RBI permits banks to set their own foreclosure terms for Term Deposits

The Reserve Bank of India has has decided to permit banks to set their own policies regarding foreclosures of Term Deposits, Daily Deposits and Recurring Deposits for the purpose of better Asset Liability Management (ALM).

Originally the banks were bond by the condition that when a Term Deposit is foreclosed for the purpose of a new term deposit in the same branch no fine/penalty can be levied as long as the new term deposit is for a longer period than the balance time of the original one.

 This change now lets the banks formulate their own interest rate policies on foreclosure of term deposits.


RBI Circulars Issued on 28.5.2012:

Union Bank to focus on retail biz, recovery of NPAs this fiscal

Currently, retail biz accounts for 10% of total advances

KOLKATA, APRIL 8: 

Union Bank of India plans to focus on growing its retail business and recovery of non-performing assets this fiscal.

The bank will tap the home and vehicle loan segments to expand its retail portfolio, said Mr D. Sarkar, Chairman and Managing Director, Union Bank.

Mr Sarkar - former Executive Director of Allahabad Bank - took charge at Union bank of India after Mr M.V. Nair, retired on March 31.

Currently, retail accounts for ten per cent of the bank's total advances. As on December 31, 2011, Union Bank's total advances stood at close to Rs 1.5 lakh crore.

“With over 3,200 branches and 3,800 ATMs across the country, Union Bank has a strong delivery channel. We need to put this network of 7,000 odd delivery channels to optimum use in order to improve our retail portfolio,” Mr Sarkar told Business Line.

The bank, which opened about 130 branches last year, plans to set up 250 more branches this year.

NPA MANAGEMENT

As on December 31, 2011, the gross non-performing assets (NPA) of the bank stood at 3.33 per cent while the net NPAs were at 1.88 per cent.

“NPA management is a big agenda for us this year. We will focus on arresting slippages and initiate aggressive recovery measures, wherever possible,” he said.

Slippages have been higher in small loans such as agriculture and micro and small enterprises segment. The bank would take stock of these NPAs in a zone wise manner, he added.

NET INTEREST MARGIN

The bank's NIM improved sequentially to 3.31 per cent in the third quarter of financial year 2011-12, up from 3.21 per cent in the second quarter.

Margins are likely to remain at similar levels in the March quarter as well, he said.

The bank's asset-liability committee is slated to meet next week to take stock of its business mix.

FEE INCOME

The bank would focus on loan syndication and distribution of third party products to increase its fee-based income. Union Bank's fee based income grew by 20 per cent to Rs 592 crore as on December 31, 2011.

“Sale of gold coins has been a very good fee garner for us. This apart, we will also focus on loan syndication and third party products distribution,” he said.

CAPITAL

Union Bank recently received capital worth Rs 650 crore through the issue of shares on a preferential basis to Life Insurance Corporation of India. As on December 31, 2011, the bank's capital adequacy ratio stood at 11.72 per cent.

“We are comfortable on the capital front and are not looking at infusing funds immediately,” he said.

CUSTOMER SERVICE

Providing good customer service is the key to acquiring new customers, Mr Sarkar said.

“We are trying to groom our employees to enable them to focus on providing customer service as this is important to acquire new customers and retain older ones,” he pointed out.

Union Bank has recruited close to 2,500 employees at various levels to meet the shortage in manpower due to retirements. A majority of those recruited were young people and needed adequate grooming, he said.

LIQUIDITY, INTEREST RATES

The tightness in liquidity could lead to a rate cut. The Reserve Bank of India could cut cash reserve ratio rates by 25-50 basis points in its monetary policy this month.

“We will take a call on interest rates once the RBI announces its stance in the monetary policy,” he said. The bank had recently lowered its base rate by 10 basis points to 10.65 per cent.

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.

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. 

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 

Factoring Regulation Bill, a welcome reform

Factoring is a financial transaction whereby a business entity sells its receivables, i.e. invoices to a Factor at a discount. Although a receivable is a property right and is transferable, there was a long-felt need for a statutory framework for Factoring.

Passing of the Factoring Regulation Bill, 2011 by Parliament has almost gone unnoticed on account of other important Bills pending. The object of the Factoring law is to address the problem of delayed payments to micro and small business entities by large businesses for purchase of goods and services.

A special law, viz Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, was enacted in 1993, which was later incorporated into the Micro Small and Medium Enterprises Act, 2006. But in practice, these legislatiions did not improve the position of MSEs because of their dependence on large businesses for continued business. Salient features of the new Factoring Law need to be noted.

- Any company can commence Factoring by obtaining registration from the RBI as a non-banking finance company. Such registration shall be governed by the existing law applicable to NBFCs (Chapter IIIB of the RBI Act, 1934) as well as the new Factoring Regulation Act, 2011.

- Banks or corporations established under an Act of Parliament can also undertake factoring without being required to obtain registration from RBI. Thus, organisations like NHB, SIDBI, EXIM Bank can also undertake factoring.

- Definition of factoring also includes assignment of export receivables and thus includes 'forfaiting', subject to the requirements of the Foreign Exchange Management Act.

- Term receivables are widely defined to include toll or any other charges payable for use of infrastructure facilities. However, bank loans are excluded from the definition of receivables.

- The law applies to all business entities i.e. large, medium, small and micro entities, whether engaged in any manufacturing activity or trading or providing any services or in any other business activity. Applicability of the new law is, therefore, much wider and even large industrial houses and multinational corporations can avail factoring services;

- The definition of 'factoring' covers both, with recourse and without recourse factoring.

- The law requires that all transactions of assignment of receivables in favour of Factors shall be registered with the Central Registry established under the SARFAESI Act, 2002. The registry record shall be available for search by the public.

- Factors are declared to be credit institutions for the purposes of Credit Information Companies (Regulation) Act, 2005 and can have access to credit information relating to firms availing factoring services;

- Factors are not financial institutions for the purposes of SARFAESI Act and hence will not have rights of enforcement without the intervention of courts. But provisions of the Code of Civil Procedure, 1908 regarding summary suits are made applicable to claims of Factors to facilitate speedy recovery of receivables,

- The most important provision in the Act is insertion of section 8D in the Indian Stamp Act, 1899, granting exemption from stamp duty on documents executed for the purpose of assignment of receivables in favour of Factors notwithstanding anything to the contrary contained in any other law in force. In view of such exemption, assignment of receivables in favour of Factors becomes a viable proposition and is expected to give a boost to factoring.

Growth of factoring will solve the liquidity and working capital problems of numerous small and medium scale industries, which supply spare parts and operate as ancillary units of large manufacturing units and other business entities.

Traditionally, banks take lending decisions based on the borrower's capacity to pay and other securities. Factoring will be undertaken considering the capacity, standing and status of debtors. The new law is a major step in financial sector reforms, and needs to be appreciated.

(The author is Chief Advisor-Legal, IBA. The views expressed are personal)

Panel suggests broad changes on asset reconstruction

Livemint Jan 17, 2012

Mumbai: A finance ministry-constituted advisory group on the workings of asset reconstruction companies (ARCs) has recommended sweeping changes to develop the industry and help banks reduce bad assets even as the Indian banking sector is seeing a record rise in bad loans.

ARCs are in the business of buying bad loans from banks at a discount and recovering them. They buy loans by paying cash or offering security receipts (SRs) that get redeemed after a few years.

Introduction of a standard process for the sale of bad loans to ARCs and allowing banks to write off bad loans gradually rather than taking a one-time hit are essential to revive the industry, said the 41-page report submitted to the ministry on 30 December.
Mint has reviewed the report.

The advisory group has made 18 recommendations, including allowing ARCs to trade debt among themselves, letting non-banking financial companies sell bad loans to ARCs, increasing foreign participation and allowing bad debts to be converted into equity.

0.25% cut in interest rates likely: SBI

By B Krishna Mohan Jan 11 2012 , Hyderabad

(SBI).

“With Inflation cooling down, I expect the interest rates to soften by about 25 bps. But we have to wait and see to know what is in store actually,” he said.

SBI has not seen any slippage in the net interest margin (NIM) and is expected to be in line with the guidance of 3.5 per cent, he said in Hyderabad on Wednesday.

The bank has restructured loans of several entities, but companies, particularly in the agri, automobile, ancillary and textile, are in the offing. The public sector bank will deal with each CDR (corporate debt restructuring) case on merit.

The effect of the debt restructuring will be partly visible in the third quarter result, which are to be announced in February. He also declined to comment on the non-performing assets (NPAs) during the quarter. “They (NPAs) are not as bad as we have expected,” he said without putting a number to it.

SBI had kept a watch on the NPA numbers by putting in an additional monitoring wing led by an official in the ranks of deputy general manager. It had also formed in-house recovery teams comprising officials and clerical staff to deal with the NPAs. Though the teams are not new, they are on the field with a special focus.

“SBI is making efforts to reduce the dependency on the outside agencies for recovery to the maximum extent possible. The in-house teams will track the accounts and alert the concerned clients for payments,” he said.

Kumar said SBI has been using the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act that allows banks to take possession of securities and auction them for recovery.

On credit offtake, he said it is expected to grow between 16 to 18 per cent and deposits by 18 to 20 per cent in the fourth quarter of this financial year, he said adding that the focus will be on retail deposits and not bulk deposits. It has no plans to tinker the interest rates in the short term.

He said there is no stoppage of credit from SBI and it has already sanctioned many loans buy the corporate clients are waiting for a policy decision for the rates to come down.

On a query on the need for change in the provision norms, Kumar said SBI has not asked the RBI for any changes in percentage for the provisions.

On the savings account number portability, Kumar said that is a good concept, but its implementation will be fraught with some challenges that will require the banks to invest on the technology, tweak its core banking systems and make other changes.

During the year, SBI expects to recruit about 5,000 people at the official and clerical levels.

SBI, which successfully experimented with a ‘HNIs only’ branch in Hyderabad, on Wednesday has launched Vasundhara Senorita, an exclusive branch for women on the lines of the one existing at Lucknow.

Though aimed at women entrepreneurs, the branch will look to attract women customers across all strata. Men will allowed to carry out transaction in the branch but only as secondary account holders, as women will be the primary account holders.

All the banking paraphernalia apart, the branch has a play pen to keep the accompanying children busy, while the women make their banking transactions.

Spike in bad loans worries RBI

TNN | Dec 23, 2011, 03.57AM IST

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%.

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.

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.

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.

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.

SBI abolishes penalty on pre-payment of housing loans

24 Nov, 2011, 03.26PM IST, PTI   - ET
 
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.

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.

Dena Bank net up 20.5 pc

PTI | 09:10 PM,Oct 31,2011

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.

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.

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.