIL is watching you!
November 27, 2011 - DC
If you are a user of multiple credit cards or making delay in your payments, beware! Credit Information Bureau (India) Ltd is watching and rating your credit history. In an exclusive interview with Bijith R., Mr Arun Thukral, the managing director of CIBIL, spoke about the need for an individual to maintain financial discipline, how it impacts his credibility and how banks are increasingly looking at an individuals credit score while lending loans.
Excerpts:
When does an individual enter CIBIL records?
CIBIL captures the entire history of an individual, which is shared by the bank or credit grantor. So if an individual has taken a loan, then he beco-mes part of the credit bur-eau. And CIBIL captures the database on a monthly basis and brings out a comprehensive report. So far we have over 200 million records in the bureau.
How is an individual’s credit scorecard prepared and what does it indicate?
There are 258 variables built into an algorithm, which generates score in the band of 300 and 900. If your score is near 300, the possibility of you going delinquent or defaulting in one of your relationship is higher. If it is close to 900, the chances are less. The score is built on your history and captures key trends like your repayment and credit usage among others.
Let’s say, you have a credit card and you are supposed to repay the credit in 30 days. If you are paying on time, then your credit history is good. It is only when you delay your payment or goes delinquent in one of your relationship, the history gets bad and the score goes lower. The score also predicts the likelihood of an individual going delinquent over the next 12 months.
Which variable would have a major impact on the score?
The biggest weightage is the number of relationships that an individual have with various banks. Secondly, it looks at the number of secured loans (home loans, auto loans) and unsecured loans (credit cards or personal loans). If you have 10 credit cards, then your rating is lower. The ideal situation is when you are paying your dues on time and having a combination of secured and unsecured loan.
How can an individual improve his score?
Score is a dynamic number. It is not static and doesn’t stay at one place. You can improve your score through financial discipline by not seeking credit all the time. If you start paying all the bills and dues on time, your score will increase.
How much does bank rely on the score?
Banks have become conscious of their asset quality. Our analysis during the previous quarters indicated a shift in banks approach while lending. Earlier in 2009-10, 40 per cent of the home loan buyers had a score of over 800 points. In the current financial year, 57 per cent of home loan buyers have a score of over 800. Similar is the trend in auto loans. This indicates that banks are increasingly looking at credit scores.
How much is the public aware of this process?
Over the last six months, we have seen an upsurge in individuals asking for their credit reports before even approaching a bank for loans.
How easy is it for an individual to approach CIBIL and get his credit report?
Earlier an individual was required to send a hard copy of his identity proof along with attested copy, which we have done away with. We have now started a service called direct to consumer where you can directly take reports from us. We have an online authentication tool where you can access your score online by just three easy steps. First you will have to visit the CIBIL website and fill the online request form, make payment of `450 through the net banking and answer three questions, which will be based on your credit history. Once these questions are answered and the fees processed, the credit score along with credit report will be emailed it to you.
If there is an error on the CIBIL report, what can be done?
You can visit our website, where there is an online facility through which you can write to our customer relationship. We will take it up with the credit grantor and alter it accordingly when the next report is generated. However, the authority to change anything is with the credit grantor as they own the data and CIBIL is only the custodian. Normally these are done in 30 days.
Friday, November 25, 2011
Banks to offer higher returns on NRI deposits to lure dollars
MUMBAI: A runaway currency has pushed the Reserve Bank of India to make
interest rates more tempting for NRIs to bring in dollars. As the rupee
closed at a new low on Wednesday, RBI allowed banks to offer higher return on dollar as well rupee deposits parked by NRIs.
Banks can now give 125 basis points over London Inter-bank Offered Rate, or Libor - the benchmark rate in international money markets on foreign currency non-resident accounts against a mark-up of 100 basis points permitted till now.
On non-resident (external) or rupee deposits, the interest rate cap has been raised to 275 basis points over Libor, from 175 bps. "It will help to improve sentiment," said Parthasarathi Mukherjee, president (treasury and international Banking) at Axis Bank. The six-month Libor is at 0.71%.
Earlier in the day, the rupee fell to a low of Rs 52.37 to the dollar, but recovered to an intraday high of Rs 51.75 on suspected dollar sales by the Reserve Bank of India. But despite intervention and the central bank's move to lift the $100-m cap on banks for swap, the local currency ended at 52.37.
Such swap transactions, where corporates enter into deals with banks to swap rupee loans to dollar, banks sell dollar in spot market and buy in forward. But the market did not feel that this will help to increase dollar supply. Global stock markets plunged to a six-week low on Wednesday after China's manufacturing activity in November dropped to a 32-week low, contributing to existing worries about US economic growth and Europe's debt worries.
Tracking the weakness across markets, India's key indices hit a two-year low as foreign investors dumped shares, unnerved by the uncertainty in the rupee's slide which closed at a record low of 52.37 against the dollar. The Sensex dropped 365.45 points, or 2.27%, to end at 15,699.97, but off the day's low of 15,478.69.
The Nifty fell 105.90 points or 2.20% to close at 4706.45. Brokers said several foreign ETFs, which are facing redemptions at home, were selling aggressively.
Stop-loss triggers at many hedge funds and foreign banks set off after the Nifty fell below 4700 mid-way through the session, precipitating the decline. But for the short-covering later, indices would have ended much lower. Foreign investors sold shares worth Rs 1186.42 on Wednesday, according to provisional data.
"Investors in India are more worried about the domestic events than the issues in the US and Europe. There is a total chaos in the currency market, with no uncertainty about where the rupee is headed," said Sandip Sabharwal, CEO-portfolio management services of broking firm Prabhudas Lilladher.
Finance minister Pranab Mukherjee on Wednesday attributed the stock market crash to withdrawal of funds by foreign investors and depreciation of the rupee.
"The rupee's underlying fundamentals still appear weak to us, especially the absence of yield support at this important moment for the currency. Indeed, there is the outside chance of an onshore USD squeeze being the catalyst which propels USD/INR to the 54.8 technical objective," said Stewart Newnham and Yee Wai Chong, analysts at Morgan Stanley.
The decline on Wednesday pushed the Nifty below the 200-week moving average of 4776, analysts said. "This is a sign of further weakness in the market as this is a long-term trend indicator," said AK Prabhakar, senior VP, Anand Rathi Securities. The MSCI Asia Apex fell 2.5% after the indications of weakening in China, the world's secondlargest economy, came a day after the US cut its Q3 growth figure.
China's preliminary HSBC manufacturing Purchasing Managers Index fell sharply to 48.0 in November compared with a final reading of 51.0 in October. The euro fell 1% after Belgian newspaper De Standaard said that the planned rescue of Franco-Belgian bank Dexia is unworkable.
The report triggered worries that France's AAA credit rating may be under threat. Report said the European crisis is making it tough for European banks to access dollar funding in money markets. Euro/dollar cross currency swaps, which measure the cost of swapping euros into dollars, are at the most expensive levels since 2008, according to reports.
Banks can now give 125 basis points over London Inter-bank Offered Rate, or Libor - the benchmark rate in international money markets on foreign currency non-resident accounts against a mark-up of 100 basis points permitted till now.
On non-resident (external) or rupee deposits, the interest rate cap has been raised to 275 basis points over Libor, from 175 bps. "It will help to improve sentiment," said Parthasarathi Mukherjee, president (treasury and international Banking) at Axis Bank. The six-month Libor is at 0.71%.
Earlier in the day, the rupee fell to a low of Rs 52.37 to the dollar, but recovered to an intraday high of Rs 51.75 on suspected dollar sales by the Reserve Bank of India. But despite intervention and the central bank's move to lift the $100-m cap on banks for swap, the local currency ended at 52.37.
Such swap transactions, where corporates enter into deals with banks to swap rupee loans to dollar, banks sell dollar in spot market and buy in forward. But the market did not feel that this will help to increase dollar supply. Global stock markets plunged to a six-week low on Wednesday after China's manufacturing activity in November dropped to a 32-week low, contributing to existing worries about US economic growth and Europe's debt worries.
Tracking the weakness across markets, India's key indices hit a two-year low as foreign investors dumped shares, unnerved by the uncertainty in the rupee's slide which closed at a record low of 52.37 against the dollar. The Sensex dropped 365.45 points, or 2.27%, to end at 15,699.97, but off the day's low of 15,478.69.
The Nifty fell 105.90 points or 2.20% to close at 4706.45. Brokers said several foreign ETFs, which are facing redemptions at home, were selling aggressively.
Stop-loss triggers at many hedge funds and foreign banks set off after the Nifty fell below 4700 mid-way through the session, precipitating the decline. But for the short-covering later, indices would have ended much lower. Foreign investors sold shares worth Rs 1186.42 on Wednesday, according to provisional data.
"Investors in India are more worried about the domestic events than the issues in the US and Europe. There is a total chaos in the currency market, with no uncertainty about where the rupee is headed," said Sandip Sabharwal, CEO-portfolio management services of broking firm Prabhudas Lilladher.
Finance minister Pranab Mukherjee on Wednesday attributed the stock market crash to withdrawal of funds by foreign investors and depreciation of the rupee.
"The rupee's underlying fundamentals still appear weak to us, especially the absence of yield support at this important moment for the currency. Indeed, there is the outside chance of an onshore USD squeeze being the catalyst which propels USD/INR to the 54.8 technical objective," said Stewart Newnham and Yee Wai Chong, analysts at Morgan Stanley.
The decline on Wednesday pushed the Nifty below the 200-week moving average of 4776, analysts said. "This is a sign of further weakness in the market as this is a long-term trend indicator," said AK Prabhakar, senior VP, Anand Rathi Securities. The MSCI Asia Apex fell 2.5% after the indications of weakening in China, the world's secondlargest economy, came a day after the US cut its Q3 growth figure.
China's preliminary HSBC manufacturing Purchasing Managers Index fell sharply to 48.0 in November compared with a final reading of 51.0 in October. The euro fell 1% after Belgian newspaper De Standaard said that the planned rescue of Franco-Belgian bank Dexia is unworkable.
The report triggered worries that France's AAA credit rating may be under threat. Report said the European crisis is making it tough for European banks to access dollar funding in money markets. Euro/dollar cross currency swaps, which measure the cost of swapping euros into dollars, are at the most expensive levels since 2008, according to reports.
Thursday, November 24, 2011
SBI abolishes penalty on pre-payment of housing loans
NEW DELHI: Country's largest lender State Bank of India (SBI) has decided to abolish pre-payment charges on home loans, giving some succour to borrowers who want to foreclose their accounts.
"We have decided to do away with the pre-payment charges on all kinds of housing loans with immediate effect," a senior official of the bank told PTI. The bank has been charging pre-payment penalties only on housing loans with floating interest rates taken before May 2011, the official said. It has been charging about 2 per cent of the outstanding amount as penalty if borrowers opted to foreclose their loans.
The decision from the largest lender will prompt other lenders to follow the suit.
The total outstanding home loan of SBI rose to Rs 92,383 crore at the end of September against Rs 86,769 crore in March 2011.
At present, some banks are charging up to 2 per cent as pre-payment penalty on the loan outstanding, if a borrower settles the full payment before maturity by switching over to another lender.
No pre-payment fine is charged if borrowers pay using their own funds.
It may be be noted that the Reserve Bank has indicated that it would scrap prepayment penalties charged by banks.
"It is proposed to implement the recommendations of the Damodaran Committee, on which a broad consensus has emerged, as also the action points which were identified by the IBA (Indian Banks' Association) and BCSBI (Banking Codes and Standards Board of India) in the last Banking Ombudsmen conference," RBI had said in its mid-year credit policy review.
Query Corner: Banking & Finance
- Economic Times
Auto Debit
Can a bank auto debit money from your savings account towards dues of credit card without sending notice to customer?-SATNAM HUNDAL
Bankers have a right of lien and set-off. Set-off means the bank can adjust the credit balance in a customer's account against a debit balance in another account of the customer. The deposit and loan should be due and lawful (law of limitation does not apply). There is no need to send any notice. In fact, the banker must have sent notice when the account was in default.
Auto Debit
Can a bank auto debit money from your savings account towards dues of credit card without sending notice to customer?-SATNAM HUNDAL
Bankers have a right of lien and set-off. Set-off means the bank can adjust the credit balance in a customer's account against a debit balance in another account of the customer. The deposit and loan should be due and lawful (law of limitation does not apply). There is no need to send any notice. In fact, the banker must have sent notice when the account was in default.
Tuesday, November 22, 2011
Net users cross 100m, to boost e-commerce
By S Shyamala Nov 07 2011 , Chennai
India has reached a milestone in telecommunications. The country has topped the 100-million in the number of internet users. According to an I-Cube report jointly released by the Internet and Mobile Association of India (IAMAI) and IMRB on Monday, the landmark was reached in September. If that be so, India now has the third biggest population of internet users.
Yet, in internet use India is way behind its own multitude of mobile subscribers. At 100 million, the internet population is just 11 per cent of its telecom subscribers numbering nearly 900 million. Among telecom companies, Airtel, Vodafone, Reliance Communications and Idea each already have 100 million or more phone subscribers.
Though a milestone, India’s internet population is just a fifth of China’s 500 million. China has been rapidly adding to this population — in December it had 457 million. Yet, India’s is no mean achievement; only a handful of countries can boast of such numbers. The size has got e-commerce players excited.
Google India’s MD and vice-president of sales and operations, Rajan Anandan, told Financial Chronicle: “Hundred million internet users represent a tremendous market opportunity for companies like us. This will also create a great internet eco-system in India.”
Assocham recently estimated that the size of Indian e-commerce market is expected to touch Rs 47,000 crore by 2011.
Sachin Bansal, Flipkart CEO and co-founder, said the 100-million strong internet population validated his belief in India’s e-commerce potential. It would become one of the largest e-commerce-led economies in the world. “We will continue to aggressively invest in this space and contribute in every way we can,” said Bansal, who quit a cushy job at Amazon.com India to start India’s largest online shopping arcade.
The I-Cube report projects the number to rise to 121 million by December. Of them 97 million will be active internet users who access the web at least once a month. And nearly 92 million of them would be in urban India. Not bad, considering that the technologically far more advanced Japan has an internet population of 99 million.
K Vaitheeswaran, founder and CEO of Indiaplaza, said that though e-commerce in India had been in existence for some time, it was now that the full potential was being understood. “Over the past year or two real growth started to happen here. In the next few years the internet user base will zoom to between 350 million and 400 million. That makes it quite a large and attractive market for everybody, as there is a piece for everybody to nibble at,” he said.
As per latest Trai data, 12.6 million of India’s net users (as of August 31) connect to the web through broadband (at speeds greater than 256 kbps). Subho Ray, president of IAMAI, said in a statement.
“As before, common access points such as cyber cafes continue to play an important role but their role has suffered a big shrinkage. At 37 per cent access from home “is still not dominant”, said Ray. According to the World Bank’s development indicator, only 5.3 per cent of Indians had internet access in 2009, up from 0.5 per cent in 2000.
(With inputs from S Ronendra Singh and Kumar Shankar Roy in New Delhi)
India has reached a milestone in telecommunications. The country has topped the 100-million in the number of internet users. According to an I-Cube report jointly released by the Internet and Mobile Association of India (IAMAI) and IMRB on Monday, the landmark was reached in September. If that be so, India now has the third biggest population of internet users.
Yet, in internet use India is way behind its own multitude of mobile subscribers. At 100 million, the internet population is just 11 per cent of its telecom subscribers numbering nearly 900 million. Among telecom companies, Airtel, Vodafone, Reliance Communications and Idea each already have 100 million or more phone subscribers.
Though a milestone, India’s internet population is just a fifth of China’s 500 million. China has been rapidly adding to this population — in December it had 457 million. Yet, India’s is no mean achievement; only a handful of countries can boast of such numbers. The size has got e-commerce players excited.
Google India’s MD and vice-president of sales and operations, Rajan Anandan, told Financial Chronicle: “Hundred million internet users represent a tremendous market opportunity for companies like us. This will also create a great internet eco-system in India.”
Assocham recently estimated that the size of Indian e-commerce market is expected to touch Rs 47,000 crore by 2011.
Sachin Bansal, Flipkart CEO and co-founder, said the 100-million strong internet population validated his belief in India’s e-commerce potential. It would become one of the largest e-commerce-led economies in the world. “We will continue to aggressively invest in this space and contribute in every way we can,” said Bansal, who quit a cushy job at Amazon.com India to start India’s largest online shopping arcade.
The I-Cube report projects the number to rise to 121 million by December. Of them 97 million will be active internet users who access the web at least once a month. And nearly 92 million of them would be in urban India. Not bad, considering that the technologically far more advanced Japan has an internet population of 99 million.
K Vaitheeswaran, founder and CEO of Indiaplaza, said that though e-commerce in India had been in existence for some time, it was now that the full potential was being understood. “Over the past year or two real growth started to happen here. In the next few years the internet user base will zoom to between 350 million and 400 million. That makes it quite a large and attractive market for everybody, as there is a piece for everybody to nibble at,” he said.
As per latest Trai data, 12.6 million of India’s net users (as of August 31) connect to the web through broadband (at speeds greater than 256 kbps). Subho Ray, president of IAMAI, said in a statement.
“As before, common access points such as cyber cafes continue to play an important role but their role has suffered a big shrinkage. At 37 per cent access from home “is still not dominant”, said Ray. According to the World Bank’s development indicator, only 5.3 per cent of Indians had internet access in 2009, up from 0.5 per cent in 2000.
(With inputs from S Ronendra Singh and Kumar Shankar Roy in New Delhi)
Saturday, November 19, 2011
Government should treat small units on a par with corporates
If the government wanted only efficient industrial units
to survive, micro, small and medium enterprises (MSMEs) and large
industries should be treated equally, Tamil Nadu Small and Tiny
Industries Association (TANSTIA) vice-president KR. Gnanasambandan said
here on Thursday.
When falling behind loan repayment
schedules, small units incurred the wrath of Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interests
(SARFAESI) Act and its stringent provisions. However, when large
corporates get into debt problems, they were being given the option of
converting debt into equity. Such a situation existed despite small
industries being hailed as the engines of economic growth.
Mr.
Gnanasambandan was addressing a ‘Stakeholder meet on MSMEs under India
MSME Darshan 2011' organised by Madurai District Tiny and Small Scale
Industries Association (MADITSSIA) and Institute of Small Enterprises
and Development (ISED), Kochi, in association with Federal Bank and
Export Credit Guarantee Corporation of India (ECGC). ‘India MSME Report
2011,' prepared by the ISED, was released at the meeting.
Tamil
Nadu was home to the highest number of registered MSMEs, largest
employment per unit and highest investment per unit. However, it was
also the State with the highest number of sick units and its output
lagged well behind the national average, he said.
Speaking
earlier, S. Maruthappan, General Manager of District Industries Centre,
said that the State government was planning to train educated youth in
entrepreneurship to prevent their migration from villages to cities.
S.
Mohan, Assistant General Manager, State Bank of India (SBI), Zonal
Office, said that the bank was designating several branches as ‘MSME
branches' to facilitate smooth credit flow.
P.M.
Mathew, ISED Director, said that in the U.S., a government department
prepared such reports on small industries while in the U.K., the Bank of
England prepared it, and by the private sector in the European Union.
MADITSSIA
president V. S. Manimaran said that MSMEs faced numerous hurdles, power
crisis and high interest rates being the primary factors causing
concern. R. Jayaraman, former Madurai Kamaraj University professor, said
that MSMEs were facing a shortage of skilled workers. K.S. Serma
Pandiyan, MADITSSIA secretary, spoke.
RBI to discuss Damodaran committee recommendations with IBA
November 17, 2011 04:47 PM
The apex bank will discuss the suggestions on pre-penalty on foreclosure of home loan, Internet and mobile banking with the IBA; Out of the 230 recommendation of the Damodaran Committee around 88 have already been accepted by the RBI
The Reserve Bank of India (RBI) has accepted 88 out of the 230 recommendations made by the Damodaran committee on customer services. While some of them are already in the public domain, the apex bank would be discussing the remaining suggestions with the Indian Banks’ Association (IBA) later this month.
Sources say that the 88 recommendations, where bankers had consensus, include recommendations such as banks should sell standalone financial products and not bundle it with any other product, have been accepted by the RBI. Some pending recommendations such as not imposing pre-penalty on foreclosure of home loan and suggestions made on mobile and internet banking, RBI will have a discussion with IBA by the end of this month.
The apex bank will discuss the suggestions on pre-penalty on foreclosure of home loan, Internet and mobile banking with the IBA; Out of the 230 recommendation of the Damodaran Committee around 88 have already been accepted by the RBI
The Reserve Bank of India (RBI) has accepted 88 out of the 230 recommendations made by the Damodaran committee on customer services. While some of them are already in the public domain, the apex bank would be discussing the remaining suggestions with the Indian Banks’ Association (IBA) later this month.
Sources say that the 88 recommendations, where bankers had consensus, include recommendations such as banks should sell standalone financial products and not bundle it with any other product, have been accepted by the RBI. Some pending recommendations such as not imposing pre-penalty on foreclosure of home loan and suggestions made on mobile and internet banking, RBI will have a discussion with IBA by the end of this month.
SBI to auction assets of 21 defaulters in Patna
Kumod Verma, TNN Nov 17, 2011, 05.19PM IST
PATNA: In a major policy decision, the Stressed Assets and Resolution branch (SARB) of the State Bank of India, Patna, has decided to auction the mortgaged properties of 21 borrowers valued at Rs 4.21 crore at the branch premises on November 21.
These borrowers, who had taken loan from SBI, not only failed to repay the money but also did not turn up for negotiations with the bank, said additional general manager (AGM), SARB branch, Sunil Sharan Sinha.
He said there were altogether 21 borrowers who were declared defaulters long time ago under the bank rules. Their properties, which include plots, houses, shops and other assets, would be put on an open auction on November 21.
Sinha maintained that the bank has still kept its door open for defaulters till November 19 afternoon to reach a settlement with the bank in their own interest; otherwise, the bank would go ahead with the open auction plan under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
Two of the borrowers, New Cozy Sweets and Golu Kiranaz, both located in Danapur, reached a settlement with the bank on November 16, he added.
According to sources, the SBI has kept the reserved price of the total properties to be auctioned at Rs 4.21 crore. They would thus be put on auction at not less than Rs 4.21 crore. A piece of land located in the prime area of Gardanibagh and a sprawling house in S K Puri have also been targeted for open auction, sources said.
The SBI AGM said this would be the first time that Patna SARB will auction mortgaged property in the state capital to realize the bank's dues from defaulters. He said that bank officials right from chief manager to general manager would be present at the open auction.
"The SBI usually restrains itself from taking such harsh steps. But faced with the apathetic attitude of borrowers towards repayment of their loans, the bank has been forced to take such a step," he said.
PATNA: In a major policy decision, the Stressed Assets and Resolution branch (SARB) of the State Bank of India, Patna, has decided to auction the mortgaged properties of 21 borrowers valued at Rs 4.21 crore at the branch premises on November 21.
These borrowers, who had taken loan from SBI, not only failed to repay the money but also did not turn up for negotiations with the bank, said additional general manager (AGM), SARB branch, Sunil Sharan Sinha.
He said there were altogether 21 borrowers who were declared defaulters long time ago under the bank rules. Their properties, which include plots, houses, shops and other assets, would be put on an open auction on November 21.
Sinha maintained that the bank has still kept its door open for defaulters till November 19 afternoon to reach a settlement with the bank in their own interest; otherwise, the bank would go ahead with the open auction plan under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
Two of the borrowers, New Cozy Sweets and Golu Kiranaz, both located in Danapur, reached a settlement with the bank on November 16, he added.
According to sources, the SBI has kept the reserved price of the total properties to be auctioned at Rs 4.21 crore. They would thus be put on auction at not less than Rs 4.21 crore. A piece of land located in the prime area of Gardanibagh and a sprawling house in S K Puri have also been targeted for open auction, sources said.
The SBI AGM said this would be the first time that Patna SARB will auction mortgaged property in the state capital to realize the bank's dues from defaulters. He said that bank officials right from chief manager to general manager would be present at the open auction.
"The SBI usually restrains itself from taking such harsh steps. But faced with the apathetic attitude of borrowers towards repayment of their loans, the bank has been forced to take such a step," he said.
Weavers in a fix over loan waiver
November 15, 2011 - By DC Correspondent - Anantapur
A stalemate continues over the recovery of Rs 17 crore loans from handloom weavers in the district as the government proposed to waive these.
A stalemate continues over the recovery of Rs 17 crore loans from handloom weavers in the district as the government proposed to waive these.State government proposed to waive Rs 16.9 crore loans availed by 9,104 crore handloom weavers in the district and the file has been sent to the ministry of finance.
While the weavers are refusing to pay the loans, bankers are insisting that they do so. Weavers who are already reeling under a financial crunch, are not in a position to repay the instalments.
A widow, Poojari Govindamma of Hindupur whose husband Krishnam-urthy committed suicide unable to pay debts one-and-a-half year ago, lamented that her husband borrowed Rs 1.3 lakh loan from a bank and repaid Rs 83,000 before he died, but she received notices from the bank about confiscation of property as per the Sarfaesi Act (The Securitisation and Reconstruction of Financi-al Assets and Enforcement of Security Interest Act, 2002). The Sarfaesi Act allows banks and financial institutions to auction properties (residential and commercial) when borrowers fail to repay their loans. It enab-les banks to reduce their non-performing assets (NPAs) by adopting measures for recovery or reconstruction.
Thousands of weavers have received notices from banks, demanding repayment of loans, though government agreed to waive these.
Bankers said that recovery percentage was poor and notices would be served to the defaulters until the government issued loan waiver orders.
Meanwhile, the order to waive 3,400 handloom weavers’ loans to the tune of Rs 8.9 crore is not being implemented on expected lines as bankers are delaying no due certificates to the beneficiaries.
As a result, cash is not credited into the bank accounts of beneficiaries. In fact, state government promised to waive weavers’ loans of Rs 348 crore of which Rs 109 crore were released across the state. It assured Rs 239 crore loan waiver in the next phase. Weavers are in a dilemma with bankers refusing to credit the cash in their bank accounts.
Saturday, November 5, 2011
Dena Bank net up 20.5 pc
Mumbai, Oct 31 (PTI) Mid-size public sector lender
Dena Bank today posted a 20.5 percent rise in net profit to
Rs 193.58 crore for the second quarter on the back of rising
net interest income and improvement in its asset quality.
"We have posted good numbers despite a difficult
interest rate regime," Chairman and Managing Director DL Rawal
told reporters here.
Total income increased 30.35 percent to Rs 1,747.19
crore compared to Rs 1,340.38 crore a year earlier, while net
interest income rose 10.66 percent to Rs 514.89 crore against
Rs 465.27 crore.
However, reflecting the hardening interest rate
scenario, the net interest margin fell to 3.22 percent from
3.52 percent reported in the same period last year. But this
was 0.32 percent up over the last quarter.
During the second quarter, total deposits grew 20.07
percent to Rs 64,235.67 crore while advances rose 17.95
percent to Rs 43,100 crore.
"We hope our credit growth for this fiscal will be
around 20 percent as we expect credit to pick up in
agri-related sectors in the second half of this fiscal," Rawal
said.
Asset quality of the bank also improved during the
reporting quarter. While gross NPA declined to 1.93 percent
from 2.26 percent a year earlier, net NPA improved to 1.15
percent from 1.49 percent reported in the same period last
year.
"We will be able to maintain the NPA level at the
present level as we are closely monitoring all our loan
assets," Rawal said, adding the bank is focusing on recovery
of its existing NPA portfolio.
The bank's capital adequacy ratio stood at 12.55
percent by the end of the September quarter.
The Dena Bank shares soared 6.04 percent to close at
Rs 80.70 on the BSE, whose main index inched down 0.6 percent
on profit booking.
Dena Bank net up 20.5 pc
BS Reporters / Mumbai/bangalorenew Delhi/kolkata November 1, 2011, 0:24 IST
Asharp rise in provisioning for bad loans lowered the net profits of public sector banks in the second quarter of this financial year. Most banks saw an increase in non-performing assets (NPAs) on back of rising interest rates and migration to an automated recognition system.
Mumbai-based Bank of Baroda (BoB) posted an increase of 14.4 per cent in net profit at Rs 1,166 crore in the quarter ended September, provisioning for bad loans more than doubled to Rs 298 crore as compared to same quarter, last year. “Increase in NPAs was seen from all sectors and geographies,” said M D Mallya, chairman and managing director. He said Rs 663 crore worth of assets were restructured quarter and 10-11 per cent of the total restructured portfolio slipped into NPAs in July-September.
Asharp rise in provisioning for bad loans lowered the net profits of public sector banks in the second quarter of this financial year. Most banks saw an increase in non-performing assets (NPAs) on back of rising interest rates and migration to an automated recognition system.
Mumbai-based Bank of Baroda (BoB) posted an increase of 14.4 per cent in net profit at Rs 1,166 crore in the quarter ended September, provisioning for bad loans more than doubled to Rs 298 crore as compared to same quarter, last year. “Increase in NPAs was seen from all sectors and geographies,” said M D Mallya, chairman and managing director. He said Rs 663 crore worth of assets were restructured quarter and 10-11 per cent of the total restructured portfolio slipped into NPAs in July-September.
Sundaram Finance sees disbursement growth slowing to 15% this fiscal
Published: Friday, Nov 4, 2011, 8:00 IST
By Vishwanath Nair | Place: Mumbai | Agency: DNA
Regulators should ensure that players in the banking, financial services and insurance industry get a level-playing field, argues T T Srinivasaraghavan, managing director, Sundaram Finance. In an interview with DNA, he spoke about how a well-deserved hike to employees is not a burden to his company and how prevention is the best cure when it comes to asset quality. Excerpts from the interview:
What kind of disbursement growth you are targeting this fiscal? Which are the sectors pushing growth?
In our annual report published in May this year, we had said that the automotive industry’s two successive years of high growth is exhibiting clear signs of slowdown. With fleet replacements (replacing older model vehicles with new and improved vehicles) largely being completed to comply with emission norms and changes and demand for consumer goods beginning to moderate, sales of medium and heavy commercial vehicles are expected to increase by 5-8%. Looking at the numbers now we seem to be pretty much on target. We are expecting overall gross disbursements growth to be in the 15% range for the current fiscal as against 22% in the last. Growth is coming from light commercial vehicles, construction equipment, a little bit of tractors, so there is growth happening in parts of the auto industry. While medium and heavy is not growing at 30% like previous years, there is some growth which is contributing.
By Vishwanath Nair | Place: Mumbai | Agency: DNA
Regulators should ensure that players in the banking, financial services and insurance industry get a level-playing field, argues T T Srinivasaraghavan, managing director, Sundaram Finance. In an interview with DNA, he spoke about how a well-deserved hike to employees is not a burden to his company and how prevention is the best cure when it comes to asset quality. Excerpts from the interview:
What kind of disbursement growth you are targeting this fiscal? Which are the sectors pushing growth?
In our annual report published in May this year, we had said that the automotive industry’s two successive years of high growth is exhibiting clear signs of slowdown. With fleet replacements (replacing older model vehicles with new and improved vehicles) largely being completed to comply with emission norms and changes and demand for consumer goods beginning to moderate, sales of medium and heavy commercial vehicles are expected to increase by 5-8%. Looking at the numbers now we seem to be pretty much on target. We are expecting overall gross disbursements growth to be in the 15% range for the current fiscal as against 22% in the last. Growth is coming from light commercial vehicles, construction equipment, a little bit of tractors, so there is growth happening in parts of the auto industry. While medium and heavy is not growing at 30% like previous years, there is some growth which is contributing.
NIMs will stay between 3.2-3.5% in long-term: Andhra Bank
Published on Wed, Nov 02, 2011 at 16:27 | Source : CNBC-TV18
Completing its 100% migration to system-based NPA recognition, in an interview to CNBC-TV18, R Ramachandran, chairman and managing director of Andhra Bank says its is one of the reasons why the bank's NPAs have gone up in Q2.
Post the Q2 results declared today, he says the bank's MFI exposure is at Rs 250 crore and he has not seen any delinquencies in MFI loans. Further, he says, "in the long-term NIMs (net interest margins) will be stabilising at 3.25% and 3.5%."
Q: Asset quality seems to be a bit of problem right now and gross NPAs have definitely increased, is there any particular sector that is giving you trouble at the moment, the agricultural sector even on the power side?
A: We have declared results after doing 100% system generated NPA, we have gone through that and our software has picked up more than one lakh thirty thousand accounts below one lakh category.
As a result of which particularly our agricultural sector, the NPAs have gone up by more than Rs 500 crore in this particular quarter. Hence, it is one of the reasons why our NPAs have gone up.
Going forward, more than 50% of this can be recovered before the end of this financial year because these are not accounts that are likely to slip further. It is just that the system has captured it and traditionally Andhra Bank has been position to affect good recoveries out of its agricultural advances. We are pretty confident that substantial portion of it will be recovered, unless and until there are external reasons.
Q: Would it be safe to say that the transition to system based recognition is now done and you don't have a significant rise in the NPAs in the coming quarter?
A: Yes certainly, we have done it 100%, to its full effect and going forward, from next quarter onwards, you will not see any increase in advances on account of any deficiency in capturing through the system. We expect this to pan out to a level by which we will only see increase in recovery and improvement as far as reduction in NPAs is concerned.
Q: Could you tell us the exposure that Andhra Bank has to the MFI and power sector and has there been any fresh slippage in this account on both these two?
A: Our advances to MFIs is very nominal, it is just around Rs 250 crore in terms of out standings and it has come down from Rs 290 crore to Rs 250 crore and the exposure is not high and we have not seen any delinquency in that. A few accounts went in for restructuring, we anticipate things to fall in line and we don't anticipate any stress on account of that.
As far as power is concerned there has to been any case for restructuring of any of the advances. Our power outstanding were around Rs 9187 crore to power sector, which is 12.33% of the total advances.
Q: Some of your statements say that you see a pressure of about 30-35 basis points in terms of NIMs pressure in Q3, where do you se this pressure coming from is it to do with savings rate and its deregulation cost will not be able to be passed on or is there any other pressure?
A: Partly, it is to do with savings rate, partly also to do with the fact that reprising of all the earlier deposits that are taking place now. So, traditionally wherever we have taken deposits for a long-term for 2-3 years, which is at a lower rate of 6.5-7-7.5 % than today, we offer for one year at an interest rate of 9.4%.
We have been in a position to more or less maintain the NIM between 3.8 and 3.9 for three to four quarters. If you look at our NIM for September 2010 it was around 3.91, so we have been able to maintain it at this level. However, going forward, it will be difficult because one is the reprising.
Secondly, the fact that eventually we have to be competitive; when there is a deregulation in savings bank and going by the present market trends there may be certainly an upward pressure for us to revise the savings account rates shortly and when we revise it, it will certainly go up. I will not be able to quantify it, till a decision is taken but it will certainly have an impact and pressure on our NIMs.
Q: Do you see the long-term NIMs stabilising at 3.5%?
A: It will be between 3.2 - 3.5%. We don't expect it to go to 3.2%, it should be between 3.25% and 3.5%.
Q: The exposure of over Rs 9000 crore to the power sector is quite high and we have already seen one of the banks Punjab National Bank going in for restructuring of those loans, even if you have not done it in this quarter is there a likelihood that in the coming quarter you see reason to restructure the exposure to power sector?
A: Firstly, we have not received any request for restructuring from any of our borrowers in the power sector. Secondly, most of the projects for which we have given advances, are all in the implementation stage, so it is too early to say whether they will require restructuring at all.
There can be some stress but it has not come to a level where borrowers have come and asked for a restructuring, therefore, it is too premature for me to say whether there will be a restructuring at all. I do not anticipate any restructuring to happen for at least one quarter.
Indian Overseas Bank expects capital infusion of up to Rs 1,450 cr from government
PTI Nov 1, 2011, 06.17pm IST
MUMBAI: State-run Indian Overseas Bank is expecting a capital infusion of up to Rs 1,450 crore from the government by February 2012, a top official said here today.
"We have made a request to the government and will be requiring up to Rs 1,450 crore...it will come this fiscal itself," bank's Chairman and Managing Director M Narendra told reporters here.
He, however, declined to comment when asked about the route Indian Overseas Bank (IOB) will adopt for the proposed capital infusion.
Monday, October 31, 2011
Look before you leap: It’s risky to be loan guarantor
Standing guarantee for your friend’sdebt may also affect your own credit worthiness
By Falaknaaz Syed Oct 28 2011 , Mumbai
Ravi Prasad is a worried man. His Rs 40 lakh home loan application has been rejected by a leading private sector bank. Reason, he was the guarantor for a friend for the same amount since the past five years. As a guarantor for his friend’s home loan, Prasad is legally bound to pay off the debts if his friend defaults.
If you stand as a guarantor for someone’s loan, be it a home loan, education loan or even a personal loan, it means that you agree to be responsible for the repayment of the person’s debt in case of a default. It implies that you are equally responsible for paying off the loan. According to home loan contracts, the liabilities of a guarantor are similar to that of a borrower.
Financial Chronicle gives you a snapshot of the possible situations that could arise if you agree to be a guarantor for someone’s loan and the risks involved.
By Falaknaaz Syed Oct 28 2011 , Mumbai
Ravi Prasad is a worried man. His Rs 40 lakh home loan application has been rejected by a leading private sector bank. Reason, he was the guarantor for a friend for the same amount since the past five years. As a guarantor for his friend’s home loan, Prasad is legally bound to pay off the debts if his friend defaults.
If you stand as a guarantor for someone’s loan, be it a home loan, education loan or even a personal loan, it means that you agree to be responsible for the repayment of the person’s debt in case of a default. It implies that you are equally responsible for paying off the loan. According to home loan contracts, the liabilities of a guarantor are similar to that of a borrower.
Financial Chronicle gives you a snapshot of the possible situations that could arise if you agree to be a guarantor for someone’s loan and the risks involved.
Friday, October 28, 2011
RBI gets tough on prepayment penalty, discriminatory rates
George Mathew
Posted: Thu Oct 27 2011, 00:44 hrs Mumbai
After waiting and watching for quite some time, the Reserve Bank of India (RBI) has finally decided to get tough against the discriminatory pricing of loans and the huge prepayment penalty — up to 2 per cent of the outstanding loans — being charged by some banks.
The RBI has decided to set up a Working Group to look into principles governing proper, transparent and non-discriminatory pricing of credit. This panel is expected to look into different rates for old and new loan customers. Banks and housing finance firms charge different rates for their old and new loan customers. While old customers usually get the stick of high rates, new customers are wooed with carrots like waivers of charges, lower rates and other incentives. The fleecing of customers in the form of penalty on foreclosure or prepayment of loans and different interest rates for old and new loans has been going on for quite some time.
Posted: Thu Oct 27 2011, 00:44 hrs Mumbai
After waiting and watching for quite some time, the Reserve Bank of India (RBI) has finally decided to get tough against the discriminatory pricing of loans and the huge prepayment penalty — up to 2 per cent of the outstanding loans — being charged by some banks.
The RBI has decided to set up a Working Group to look into principles governing proper, transparent and non-discriminatory pricing of credit. This panel is expected to look into different rates for old and new loan customers. Banks and housing finance firms charge different rates for their old and new loan customers. While old customers usually get the stick of high rates, new customers are wooed with carrots like waivers of charges, lower rates and other incentives. The fleecing of customers in the form of penalty on foreclosure or prepayment of loans and different interest rates for old and new loans has been going on for quite some time.
Dues from defaulters: Govt seeks first right of claim
The Government has included a provision in the Enforcement of Security
Interest and Recovery of Debts Laws (Amendment) Bill 2011, which will
allow it to have the first claim on dues from defaulting borrowers from
the sale proceeds of any asset seized by banks from them.
An Income-Tax Department official said that a total of Rs 3,700 crore is
due as direct taxes alone from sick industrial units whose cases are
pending before the Board for Industrial and Financial Reconstruction
(BIFR).
The Financial Services Secretary, Mr D. K. Mittal, told Business Line that “Government dues have a bigger profile than the dues to banks. More people get affected because of Government dues.”
Government dues involve income-tax, capital gains, Excise and Customs
duties, beside sales tax/VAT at the State level. The Bill is to be
introduced in the winter session of Parliament.
It seeks to amend the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest (SARFAESI) Act 2002 and the
Recovery of Debts due to Banks and Financial Institutions (RDBF) Act
1993.
Initially there were differences between the Revenue Department and the
Financial Services Departments over the proposal. The former was in
favour, but the latter was not. But finally the former won the day,
sources added.
At present, in the case of sick companies and matters filed before the
BIFR, the Government has to wait for the BIFR's order on whether it or
banks get the dues first. There is no estimate of the dues for the cases
pending before the Debt Recovery Tribunals (DRTs).
Wednesday, October 26, 2011
Prepayment penalty on home loans on way out, RBI indicates
Borrowers wanting to prepay home loans can look forward to some
relief as RBI today indicated that it would scrap prepayment penalties
charged by banks.
"It is proposed to implement the recommendations of the Damodaran Committee, on which a broad consensus has emerged, as also the action points which were identified by the IBA (Indian Banks' Association) and BCSBI (Banking Codes and Standards Board of India) in the last Banking Ombudsmen conference," RBI said in its mid-year credit policy review.
The Banking Ombudsmen at their conference in September recommended abolition of pre-payment charges on home loans taken under floating rates by customers.
Banks may also offer long-term fixed rate housing loans to customers, Ombudsmen had suggested. They also said lenders may address their asset liability mismatch (ALM) issues by taking recourse to interest rate swaps (IRS) market.
Floating rate loans pass on the interest rate risk from banks, which are much better placed to manage it, to borrowers and, thus, banks only substitute interest rate risk with potential credit risk, the Ombudsmen noted.
Damodaran Committee which was set up by the RBI suggest improvement in banking services had also suggested removal of pre-payment charges.
Some of the private sector lenders charge up to 2 per cent of outstanding loan on foreclosure.
Public sector banks by and large do not levy any prepayment charges when the amount is paid by borrowers from their own sources.
The National Housing Bank (NHB) has already directed all housing finance companies to desist from imposing a prepayment penalty on home loan borrowers.
"It is proposed to implement the recommendations of the Damodaran Committee, on which a broad consensus has emerged, as also the action points which were identified by the IBA (Indian Banks' Association) and BCSBI (Banking Codes and Standards Board of India) in the last Banking Ombudsmen conference," RBI said in its mid-year credit policy review.
The Banking Ombudsmen at their conference in September recommended abolition of pre-payment charges on home loans taken under floating rates by customers.
Banks may also offer long-term fixed rate housing loans to customers, Ombudsmen had suggested. They also said lenders may address their asset liability mismatch (ALM) issues by taking recourse to interest rate swaps (IRS) market.
Floating rate loans pass on the interest rate risk from banks, which are much better placed to manage it, to borrowers and, thus, banks only substitute interest rate risk with potential credit risk, the Ombudsmen noted.
Damodaran Committee which was set up by the RBI suggest improvement in banking services had also suggested removal of pre-payment charges.
Some of the private sector lenders charge up to 2 per cent of outstanding loan on foreclosure.
Public sector banks by and large do not levy any prepayment charges when the amount is paid by borrowers from their own sources.
The National Housing Bank (NHB) has already directed all housing finance companies to desist from imposing a prepayment penalty on home loan borrowers.
Banks to decide on ending loan pre-payment penalty
By Falaknaaz Syed Oct 23 2011 , Mumbai
Close on the heels of the National Housing Bank (NHB) waiving off prepayment penalty on old home loan borrowers and pressure mounting from the Reserve Bank of India (RBI) on banks to follow suit, the management committee of Indian Banks’ Association (IBA) will be meeting on October 25 to decide on the next course of action.
The RBI is already contemplating such a move and had said that it will wait for the comments from IBA on its proposal to do away with prepayment penalty on floating rate home loans. Recently, the Banking Ombudsmen Conference suggested that banks should not impose prepayment charges on loans with floating rate of interest.
Close on the heels of the National Housing Bank (NHB) waiving off prepayment penalty on old home loan borrowers and pressure mounting from the Reserve Bank of India (RBI) on banks to follow suit, the management committee of Indian Banks’ Association (IBA) will be meeting on October 25 to decide on the next course of action.
The RBI is already contemplating such a move and had said that it will wait for the comments from IBA on its proposal to do away with prepayment penalty on floating rate home loans. Recently, the Banking Ombudsmen Conference suggested that banks should not impose prepayment charges on loans with floating rate of interest.
Foreclosure Homes Account for 28 Percent of Q1 2011 Sales
May 25, 2011
By RealtyTrac Staff
By RealtyTrac Staff
Average REO Discount 35 Percent; Foreclosure Discount Drops to 9 Percent
Average Time to Sell at 176 Days for REOs; 228 Days for Pre-Foreclosures
IRVINE, Calif. – May 26, 2011 — RealtyTrac® (http://www.realtytrac.com/gateway_co.asp?accnt=137300),
the leading online marketplace for foreclosure properties, today
released its Q1 2011 U.S. Foreclosure Sales Report™, which shows that
sales of bank-owned homes and those in some stage of foreclosure
accounted for 28 percent of all U.S. residential sales in the first
quarter of 2011, up slightly from 27 percent of all sales in the fourth
quarter of 2010 and the highest percentage of sales since the first
quarter of 2010, when 29 percent of all sales were foreclosure sales. Average Time to Sell at 176 Days for REOs; 228 Days for Pre-Foreclosures
The average sales price of properties in some stage of foreclosure — default, scheduled for auction or bank-owned (REO) — was $168,321, down 1.89 percent from the fourth quarter of 2010 and down 1.46 percent from the first quarter of 2010.
Monday, October 24, 2011
For banks, recovery of bad loans remains a challenge
Debt Recovery Tribunals, BIFR have not served their cause well
The downgrading of State Bank of India (SBI) by credit
rating agency Moody's and the consequent turmoil in the stock market is a
much-talked-about issue currently.
The downgrading is mainly due to SBI's Tier-1 capital adequacy ratio coming down to 7.6 per cent against the norm of 8 per cent.
This is a direct consequence of the increase in gross
non-performing assets (NPAs) to 3.52 per cent and the consequent higher
provisions to be made.
Though the case of SBI is the talking point now, the rise in NPAs is a phenomenon afflicting all banks.
In an earlier article (
Business Line, September 4, 2011), the broad reasons for the
spurt in NPAs and the difficulties faced by banks in recovering bad
loans through the SARFRAESI (Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest) Act were
highlighted.
Relief for home loan borrowers
The National Housing Bank has asked housing finance companies to refrain from levy of penalty on preclosure of floating rate loans.
For those millions of home loan borrowers who were
sulking at their decision to go for floating rate of interest, and who
found their own interest rates being regularly reset even as new
borrowers were being assiduously besought with lower rates, the order
from the National Housing Bank that regulates Housing Finance Companies
(HFCs) on treating both sets of borrowers equally should have come as a
surprise.
The National Housing Bank, in a major
relief to home loan customers, also asked the HFCs to refrain from levy
of penalty on preclosure of floating rate loans, even if this was made
from borrowed money (generally a euphemism for fresh loans at lower
interest rates from a rival lender).
While the decisions have been welcomed by the real estate industry and the borrowers, the HFCs aren't really pleased.
In an interview to Business Line,
Mr Srinivas Acharya, Managing Director, Sundaram BNP Paribas Home
Finance Ltd, Chennai, expressed the fear that ‘home loans would be
operated as demand loans with frequent shifts of home loans'. He argued
that ‘there is a certain degree of unfairness' in that, while there are
restrictions on charging a foreclosure premium on the asset side for
HFCs; these will continue to pay premiums on foreclosures on the
liability side.
FORECLOSURES
Currently, the
HFCs see foreclosures to the extent of 10 per cent of the portfolio in a
year. Already, foreclosure of home loans from own savings is exempted
from penalty. Therefore, he didn't see much additional impact beyond,
say, 0.075 per cent of the portfolio. While he didn't see this as a
major source of income, this penalty always served as a ‘deterrent
against poaching of customers'. As regards interest rate equalisation
between old and new customers, he said this wasn't a major problem and
will get settled with time. The real issue was there was no similar
condition on lenders to HFCs!
On being asked if he
feared there would be a shift from HFCs to banks because of this order
since the National Housing Bank order would apply only to HFCs, Mr
Acharya didn't view this ‘as a threat'. HFCs primarily thrive on their
quick ‘turn-around time' and better understanding of the business and
customer service. Some movement may be there, but that would only be an
immediate reaction in the short term, he felt.
As to
HFCs raising the interest rates for new borrowers so as to mitigate the
impact of the order, he said the ‘interest rates would be guided more by
‘demand-supply' factor and the impact wouldn't be serious for HFCs who
have borrowed on variable rate terms.
He felt that
while there may be some rush for refinancing of higher cost home loans
with cheaper loans, this would settle down. More than the bigger players
in the industry, the smaller players are niche players and therefore
won't be affected. As a result, his own company may not be impacted by
more than Rs 3-4 crore this year. This wasn't a major component of its
overall income and he said that ‘a HFC should thrive on continuity of a
good customer rather than short-term gain from foreclosure premiums!'
Mr
Acharya argued that this was ‘more a populist kind of measure', as home
loans attract a lot of attention and touch the retail end of customers.
Even the Competition Commission of India (CCI) had upheld the
appropriateness of foreclosure premium. While conceding that there might
be some fringe players charging premiums at exorbitant rates, that
really may not be the case in his own company. Moreover such players
charging premium at exorbitant rates could be controlled.
PREMIUM
He
felt that there could ‘be a mandated rate of premium' rather than
removing it altogether. Removal of foreclosure premium, if at all,
should have been done across the financial sector, both for lending and
borrowing, and not just for HFCs alone.
Mr. Acharya
also felt it would be far more prudent ‘to chase a known customer with
proven repayment record rather than go after a new home loan customer
with all the uncertainties!', he added.
In an impact
analysis of National Housing Bank's decision, IDFC Securities said that
the regulatory arbitrage between banks & HFCs wasn't ‘likely to
sustain'. At present, these norms apply only to HFCs, and not banks. RBI
had earlier suggested, but not mandated, these terms for banks.
However, it expected RBI also to follow suit.
Referring
to the practice of financiers offering a lower rate for new home loans
(for old borrowers) to attract business, it felt that the financiers
would have to increase the interest rates for new loans more (by 100-150
bp). However, they could establish a credit profile of customers to
mitigate the impact, offering some flexibility in pricing.
IDFC
Securities expected new home loan rates to rise from the current levels
and settle somewhere between the prevailing new and old home loan
rates. With the cost of a new home loan rising, the growth in new home
sales and mortgage portfolios would suffer.
Waiver of
prepayment charges constitutes a very small part of financiers' income.
But waiver increased borrowers' ability to refinance their existing
loans. This could place players with a stronger liability franchise in
an advantageous position vis-Ã -vis less competitive players, it
concluded.
Mr. S. S. Asokan, Executive Director,
Shriram Properties Ltd, Bangalore, said that at a time of rising
interest rates, this will greatly help the borrowers and facilitate
greater housing loan disbursals by the HFCs.
Foreclosure Activity Hits Record High in Third Quarter
Foreclosure filings were reported on 343,638 properties in September, a 4 percent decrease from the previous month but a 29 percent increase from September 2008. Despite the monthly decrease, September’s total was still the third highest monthly total since the RealtyTrac report began in January 2005, behind only July and August of this year.
“Bank repossessions, or REOs, jumped 21 percent from the second quarter to the third quarter, corresponding to jumps in defaults and scheduled auctions in the previous two quarters,” said James J. Saccacio, chief executive officer of RealtyTrac. “REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts and high volumes of distressed properties.”
Report methodology
The RealtyTrac U.S. Foreclosure Market Report provides a count of the total number of properties with at least one foreclosure filing reported during the month or quarter — broken out by type of filing at the state and national level. Data is also available at the individual county level for both Q1 2009 and March 2009. Data is collected from more than 2,200 counties nationwide, and those counties account for more than 90 percent of the U.S. population. RealtyTrac’s report incorporates documents filed in all three phases of foreclosure: Default — Notice of Default (NOD) and Lis Pendens (LIS); Auction — Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS); and Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank). If more than one foreclosure document is filed against a property during the month or quarter, only the most recent filing is counted in the report.
U.S. Foreclosure Market Data by State – Q3 2009
(NOTE: Click on a column heading to sort)
| Rate Rank | State Name | NOD | LIS | NTS | NFS | REO | Total ▴ | 1/every X HH (rate) | %Change from Q2 09 | %Change from Q3 08 |
|---|---|---|---|---|---|---|---|---|---|---|
--
|
United States |
153,255
|
188,986
|
263,957
|
94,590
|
237,052
|
937,840
|
136
|
5.40
|
22.50
|
3
|
California |
111,741
|
1
|
87,377
|
0
|
50,935
|
250,054
|
53
|
-1.52
|
18.60
|
4
|
Florida |
1
|
95,790
|
1
|
39,403
|
21,729
|
156,924
|
56
|
-0.71
|
23.27
|
2
|
Arizona |
20
|
0
|
36,176
|
0
|
14,146
|
50,342
|
53
|
5.07
|
24.55
|
1
|
Nevada |
19,949
|
0
|
16,329
|
0
|
11,647
|
47,925
|
23
|
9.68
|
58.88
|
10
|
Illinois |
0
|
18,585
|
1
|
8,980
|
9,704
|
37,270
|
141
|
13.68
|
30.29
|
8
|
Michigan |
11,454
|
0
|
10,575
|
0
|
14,997
|
37,026
|
122
|
9.50**
|
22.31**
|
7
|
Georgia |
53
|
1
|
22,088
|
0
|
11,243
|
33,385
|
119
|
6.69
|
25.06
|
28
|
Texas |
86
|
4
|
17,256
|
0
|
12,492
|
29,838
|
316
|
11.27
|
8.72
|
13
|
Ohio |
0
|
12,137
|
0
|
8,707
|
8,801
|
29,645
|
171
|
-4.73
|
-11.71
|
15
|
New Jersey |
0
|
11,816
|
0
|
3,878
|
2,414
|
18,108
|
193
|
44.59
|
1.20
|
16
|
Virginia |
51
|
1
|
10,136
|
0
|
6,499
|
16,687
|
196
|
8.24
|
4.14†
|
9
|
Colorado |
41
|
0
|
11,437
|
0
|
4,787
|
16,265
|
131
|
11.43
|
12.53
|
39
|
New York |
0
|
11,048
|
1
|
2,316
|
1,877
|
15,242
|
521
|
11.55
|
5.28
|
12
|
Maryland |
3
|
6,795
|
0
|
5,795
|
2,210
|
14,803
|
157
|
58.83
|
85.64
|
34
|
Pennsylvania |
1
|
4,961
|
0
|
5,232
|
3,973
|
14,167
|
387
|
7.16
|
15.48
|
17
|
Mass. |
1
|
7,779
|
0
|
3,159
|
1,728
|
12,667
|
215
|
17.53
|
34.81
|
20
|
Indiana |
0
|
2,362
|
0
|
4,504
|
5,235
|
12,101
|
230
|
-12.75
|
-15.77
|
19
|
Wisconsin |
1
|
5,899
|
0
|
2,661
|
2,620
|
11,181
|
229
|
11.17
|
105.16
|
22
|
Tennessee |
4
|
1
|
4,730
|
0
|
6,153
|
10,888
|
250
|
3.92
|
-9.09††
|
18
|
Minnesota |
31
|
0
|
5,450
|
0
|
5,139
|
10,620
|
217
|
16.27
|
100.26
|
23
|
Washington |
0
|
0
|
6,142
|
0
|
4,233
|
10,375
|
264
|
-7.32
|
33.00
|
11
|
Oregon |
108
|
2
|
7,033
|
0
|
3,175
|
10,318
|
156
|
7.09
|
76.59
|
36
|
North Carolina |
1,028
|
4
|
4,158
|
0
|
4,628
|
9,818
|
420
|
28.86
|
-5.99
|
6
|
Utah |
3,515
|
0
|
3,564
|
0
|
2,474
|
9,553
|
97
|
13.24
|
96.28
|
30
|
Missouri |
24
|
0
|
4,470
|
0
|
3,398
|
7,892
|
335
|
8.26
|
-11.17†
|
24
|
South Carolina |
1
|
3,695
|
1
|
1,153
|
2,696
|
7,546
|
268
|
10.99
|
59.74
|
5
|
Idaho |
2,916
|
0
|
3,021
|
0
|
594
|
6,531
|
97
|
28.06
|
153.53*
|
32
|
Alabama |
8
|
0
|
3,808
|
0
|
2,135
|
5,951
|
359
|
-7.07
|
173.86*
|
21
|
Arkansas |
339
|
0
|
3,002
|
0
|
1,837
|
5,178
|
249
|
11.59
|
39.61*
|
25
|
Connecticut |
0
|
3,422
|
0
|
408
|
1,283
|
5,113
|
281
|
68.86
|
10.00
|
29
|
Oklahoma |
744
|
843
|
396
|
1,980
|
1,069
|
5,032
|
323
|
64.66*
|
22.02*
|
37
|
Louisiana |
0
|
762
|
0
|
2,092
|
1,132
|
3,986
|
466
|
21.30*
|
98.70*
|
31
|
Kansas |
0
|
538
|
0
|
1,129
|
1,735
|
3,402
|
358
|
39.71
|
47.08
|
41
|
Kentucky |
1
|
1,050
|
0
|
1,126
|
1,102
|
3,279
|
581
|
15.30
|
12.45
|
14
|
Hawaii |
449
|
0
|
1,499
|
0
|
795
|
2,743
|
185
|
29.02
|
141.46
|
40
|
Mississippi |
4
|
1
|
841
|
0
|
1,374
|
2,220
|
565
|
50.51*
|
241.01*
|
35
|
New Mexico |
0
|
890
|
0
|
837
|
456
|
2,183
|
395
|
9.20
|
84.69*
|
43
|
Iowa |
1
|
0
|
658
|
0
|
1,292
|
1,951
|
681
|
17.81
|
31.91*
|
27
|
New Hampshire |
14
|
0
|
1,372
|
0
|
558
|
1,944
|
306
|
-5.08
|
-2.21
|
26
|
Rhode Island |
1
|
0
|
871
|
0
|
682
|
1,554
|
290
|
-6.33
|
-2.75
|
| District of Columbia |
405
|
0
|
619
|
0
|
159
|
1,183
|
240
|
19.37
|
-11.05
|
|
42
|
Maine |
0
|
234
|
0
|
577
|
242
|
1,053
|
662
|
27.02
|
33.12
|
38
|
Delaware |
0
|
4
|
0
|
483
|
291
|
778
|
500
|
-8.79
|
-11.69
|
33
|
Alaska |
9
|
0
|
534
|
0
|
221
|
764
|
369
|
29.93
|
36.43
|
45
|
Nebraska |
241
|
247
|
12
|
6
|
229
|
735
|
1,062
|
75.84*
|
-29.67
|
48
|
West Virginia |
6
|
0
|
287
|
0
|
277
|
570
|
1,549
|
67.16*
|
356.00*
|
44
|
South Dakota |
0
|
110
|
0
|
105
|
149
|
364
|
981
|
127.50
|
205.88
|
47
|
Montana |
1
|
0
|
19
|
0
|
273
|
293
|
1,486
|
94.04
|
-6.69
|
46
|
Wyoming |
1
|
0
|
86
|
0
|
130
|
217
|
1,117
|
-4.82
|
-14.90
|
49
|
North Dakota |
0
|
3
|
0
|
59
|
52
|
114
|
2,724
|
29.55
|
-20.28
|
50
|
Vermont |
2
|
1
|
7
|
0
|
52
|
62
|
5,023
|
342.86
|
169.57
|
*Actual increase may not be as high due to data collection changes or improvements
**Collection of records classified as NOD began in August 2009 because of change in state law
† Collection of some records previously classified as NOD in this state was discontinued starting in January 2009
†† Collection of some records previously classified as NOD in this state was discontinued starting in September 2008
**Collection of records classified as NOD began in August 2009 because of change in state law
† Collection of some records previously classified as NOD in this state was discontinued starting in January 2009
†† Collection of some records previously classified as NOD in this state was discontinued starting in September 2008
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