SBI to restructure loans worth Rs 2500 crore in Q4

29 MAR, 2012, 11.02AM IST, SIMRAN GILL,ET NOW

The country's largest bank, State Bank of India has gone on large scale restructuring drive this quarter. According to sources with direct knowledge of the development, the bank will restructure loans worth Rs 2500-3000 crore in the fourth quarter. This is significantly higher than loans worth Rs 2662 crore that were restructured by SBI in the first nine months of this year. 

According to sources, some of the accounts that have been referred for restructuring are Bharti Shipyard, HCC, Hotel Leela Ventures. A few mid-sized accounts, like ARSS Infrastructure Projects, ICSA, Surya Pharmaceuticals and Vijay Electricals have also been put up for the restructuring exercise. 

"The high amount of restructuring is a reflection of a tough macro-economic environment. The pain has been broad-based and not confined to any particular sector and SBI is restructuring 8-10 large accounts among numerous other smaller ones," said a source. 

While the restructuring is much higher than usual, bank officials believe that most of these accounts can be nursed back to health as a result of the CDR. Going by its past experience, SBI hopes that under 20% of its restructured accounts will slip into the NPA category. 

In fact, according to sources, asset quality for SBI could improve substantially this quarter. The bank had posted a record rise in NPAs for the third quarter to Rs 6,000 crore. This quarter, the bank is expected to post NPAs of around Rs 3500 crore. 

CDR is a mechanism jointly promoted by banks and other institutional lenders to work out packages for troubled borrowers involving reduction in interest rates, rescheduling of repayment period, part-waiver of principal or interest, and so on. 

Tribunal sees sharp rise in debt recovery cases amid slowdown

Kian Ganz & Remya Nair - Livemint

Mumbai/New Delhi: The number of pending cases at India’s debt recovery tribunals (DRT) has increased by almost 70% in about a year, with the economic slowdown affecting the repaying capacity of borrowers and thus worsening the asset quality of banks.

Also, slow clearances of cases in the tribunals is adding to the pendency, say lawyers and analysts.

In response to a question in the Lok Sabha on 23 March, the finance ministry said 63,669 cases were pending in the tribunals as of 31 January. On 31 December 2010, 37,616 cases were pending, according to a Right to Information (RTI) request filed by Prashant Reddy, an intellectual property (IP) lawyer who also blogs on industry blog Spicy IP.

There are 33 DRTs in India, with three each in Chennai, Delhi, Kolkata and Mumbai—the last three having the maximum number of pending cases. The amount locked in as a result was Rs1.57 trillion as on 31 January, against Rs1.13 trillion as on 31 December 2010.

DRTs are semi-judicial authorities that help banks by speeding up the recovery process through steps such as issuance of attachment orders.

An official with the Indian Banks’ Association, who did not want to be identified, cited two reasons for the sharp increase in the number of pending cases at the debt tribunals.

“First is that more banks are approaching the DRTs to recover their bad debts,” this official said. “The second reason is that borrowers are also going to DRTs to challenge actions taken by banks under the Sarfaesi Act.”

The Sarfaesi Act, or Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, allows banks to auction properties of borrowers who fail to repay their loans, or recover their loans through securitization and asset reconstruction.

Of the 63,669 pending cases, 37,654 have been pending for more than a year. The finance ministry said a committee headed by a chairperson of the debt recovery appellate tribunal is examining the “legal, structural, administrative, monitoring and supervisory systems” of DRTs and will recommend measures to make these tribunals more effective and efficient.

“It is often challenging for DRTs to get all the interested parties together at one time. Hence, it becomes a long-drawn process. Banks facing large downside risks (dilution of market value of loan assets) try to settle NPAs (non-performing assets or bad loans) through one-time settlements or corporate debt restructuring,” said Robin Roy, associate director (financial services), at PricewaterhouseCoopers Pvt. Ltd. “Banks do a cost-benefit analysis before taking cases to DRTs as there could be substantial costs attached (long waiting periods) to going to DRTs.”

Banks have three legal options for resolving NPAs—the Sarfaesi Act, DRTs, and Lok Adalats, which are non formal alternative court, he said, adding that while loans above Rs10 lakh go to DRTs there is no sector-specific condition for approaching the tribunals.

Dushyant Kumar Mahant, a lawyer who has represented borrowers in the DRTs several times, said the case load has risen dramatically particularly because of the steep increase in property prices, which has resulted in many borrowers taking loans that they end up not being able to service.

The low disposal rate at the DRTs was caused by infrastructure problems, inadequate staffing also at senior levels, and non-cooperation by borrowers’ lawyers, said Navneet Gupta, Delhi-based partner at law firm SNG & Partners and who often represents banks.

Another lawyer who did not want to be identified blamed the bodies overseeing the DRTs and other tribunals. “The main problem is the appointments. It takes them 6 or 7 months to appoint the presiding officer and then the presiding officer has only a term of five years under the recovery of bad debt Act (Recovery of Debt due to Banks and Financial Institutions Act, 1993,) and they will start looking for a new guy after the old guy retires,” this lawyer said.

“It’s very lacklustre,” said one DRT lawyer about the presiding officers at many DRTs. “You go over there and even if (you) ask to present an argument over there, the matter is adjourned for one reason or another—(the officers) don’t have the bent of mind for disposal rate. It is very difficult for pendency to go down (this way).”

SBI rolls out one-time settlement scheme for small units

K. RAM KUMARPRIYA NAIR - The Hindu

MUMBAI, MARCH 26: 

State Bank of India has launched a one-time settlement (OTS) scheme for recovering bad loans in its micro, small and medium enterprises portfolio. To make the scheme attractive, the bank is also offering discounts to borrowers.

India's largest bank has seen a net increase of Rs 3,902 crore in bad loans in its MSME portfolio in the first nine-months of the current financial year.

Given the increase in bad loans, the bank has launched a non-discretionary and non-discriminatory scheme of OTS to give relief to MSME borrowers affected by the downturn in the economy.

Chronic, non-performing assets (doubtful or loss) in the MSME sector with investment in plant and machinery of up to Rs 10 crore are covered under the OTS scheme, said a bank official.

Many MSME units have been affected by the sharp rise in interest rates and fall in demand for their products.

CORPORATE PORTFOLIO

In the first nine-months of the current financial year, the highest net increase in bad loans for SBI was in the corporate portfolio (Rs 6,469 crore), followed by the MSME portfolio.

It is difficult to give corporates an OTS as banks usually have large exposure to them. Hence, banks prefer taking the legal recourse to make recoveries, said a senior banker.

Overall, SBI has recorded a net increase of Rs 14,772 crore in bad loans in the first nine-months of the current financial year.

As on December-end 2011, MSME advances accounted for 16 per cent of the bank's overall lending portfolio of Rs 8,46,266 crore.

As per the terms of the OTS, the application for compromise will be processed on deposit of a minimum of 5 per cent of the amount outstanding as on the date the account is declared an NPA.

The deposit is to commit the borrowers to the OTS process. The bank will receive applications for compromise settlement up to July 31, 2012.

A borrower has to pay 25 per cent (including the 5 per cent already deposited at the time of application) of the compromise amount upfront on sanction of the OTS by the bank. The balance amount of the compromise has to be paid within six months of the date of sanction without interest or 12 months with interest.

The bank has also thrown in an incentive to make the OTS attractive. It will give 15 per cent and 10 per cent discount on the OTS amount to those borrowers who make full payment within one month and three months, respectively, from the date of approval of the OTS.

India Inc struggles with debt repayment; bad loans to surge

Ritu Jindal, NDTV, 24 Mar 2012 | 07:55 AM

Indian industry seems to be facing a crisis of repayments, if the growth in quantum of debt being sought to be restructured is any indication. Burgeoning interest costs, input prices and slowing growth have led to excess capacity additions, which continue to pose cash flow problems for the corporate sector.

The latest additions to the list of companies seeking debt recast are Electrotherm India and Jai Balaji, which are looking to restructure debt totaling over Rs 5000 crore.

According to banking sources, lenders have referred over Rs 3000 cr debt of Electrotherm India, a metal engineering company, for CDR. Lenders have also have also proposed to restructure Rs 2200 cr debt of Jai Balaji via CDR. Both companies are seeking to extend their repayment period of loans along with a reduction in interest rates.

With more and more corporates choosing this option, the Corporate Debt Restructuring (CDR) cell is now looking at over Rs 75,000 crore of corporate debt to be restructured in fiscal 2012, more than three times the Rs 25,000 crore in fiscal 2011, data from the CDR cell shows.

Most restructuring requests have come from iron and steel, road, telecom, and textile sectors. Noteable among these are companies like the GTL Group, Hotel Leela Ventures, Moser Baer and HCC. Banks have also restructured large scale state electricity board & aviation sector loans which have been outside of the CDR mechanism.

DEBT RESTRUCTURING TO CONTINUE RISING

Strengthen NPA database through existing systems, says RBI

21 MAR, 2012, 11.11PM IST, PTI

MUMBAI: Reserve Bank said there is a need to strengthen the database non-performing assets (NPA) through more effective utilisation of the existing data systems of banks. 

".... the need to strengthen the database on areas like regional and sectoral distribution of non-performing assets through more effective utilisation of the existing data systems of banks," the RBI said in notification. 

Recently, in a conference (Annual Statistics Conference 2012) held at Chandigarh, the RBI deliberated on issues in coverage of banking data, need for its improvement and develop micro-level, granular and consistent data to enhance its utility in policy making. 

"The RBI plays an important role in providing a large pool of statistics as public good. This, however, puts on it the concomitant responsibility to provide timely, reliable and meaningful data and its dissemination, by harnessing technology to its fullest possible extent," it said. 

RBI Deputy Governors K C Chakrabarty, Subir Gokarn and other senior executives among renowned statisticians and economists from the academia participated in the conference. 

We may differ with RBI, but come to a consensus: D K Mittal

Interview with Secretary, Financial Services

Vrishti Beniwal / New Delhi Mar 22, 2012, 00:24 IST

People are bound to have different opinions in any system, but they ultimately reach an understanding, says D K Mittal, secretary, financial services. In an interview withVrishti Beniwal, he defends rumours about differences between the government and the banking regulator over issues ranging from new bank licences to bank account portability. Edited excerpts:

Some key financial-sector Bills will be tabled in this session. Can we expect these before the recess?
It will be difficult. But after the recess, certainly we would have the Banking Regulation Bill, Insurance Amendment Bill, Microfinance Bill, Nabard Bill, Sidbi Bill, NHB Bill and SARFAESI Amendment Bill in Parliament.

PSU banks' NPA up 51% in 2011

The Hindu : Business Line

NEW DELHI, MAR 20: 

Public sector banks’ gross bad debt jumped over 51 per cent to a whopping Rs 1,03,891 crore in 2011, the Minister of State for Finance Mr Namo Narain Meena said today.

Replying to supplementaries during the Question Hour in the Rajya Sabha, he said the gross Non-Performing Assets (NPAs) of public sector banks has increased from Rs 68,597.09 crore at December 2010 end, to Rs 103,891.27 crore as on December 2011.

“NPA increase is marginal... not usual,” he said. “Banks have been instructed to see how NPAs can be reduced.”

Mr Meena said some of the loans to sectors like power, steel, MSME and aviation have gone bad or declared NPA.

Aviation sector, he said, had an outstanding of Rs 39,000 crore, of which Rs 741 crore was NPA. Similarly, power companies had a total outstanding of Rs 1,21,000 crore, of which overdue amount is Rs 446 crore.

“The gross NPAs of public sector banks, in terms of percentage of Gross Advances, have increased from 2.27 per cent to 3.18 per cent,” he said.

Listing out the reasons for the increase, he said switching over to system-based recognisation of NPA by most of the public sector banks during June-September 2011 and increase in interest rates and slowing economic growth had adversely impinged on the repayment capacity of all categories of borrowers, especially small and medium enterprises.

Attention . Attention, Attention please.......

Dear Borrower / Co Borrowers.

ARCIL intends to return the surplus amount available on borrowers loan account. All are requested to please spare two minutes and go through the names of the borrowers / Co borrowers and if you know any of them, please  inform them  to go to the address given in the advertisement and claim their surplus immediately.

Published in THE FREE PRESS JOURNAL, Mumbai, Wednesday, March 14, 2012, PAGE 13

Govt may allow higher foreign play in bad asset business

An FII may be allowed to pick up 49% in a bad asset bought by an ARC from a bank from 10% earlier.

Aveek Datta.

Mumbai: The government may raise the level of foreign direct investment, or FDI, in asset reconstruction companies (ARCs) and allow foreign institutional investors, or FIIs, higher investment limits in security receipts (SRs) which such companies typically issue against a pool of bad assets.Both proposals are critical to boost the asset reconstruction business in India at a time when bad loans in the banking system have been on the rise in a slowing economy.

A long-standing demand of the sector, the changes could be part of the government’s budget for 2012 to be presented in Parliament by finance minister Pranab Mukherjee on 16 March.
The finance ministry is considering a proposal to hike the maximum permissible stake a single FII can pick up in a bad asset bought by an ARC from a bank to 49% from 10% earlier, according to two people familiar with the matter. The maximum collective stake that multiple foreign entities can hold in such an asset may also be increased to 74% from 49% earlier, they added. None of them wanted to be identified.
FDI in ARCs can also go up from 49% to 74%. Even though there is no sub-limit within the 49% permissible limit, typically the Reserve Bank of India (RBI) does not allow one single entity to hold more than 10% stake in an ARC currently.
Barring Asset Reconstruction Co. (India) Ltd (Arcil), India’s oldest and largest ARC, none of the other 12 companies in the sector has been able to acquire substantial bad assets from banks due to paucity of funds.
“An advisory group comprising executives of asset reconstruction companies had made a recommendation to the government (for raising the limit of foreign investment),” said Birendra Kumar, managing director and chief executive of International Asset Reconstruction Co. Pvt. Ltd. “It will be a positive development if the government were to allow this.”
RBI and the finance ministry have been discussing both the proposals.
Typically, ARCs set up separate trusts to acquire individual assets. These trusts issue SRs against the bad assets bought. The SRs are bought by banks themselves as qualified institutional buyers, or QIBs, as well as other investors. Banks do ask for upfront payment in cash, too, instead of SRs.
There are several regulatory restrictions put by RBI on the source of funding that ARCs can tap. Out of the available sources, banks, notified financial institutions and non-banking financial companies do not lend much to ARCs. Another source of liquidity for ARCs could have been domestic funds, but there are a very few in India focused on distressed assets.
P.H. Ravikumar, managing director and chief executive of Invent Assets Securitisation and Reconstruction Pvt. Ltd, said that if there were more funds from foreign investors at the disposal of ARCs they would be able to bid for more assets.
“Over the last two years, all the ARCs put together haven’t managed to acquire assets worth more than Rs. 1,000-2,000 crore,” Ravikumar said. “If the limit of foreign investment is increased to these limits, we can buy assets to the tune of Rs. 5,000-7,000 crore.”
Since these foreign investors are minority shareholders at present, they don’t take an active part in the revival of assets. The situation may reverse if they were allowed a sizable stake, Ravikumar added.
ARCs will play a crucial role in reducing the burden of bad loans on banks, at a juncture where non-performing assets (NPA) in the banking system have grown rapidly.
A 6 February Mint analysis of 34 listed banks that had announced their December quarter results showed that their gross NPAs had grown to Rs.76,644 crore, a 30.51% year-on-year increase. The analysis didn’t include NPAs of State Bank of India (SBI) since India’s largest bank was yet to announce its December quarter earnings as on that date. SBI said on 13 February that its NPAs at the end of December touched Rs. 40,098.43 crore, or 4.61% of its total advances, the highest proportion since September 2005.
Many corporate and retail borrowers have been unable to repay debt as economic growth slowed to under 7% this fiscal from 8.4% in the previous one. After declining continuously between fiscal years 1995-96 to 2007-08, the total stock of bad loans has seen a sharp rise, RBI deputy governor Anand Sinha said in February.
“From 15% in 1995, NPAs came down till 2008, but they have risen sharply by 91%, or Rs. 46,670 crore, between 2005-06 and 2010-11,” Sinha said atMint’s annual banking conclave in Mumbai.
Another policy intervention that ARCs have been hoping for to incentivize the effort and resources required to buy and revive a distressed asset is to allow them to covert a portion of the debt attached to it into equity.
At present, there are regulatory restrictions on ARCs picking up a stake and they make money by earning a fee in lieu of managing the trust through which the asset is acquired and the debt, recovered.
Kumar of International Asset Securitisation said that an amendment to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, to allow conversion of debt to equity had been moved in the winter session of Parliament in 2011 and is pending before a standing committee.
The SARFAESI Act provides the framework in which ARCs operate.
aveek.d@livemint.com


http://www.livemint.com/2012/03/13125635/Govt-may-allow-higher-foreign.html 

Asset Reconstruction Companies - Missing the Good In Bad Loans

Business for ARCs picks up when bad loans mount with banks.  Not in India, where they remain hobbled by fear among banks and policy paralysis,
report Rishi Shah & Dheeraj Tiwari 

 

    The business of asset reconstruction companies, which specialise in settling bad loans of the financial sector, should pick up when an economy feels pain. Yet, even as the Indian economy decelerates to its slowest in three years and bad loans of banks hit an all-time high, ARCs remain in a state of drift, subdued by fear among banks and a loose policy framework. The pace of new bad loans with banks has always exceeded the loans transferred by them to ARCs for disposal. For example, between March 2009 and March 2010, even as bad loans with banks increased by Rs 15,774 crore, transfers to ARCs trailed at Rs 10,675 crore, according to data from the Reserve Bank of India (RBI). This differential is likely to increase as, between March 2010 and September 2011, bad loans of banks are up 40%. While exact numbers are not available, anecdotal evidence suggests flows to ARCs is not keeping pace. “There is no business coming our way,” says a senior official with a leading reconstruction company. According to the latest financial report of State Bank of India (SBI), India’s largest bank, it has Rs 40,000 crore of bad loans. Yet, in 2009-10 and 2010-11, it passed on just six bad loans with a combined book value of Rs 40 crore to ARCs. “In a continually rising NPA scenario, even large banks such as SBI and IDBI Bank sell three and two NPAs, respectively, in a year, that too year after year,” adds Rajiv Ranjan, president & CEO of Reliance ARC. “What can you guess about business coming the way of ARCs?” Business is not picking up for two reasons: fear among bank officials and a weak policy framework. 

FEAR OF ACTION

Bank officials are hesitant to sell bad loans. “Banking is dominated by the public sector, which is reluctant to pawn off assets to other management firms as they fear a loss of face,” says the head of a PSU bank, not wanting to be identified. When a loan is transferred, it goes off the bank’s books. But rather than see it as a way to clean the balance sheet, along with a possibility of recovering something from it, many bank officials fear this might be perceived as an admittance of failure to recover the loan. They also fear vigilance inquiries. “The problem in India is that everybody wants to complain,” says MS Verma, chairman of International Asset Reconstruction Company (IARC), an ARC promoted by HDFC Bank and Tata Capital. “Bankers are afraid that even in a fair process, questions might be asked as to why the NPAs had to be sold when recovery was possible.” Typically, every bank has a chief vigilance officer (CVO) looking into such complaints. Beyond the bank’s CVO, if required, even the Chief Vigilance Commissioner (CVC) and the Central Bureau of Investigation (CBI) can take up such inquiries. In fact, when an ED is to be promoted to CMD, CVC clearance is needed, and inquiries over transfers of bad loan to ARCs can lead to delays in appointments. Given all this, not doing anything is seen as a safer option. “In the public sector, usually, there is accountability only for doing, but none for not doing,” says a senior advocate who declined to be named as he represents banks in courts. “For existing bad loans, all he has to do is create a record that he tried to recover it in every possible way.” The numbers of Arcil, India’s largest ARC, bear that out. Arcil has acquired bad loans with a principal value of Rs 24,000 crore. Of this, Rs 9,000 crore came from ICICI Bank, a private bank, which is 50% more than what SBI gave. Both banks, along with PNB and IDBI Bank, are copromoters of Arcil.

WEAK POLICY FRAMEWORK

According to the RBI, as of June 2011, India had 13 operational ARCs, holding assets with a combined book value of about Rs 74,000 crore. But they are not endowed with capital. In developed markets, well-capitalised ARCs buy loans outright. In India, however, ARCs, pay a bank about 5% of the price of the loan agreed on. For the rest, ARCs issue security receipts (SRs), which is a promise to pay the bank a certain share of the sale value at the time of selling the bad loan. When bad loans have been transferred, both banks and ARCs have bickered over the pricediscovery mechanism and the auction process. Indian banks, typically, offer those loans to ARCs they have been unable to realise for five years or more, and so are often mired in legalities. Banks sell bad loans through an auction, for which they fix a base price. Neeta Mukerji of Arcil says the base price fixed by banks is random and has no relation to the asset’s residual value. “An ARC’s estimate of recovery expected, time frame, cost and funding cost is quite different from that of banks,” says Mukerji, officiating CEO of Arcil. Officials of four ARCs that ET spoke to say the process favours banks, with one even labelling the auction “a sham”. “They only want to sell the worthless, age-old NPAs, where they have almost exhausted recovery possibilities," says an official of one of those ARCs, not wanting to be named. "And they want us to pay a substantial price.” Verma of IARC says some banks conduct auctions only to find the “right price” for themselves to further use as a bargaining tool with defaulters. “Then, they go to the borrower and scare him by saying that ARCs will use tougher means and try to settle it for a higher price,” he adds. Another head of a smaller ARC, speaking on the condition of anonymity, says that during due diligence, one bank refuses to show any papers or even the asset to ARC officials, even though some might have legal claims on them. A government panel, with representation from industry, is currently looking at regulatory, legal and accounting issues plaguing ARCs in India. These include a standard format for documentation, ARCs going public to raise more capital and reduction in bottlenecks in the functioning of debt recovery tribunals (DRTs), which is the stage preceding ARCs. A quick resolution will benefit all stakeholders, says a finance ministry official who is part of the panel but did not want to be identified. “Experience suggests that NPAs, like a cube of ice, lose value over time. And rather fast,” he says.


http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=ETNEW&BaseHref=ETM%2F2012%2F03%2F13&ViewMode=GIF&PageLabel=15&EntityId=Ar01501&AppName=1