Banks initiate crackdown on wilful defaultersTo recover dues from 50 top defaulters; finance ministry wants proceedings fast-tracked

Manojit Saha  |  Mumbai  March 26, 2013 Last Updated at 00:54 IST



Government-owned banks have started cracking the whip on wilful defaulters, with the finance ministry asking them to recover dues from the top 50 defaulters as the first step. Banks have been asked to furnish the information of the top-50 immediately.

Wilful defaulters are those borrowers who have defaulted on loan repayment to banks despite having adequate cash flows and a healthy net worth. The ones who have not utilised the funds borrowed for specific purposes and diverted those for other purposes have also been categorised as wilful defaulters by the Reserve Bank of India (RBI).

The finance ministry has asked chief executives of public-sector banks to take approval of their boards and begin proceedings for penal measures. The ministry has also asked banks to lodge formal complaints against the auditors of the borrowers with the Institute of Chartered Accountants of India, if they find the auditors were negligent or deficient in conducting the duty. (UNDER STRESS)



The ministry’s directions have come against the backdrop of a rise in “compromises” made by banks in writing off loans. According to data compiled by the ministry, the reduction in banks’ non-performing assets (NPA) due to compromises made during write-offs was 33 per cent of the total reduction as of December-end, compared with 31 per cent as of March-end. The total NPA reduction by public-sector banks as of December-end was Rs 41,672 crore.

The ministry has also mandated banks not to provide any additional facility to these companies and to bar their promoters for five years from availing of institutional financing for floating new ventures.

Following the ministry’s directive, banks have formed committees — comprising chairmen, executive directors and government nominees — to update their respective boards on the matter.

“The finance ministry has also directed us to obtain all necessary powers to recover dues from such defaulters,” said a senior executive of a public-sector bank.

The move has come within days of Finance Minister P Chidambaram’s comments on the corporate sector’s wilful defaulters. He had said after a meeting with chiefs of public-sector banks last week: “We cannot have an affluent promoter and a sick company.”

The government – the owner of public-sector banks – has been pushing for recovery of non-performing loans. Banks have also been asked to have a board-approved policy on loan recovery and to conduct a review of NPA accounts — of Rs 1 crore and more by the board of directors, and top-300 by the board’s management committee.

* Wilful defaulters are those borrowers whoh defaulted on loan payment to banks despite having adequate cash flows and healthy networth
* No additional loans facilities to defaulters
* Banks to bar promoters of defaulting companies from institutional finance for floating new ventures for a period of 5 years
* About a third of NPA reduction is due to comprise while writing off a loan
* Banks to form board level committee to monitor recovery process of willful defaulter

http://www.business-standard.com/article/finance/banks-start-crackdown-on-wilful-defaulters-113032500424_1.html

Foreign investment limit in ARCs raised to 74%. The finance ministry said that 74% would be the combined investment limit for FDIs and FIIs

Asit Ranjan Mishra 

New Delhi: A day after allowing asset reconstruction companies (ARCs) to take equity stakes in bad assets of banks through amendment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act in Parliament, the government on Friday raised foreign investment limit in ARCs to 74% from 49% at present.

The proposal is considered 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. Gross non-performing assets (NPAs) in the banking system were around 3.5% of the total assets at the end of the first half of this fiscal, according to government estimates. Cumulatively, banks restructured Rs.1.9 trillion of loans till September.

In a press statement, the finance ministry said 74% would be the combined limit for foreign direct investors (FDIs) and foreign institutional investors (FIIs), removing the prohibition on FIIs investing in ARCs. “The total shareholding of an individual FII shall not exceed 10% of the total paid-up capital,” it added.

A single sponsor will not be allowed to hold more than 50% of the shareholding in an ARC either by way of FDI or FII. “The foreign investment in ARCs would need to comply with the FDI policy in terms of entry route conditionality and sectoral caps,” the statement said.

S.C. Bhatia, chief executive officer of Phoenix ARC, said the move is is more of an enabler and it will take time to produce results. “Unless banks are incentivised to sell (bad loans) to ARCs, I don’t see a flood of equity coming into ARCs,” he said.

There are several regulatory restrictions imposed by the Reserve Bank of India 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. Since foreign investors are minority shareholders at present, they don’t take an active part in the revival of assets.

Typically, ARCs set up separate trusts to acquire individual assets. These trusts issue security receipts (SRs) against the bad assets bought. The SRs are bought by banks themselves as qualified institutional buyers, or QIBs, as well as other investors. Under the current laws, banks can undertake corporate debt restructuring and convert some of the debt into equity according to prescribed guidelines. But no such option was available for asset reconstruction companies (ARCs). They acquire bad debts from banks and other lenders at a discount and then try to recover them, earning a fee.

Through the amendment of the SARFAESI Act by passing the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011 in Parliament, the government allowed ARCs to take equity interest in such bad debts.

The finance ministry also increased the limit of FII investment in SRs from 49% to 74%. It has also done away with the individual limit of 10% for investment of a single FII in each tranche of SRs issued by ARCs. “Such investment should be within the FII limit on corporate bonds prescribed from time to time, and sectoral caps under the extant FDI regulations should be complied with,” it added.

http://www.livemint.com/Politics/xZNSZVtOkqUHUAyHuklgwO/Foreign-investment-limit-in-ARCs-raised-to-74.html

NPA recovery Bill won’t shake things up

Published: Friday, Dec 14, 2012, 2:08 IST 
By Megha Mandavia | Place: Mumbai | Agency: DNA

The pain of bad loans does not seem to be going away anytime soon. A new amendment passed by the Lok Sabha on Monday making auctioning of borrower security easier may not actually translate into any substantial or even immediate reduction in these loans for public sector banks.

The key provision in the new Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi) now allows banks to bid for the unrealised security against the value of non-performing assets (NPA) if it is unable to secure a decent value of the assets at the auction. This will help banks offset outstanding NPAs against the ‘realisation’ and sell them later at a better price.

“It certainly helps because many auctions don’t go through due to cartelisation by bidders and legal issues. But the impact will not be substantial on non-performing assets because every time we don’t have that much collateral to sell,” pointed out BA Prabhakar, chairman and managing director at Andhra Bank.

PSU banks are plagued by rising levels of non-performing assets with a slowing economy and loose lending norms. Gross NPA levels at all listed banks in the quarter ended September on an average stood close to 3%, which are expected to go up to as much as 4.5% in the next one year.

The recent changes will no doubt hasten the recovery process, but a substantial impact on bad loans will not be visible, bankers and analysts said. “We don’t see this as a material change – the difference is largely optical and it is likely that the market will see through these cosmetic accounting changes,” said Seshadri Sen, an analyst with JP Morgan. “Our negative view on PSU banks is underpinned by expectations of continued momentum in incremental delinquency, a view that remains unchanged.”

Large public sector banks are continuing to lend aggressively to stressed sectors such as real estate, iron and steel, textiles, infra and agriculture, thus increasing the risk factor in the banking system, even though bankers are tracking recoveries on a daily basis now.

“The amendment will definitely help increase recoveries, but won’t reduce the NPAs immediately. The change will happen only over a period of time. All these changes are just enablers which help us put more pressure on willful defaulters,” said RK Bansal, executive director with IDBI Bank.

http://www.dnaindia.com/money/report_npa-recovery-bill-wont-shake-things-up_1777362

BANK AUCTIONS - UNSOLD PROPETIES - AN OPPORTUNITY FOR BARGAIN HUNTING

Y.Bhargav, Managing Partner, FORECLOSUREINDIA.COM, 25.5.2012:

Hyderabad : Most of the Public sector Banks and Private sector Banks are Auctioning the immovable properties under SARFEASI Act. The rate of success of selling of the properties through Bank Auctions is varying from around 40 % to 60 % depending on the city, market sentiment, political situations etc.

As per the observations during the last two and half years, the primary reasons for less success rate are :

1. Inappropriate reserve price: Some of the Authorized Officers are finalizing the reserve price over and above the distressed price recommended by the Govt. approved valuer. They are some times not considering the external factors like market sentiment like recession, political situations like etc.

2. Lack of publicity to the Auctions : To fulfill the mandatory requirements and save cost of news papers publication, some of the Banks are publishing the Auction Notices in non prominent news papers.

Wide publicity is required like displaying of Banners, distribution of pamplets, publishing in Internet portals etc.Internet users in India are 110 millions, i.e 11 crores, as against All English news papers readers at 20 millions, i.e 2 crores. Publishing in Internet portals is damn cheap at 4 % cost of English news paper advertisement cost and it gives 25 times more publicity.

3. Lack of proper facility to inspect the property in advance: Inspection of the property is being arranged a few days before the Auction date.

Inspection facility is required immediately after publishing of the Auction notice and at least on one public holidays or after office hours so that interested investors and their family members can inspect the property to take appropriate decision.

4. Loan facility to buy these Properties : Some of the Banks and Housing financial Institutions are not giving loans for these properties.

Banks / Financial Institutions will have to come forward to give quick loans to buy these properties to create a Vibrant Bank auctions market / Foreclosures market in India. Interested Investors must also get the sanction of Pre approved Housing loans to buy this type of properties.

5. Lack of awareness among General Public : General awareness is required as they can buy the properties at very attractive prices.

More than 27% of total home sales are foreclosed sales in USA, where as it may be less than 1 % in India.

6.Sentiment about buying properties in Bank Auctions: Some of the people with out having any financial control over their expenditure, are not paying the loans and they are losing their properties.
Due to the above reasons Banks and Housing Financial Institutions could not sell around 40 % or above properties and they are laying with them only. To dispose off these properties some Banks are going for re Auction. Some Banks are selling on private treaty, i.e selling the property to anyone who approaches them to buy these properties. Banks are reducing the earlier reserve price also by 5 % to 15 %.

The following advertisement is self explanatory of the above aspects.

Advantages of buying properties through Bank Auction/ ForeclosureIndia.com & How do I participate in a Bank Auction

Why would you want to buy a foreclosed home? Here are just a few of the reasons that homeowners and investors are flocking to the foreclosure market.

1.PRICE ADVANTAGE: Approximately 25 % cheaper than market price.

2.LEGALLY SAFE: Since Banks / Financial Institutions have given loan after verification of all the legal aspects only, these are 95 % legally safe.

3.CREDIBILITY OF SELLER: You are buying from a Bank / Financial institution, which is authorized by Govt of India to sell such properties.

4.TIME FRAME: Entire transaction will be over in less than two months period. Ownership in one month.

5.TRANSPARENCY: 100 % transparent transaction. 

6.PROBABILITY: 90% chances of winning in the Bank Auction. 

Home loan for all

• December 25, 2011 
• By Adhil Shetty

• 
  

• Are you looking for a house? Do you have a budget in place, which will ensure that you look for a house that is well within your means? If not, start the process now, as buying a house is a big investment, having financial repercussions for years to come.
  How do you prepare a budget?
  Analyse your current financial situation to determine available resources. You need to answer questions such as, how much cash will you have at hand for a down payment. Also, you would want to know the quantum of housing loan you would be eligible for. After all, how many of us can buy a house today without a housing loan? The housing loan amount will be the critical factor determining your budget. Want to gauge the actual quantum of loan the bank will provide you with. Look for ‘pre-approved’ housing loans.
  What is a pre-approved housing loan?
  It is essentially an in-principle sanction given by a bank for a particular loan amount. A fairly robust process is followed by the banks to determine the loan amount. They will require you to submit a lot of information such as income-tax returns, bank account statements, income proof, salary slips, identity proof, and Pan details among various other things. Banks will also obtain data from CIBIL to check the credit history of the individual.
  Once the checks are in place and the bank pre-approves the loan, it will hand over a letter stating that an in-principle approval of a particular home loan amount has been granted and will be valid up to a particular period. Some banks will also state the rate of interest at which the loan will be provided, the rationale being the interest rate at the time of pre-approving the loan should be applicable. Please note that the pre-approved loan is valid only for a particular period- in most cases it is six months, post which the individual will have to go through the process again.
  Is the bank pre-obliged to provide the loan?
  Banks are not obligated to provide the loan as banks clearly state that the in-principle approval is subject to verification of property documents and the property itself.
  Does it come free of cost?
  Several banks do charge a pre-approval loan processing fee which is refunded if the loan is taken; on the other hand some banks do not charge any fee. Do evaluate your exact need before you opt for a pre-approved loan, it should not be a scenario where you are unable to locate the house of your choice for purchase within the stipulated period of six months.
  If the bank charges a processing fee, then that would be an incurred loss for you. Also, interest rates might change depending on market conditions during the time of the actual loan disbursal, which will not happen until you zero in on the property and the property documents are verified by the bank. Opting for a pre-approved property with a pre-approved loan might enable a quick home purchase process, the pre-approved status for your loan asserts your credibility and repayment capacity while the same for the property indicates the credibility of the builder.
  ADVANTAGES
  * Focus while hunting home: Ensures that you narrow down your home search Getting a loan pre-approved will help you to target a house that is within your budget. This will prevent you from straying — houses bigger than your budget will automatically be eliminated
  * Greater negotiation power: A pre-approved loan will make it clear to the seller that you are a serious buyer and also assert the fact that you have the financial means to close the transaction. Thus he will be willing to offer you a discount or some additional benefits so that the deal is sealed
  * Credibility with real estate agents: Given that the agent will earn commission on the transaction, he will put in extra efforts as he knows you are a genuine buyer
  * Quicker loan disbursal: Processing of the loan application will take place at a much quicker pace if the loan is pre-approved. This ensures that you save time. Many a time, individuals have lost out on good houses, because they were not able to garner resources in time. If you want to make sure that you do not want to lose out on a dream home due to external factors like running short of time, awaiting the loan sanction etc., you could opt for a pre-approved home loan, to ensure a smooth home purchase process.
  (The writer is the CEO of bankbazaar.com)
  http://www.deccanchronicle.com/channels/business/personal-finance/home-loan-all-219