Banks must take firm steps to recover NPAs: FM

NEW DELHI, March 18, 2013, DHNS:

Soared to Rs 1.55 lakh cr as of Dec 2012

 Concerned over the rising bad loans of public sector banks, Finance Minister P Chidambaram on Monday said the lenders must take firm steps to recover non-performing assets (NPAs) without hurting industry.
 “While we understand why NPAs have risen and the restructured accounts have risen, we also wish the banks to take strong steps to recover their dues, I think the promoters have a duty to bring in additional money and the companies have a duty to pay their dues to banks. We cannot have an affluent promoter and a sick company,” Chidambaram told reporters after meeting heads of PSU banks and financial institutions. 

Slow economic growth and inability of companies to payback their loans have contributed to increase in non-performing assets of the banks. This has also given rise to large scale debt-restructuring by banks. 

Gross NPAs of PSU banks have risen from Rs 71,080 crore as on March 2011, to Rs 1.55 lakh crore as on December 2012. Chidambaram also said that as many as 215 infrastructure projects across five sectors worth Rs 7 lakh are facing delays, underscoring the slow pace of implementation of industrial projects in the country. 

He, however, said that certain projects in iron and steel and coal sector have started moving of late. The real problem exists in road and power projects. There are about 68 new projects in the road sector while 40 in power sector are either not moving or moving at a slow pace. “We have to get them going,” he added. 

Such projects usually face hurdles due to delay in clearance from multiple authorities, leading to time and cost overruns. Analysts estimate that poor infrastructure facilities in the country remove about two percentage points from gross domestic product growth. The government has set up a ministerial panel to fast-track such projects.

 Chidambaram also said that the finance ministry and the Reserve Bank of India are investigating the money laundering allegations made against three private-sector banks, but no such complaint has been made against any state-run banks. On the tight cash situation of banks, the finance minister said that he was in talks with the RBI governor D Subbarao and that he expected the RBI to take steps to address the liquidity shortage in the banking system when it meets to review its monetary policy on Tuesday.

 Chidambaram's remarks have renewed hopes among investors that the RBI will also cut the cash reserve ratio of banks to help them with adequate cash in hand.

http://www.deccanherald.com/content/319847/banks-must-take-firm-steps.html

The problem with bad loans

The health of the banking sector is deteriorating. India needs robust insolvency laws

Sunil B.S.   First Published: Thu, Aug 23 2012. 07 30 PM IST

pdated: Thu, Aug 23 2012. 07 36 PM IST

The sharp economic downturn has once again brought the problem of bad loans to the forefront.

In its annual report released on Thursday, the Reserve Bank of India (RBI) pointed out that the health of the banking system is linked to the credit cycle. “Financial institutions tend to overstretch their lending portfolio during economic booms and tend to retrench the same during economic downturns,” it said.

The market is often abuzz with speculation about the inability of some overleveraged business groups to service their bank loans. India has traditionally had a system that tries to help companies in financial distress, making it easy for them to restructure loans. Even RBI has pointed out that the ability of Indian banks to maintain asset quality is “partly on account of the policy of loans restructuring”.

While bad assets of Indian banks have grown 46% in the fiscal year ended March 2012, the growth pace of credit has been at 17%. On 31 March, gross non-performing assets (NPAs) of the banking system amounted to Rs.1.37 trillion and restructured assets Rs.218 trillion.

To reduce the adverse effects of economic downturns on companies and lenders, corporate debt restructuring (CDR) was introduced by RBI in 2001. Despite success in helping companies emerge out of financial troubles, there are several shortcomings in this mechanism. India continues to miss strong insolvency laws.

Restructuring often involves extension of maturities, lower interest rates, debt forgiveness, among others, in case a firm is unable to repay its debt. Further, loans may or may not get classified as NPAs after they are restructured. A working group set up by RBI to review existing guidelines on loan restructuring has recommended increasing the provisions for accounts which get the asset classification benefit on restructuring. Hence, such restructuring places huge stress on the resources of banks

Such restructuring has also attracted criticism about being partial towards big companies. RBI deputy governor K.C. Chakravarty, in a recent speech, raised an important question: Are small and marginal borrowers discriminated against by the banks? An economic downturn is likely to affect smaller companies more adversely than larger ones, so smaller borrowers should be having a greater share in restructured accounts. The data with RBI does not show this.

The soft corner which Indian banks have for large companies is also highlighted by a recent report by Credit Suisse Group AG, which pointed out that the exposure to 10 large industrial groups constitutes 13% of the entire Indian banking system’s loan assets.

In the absence of effective laws on insolvency, many firms who can’t repay their debts for reasons beyond their control remain orphans, and banks are forced to restructure their loss-making assets at a cost. The Sick Industrial Companies Act (SICA), 1985, enabled sick firms to approach the Board for Industrial and Financial Reconstruction (BIFR) to help them revive.

Under the SICA provisions, a company is classified as sick if it has a track record of erosion of net worth over five years. But what is required is a law, which can detect that a company is going through financial difficulty in earlier, and then attempt to revive it. The lack of infrastructure has resulted in bankruptcy procedures under BIFR to take a long time, something which needs to be addressed. Also, steps should be taken to prevent misuse of BIFR provisions by companies that, under section 22 of SICA, seek immunity from creditors after cooking their accounts; this has plagued efficiency at BIFR for long.

Also asset reconstruction companies (ARCs), which were established by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, to acquire, manage and recover illiquid loans or NPAs from banks have failed to take off in a big way. The appetite of Indian investors for securities issued by ARCs is weak, and remains limited to short-tenor papers and those with high ratings. A major hindrance in the way of development of securitization in the country has been high stamp duties. Moreover, the Indian credit markets are closely regulated and loans typically don’t trade on a secondary market, unlike developed countries.

These laws are also tilted in favour of creditors whose major goal remains short term, which is to recover their debts. What is needed are sound insolvency laws in our country along the lines of chapter 11 in the US, which can protect firms and help them adopt a suitable strategy to emerge out of financial difficulties.

http://www.livemint.com/Opinion/FF0FFDxOooUbUDEcAWDHmI/The-problem-with-bad-loans.html

http://foreclosureindia.com/

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

Q1 - Banks are showing profit but Bad loans are hurting the performance ...

The first quarter of F.I 12-13 has ended on June 30,2012.

So far Indian Overseas Bank (IOB), Punjab National Bank (PNB), Union Bank of india (UBI),Bank of India (BOI), Dena Bank, Central Bank of India (CBI) , Axis Bank, Tamilnad Mercantile Bank, Corporation Bank and Vijaya bank have all reported an increase in net profit. However due to increases in bad loans and provisioning for NPAs (non-performing assets) the banks are reporting subdued profits.

Indian Overseas Bank has reported a net profit of 13.5%, PNB has reported a net profit of 12.7%, UBI has reported a net profit of 14.6%, BOI has reported a net profit of 71%, Axis Bank has reported a net profit of 22%, Tamilnad Mercantile Bank has reported a net profit of 79%, Corporation Bank has reported a net profit of 5.35%, Vijaya Bank has reported a net profit of 54%,. Dena Bank has reported a net profit of 42% and Central Bank has reported a net profit of 19.65%.

Update.



ICICI bank has reported a 36% increase in profit for the first quarter of  this year and its gross NPA's came down to 3.54% compared to 4.36 at the end of the first quarter of last year.

UCO Bannk has reported a profit of 24% rise in net profit. White the gross NPA's grew to 3.88% from last years first quarter gross NPA's of 3.50%

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.

Loss-making PSU banks may shut down branches

New Delhi: Concerned over rising NPA, the government may ask state-owned banks to shut down branches and cut down on staff strength in loss-making units.

"This is a part of an ongoing dialogue, not only banks but insurance companies also. If there are loss-making branches, then we need to re-look at why they are there.

"If that needs working out a business strategy, may be relocating it, may be scaling down of staff, all that needs to be looked at," Financial Services Secretary D K Mittal said when asked if the government has asked lenders to submit a report on loss-making branches.

"Ultimately, branches have been set up to earn. If they (loss-making branches) have been there for some time, say 12 months, then I think there is a case to re-look at it," he said on the sidelines of a CII event in New Delhi.

There are about 87,000 branches of public sector banks across the country.

Rising interest rates and slowdown in economy have impacted the repayment capacity of borrowers, especially small and medium enterprises, leading to an increase in NPAs.

The non-performing assets (NPAs) of banks have risen to Rs 1.27 lakh crore till December, 2011. Of this, public sector banks' gross bad debt jumped over 51 per cent to a whopping Rs 1.03 lakh crore in 2011.

The gross NPAs of public sector banks have gone up from Rs 68,597.09 crore in December 2010 to Rs 103,891.27 crore as in December, 2011.

On financial inclusion, Mittal said financial institutions have a strategic role. With appropriate financial products, technology and partnerships, inclusion is a viable business model.

In addition to access issues, livelihood generation is a key aspect of financial inclusion. This is necessary to ensure safe return of the money lent, he said.

SBI aims 19-20% credit growth in FY13

PTI, Apr 5 2012. 7:00 PM IST, Mumbai:

Country’s largest lender State Bank of India (SBI) on Thursday said it is aiming to post a credit growth of 19-20% in the current financial year. “The target (for credit growth) is 19-20% (this fiscal), which was 18-20% (last fiscal),” SBI chairman, Pratip Chaudhuri said.

During the last fiscal, the public sector lender had reduced its credit growth target to 16-19% from an estimated projections of 19-22% at the beginning of the year. Lowering of growth targets was mainly due to lack of demand from corporates owing to economic slowdown in general.

Meantime, the loans by banks increased by over 17% to Rs. 47.6 lakh crore as on 23 March, against Rs. 40.6 lakh crore reported in the same period last year.

Referring to concern regarding bad asset, Chaudhuri said things are improving in the NPA (non-performing asset) front. “Initial response has been encouraging. The NPA situation seems under control. We seem to be winning the war against NPA,” he said.

The gross non-performing asset (NPA) ratio stood at 4.61% during third quarter (Q3) as against 4.19% in the previous quarter (Q2). Similarly, the net NPA ratio grew to 2.22% during Q3 against 2.04% reported in the previous quarter.

Net profit of the bank increased over 15% to Rs. 3,263 crore in the quarter ended December. Net Interest Income (NII) of the public sector lender rose by 27% to Rs. 11,466 crore during this period.

RBI asks banks to improve NPA management

PTI Mar 29, 2012, 01.54PM IST

MUMBAI: The Reserve Bank today asked banks to improve their ability to manage stressed assets, but said there was nothing alarming about an unexpected rise in the NPA levels this fiscal.

"Concerns (on NPA) are there. Banks have to improve their ability to manage NPAs. We have told banks what is their lacuna. They have to improve their information system. But we see that the situation is not alarming. Though this is our concern. Hope banks will be able to manage them," deputy governor KC Chakrabarty told reporters on the sidelines of a function organised by Yes Bank here.

It can be noted that following the continued slowdown in economic activities on the back of rising interest rate regime, banks, especially the state-run ones, have been reporting higher NPAs in their books since the second quarter.

The country's largest lender SBI had reported record gross NPAs in Q3 at Rs 40,080 crore and saw an 87.5 per cent spike in its provisioning. But private lenders are better off.

The total NPAs in the system are set to top 3 per cent of the total assets this fiscal, against a 2.3 per cent last fiscal at Rs 98,000 crore.

But what's worrying the regulator is the an over 300 per cent spike in corporate debt recast this fiscal, which has already touched Rs 76,251, against Rs 25054 crore in the previous fiscal. This makes the overall CDR asset in the system to over Rs 1.9 trillion.

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. 

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.

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