Large borrowers fall in line after RBI’s one-day default norm

A central bank rule mandating disclosure of loan default even if it is just by a day is putting the fear of god in big borrowers. Borrowers, who owe more than ₹5 crore, are gradually regularizing repayments following the Reserve Bank of India’s (RBI) 12 February circular asking banks to disclose any payment default.

Responding to a Right to Information (RTI) query from Mint, RBI said the total outstanding loans of borrowers, who defaulted on bank loans (under the one-day default norm), has declined more than 60% to ₹55,070 crore on 30 September 2018 from ₹1.53 trillion on 30 June. To be sure, these are not soured assets, but loans where borrowers did not pay instalments on time. However, the data also shows that one-day defaults dipped to a low of ₹50,306 crore on 31 August from ₹91,280 crore on 31 July and rose 9% in September.

"There is a clear change in borrowers’ behaviour and banks are also more alert in taking up these incidents. A message has been sent to errant borrowers that defaults would not be tolerated,” said Arijit Basu, managing director of the State Bank of India.

Large borrowers, experts say, have started paying up on time due to fears of their companies being referred to the bankruptcy court and eventually losing control of their assets.

In its circular, the central bank asked lenders to institute a board-approved policy for resolution of stressed assets. Banks were told to start the resolution process as soon as a borrower defaults on a term loan and were given 180 days to cure it, failing which the account would have to be referred to the National Company Law Tribunal (NCLT).

Under previous guidelines, lenders had the freedom to initiate the resolution process after 60 days of default.

“Earlier, only the NPA (non-performing asset) classification was taken seriously by borrowers, not defaults. That has changed as banks no longer want any stressed asset on their books and, subsequently, the amount of loans under special mention accounts (SMA) has also dropped,” said Basu. To some extent, the introduction of the Insolvency and Bankruptcy Code (IBC) had also helped, he added.

Asset quality of banks improved in Q2 FY19, with gross NPAs as a percentage of total loans declining from 11.5% in March 2018 to 10.8% in September 2018.

The one-day default norms were initially not received well by the industry and a section of lenders. So much so that in April last year, RBI deputy governor N.S. Vishwanathan explained in a speech that the revised framework tries to reduce the arbitrage borrowers are currently enjoying while raising funds through borrowing from banks, as against raising funds from the capital markets.

He had said that if a borrower delays coupon or principal payment on a corporate bond even for a day, the market would penalize the borrower heavily, but defaults in bank borrowings have not led to a similar reaction. “There is a need to change this and restore the sanctity of the debt contract, lest bank debt becomes subordinate even to equity,” he had said.

According to RBI data, the top 100 large borrowers accounted for 16% of gross loans and 21.2% of gross NPAs of banks at the end of the September quarter of FY19.

For large borrowers, the proportion of outstanding loans with any signs of stress (including SMA 0, 1, 2, restructured loans and NPAs) has come down from 30.4% in March 2018 to 25.4% in September 2018.

Some experts say the one-day default norms are hard on some borrowers, who default due to genuine business concerns.

Former RBI deputy governor S.S. Mundra said that while it is critical to keep strict timelines for monitoring credit quality, it has burdened bankers who are already pressed for time.

“In some cases, where the defaults occur owing to genuine cash flow issues, banks nonetheless have to start the resolution process, arrange meetings and look for revival plans,” Mundra said. “This has to be done each time a borrower defaults and it has to be stopped as soon as they repay, leading to an exercise that could have been avoided had there been a buffer period.”

However, the former RBI deputy governor added that not only has IBC changed the way a borrower looks at the system, but bankers also have begun timely stress assessment exercises.

Source- Livemint

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Bank GNPAs & Net NPAs improved in September: RBI

The asset quality of banks showed improvement with gross non performing assets' (GNPAs) ratio declining to 10.8 per cent in September 2018 from 11.5 per cent in March 2018, a Reserve Bank of India (RBI) report said Monday. 

The net NPAs ratio also witnessed a fall at 5.3 per cent in September 2018 as against 6.2 per cent in March 2018, RBI said in its Financial Stability Report. 

"In a sign of possible recovery from the impaired asset load, the GNPA ratio of both public and private sector banks showed a half-yearly decline, for the first time since March 2015, the financial year-end prior to the launch of asset quality review (AQR)," the report said. 

GNPAs of state-run lenders improved to 14.8 per cent in September 2018 from 15.2 per cent in March 2018, the report said. Private sector banks saw gross NPAs falling to 3.8 per cent in September 2018 from 4 per cent in March 2018. 

The report also tested the resilience of the banking system against macroeconomic shocks through macro-stress tests for credit risk. Under the baseline scenario, the GNPA ratio of all banks may come down to 10.3 per cent by March 2019 from 10.8 per cent in September 2018, the report said. 

The GNPA ratio of state-run lenders may decline from 14.8 per cent in September 2018 to 14.6 per cent by March 2019 under baseline scenario, whereas private sector banks' GNPA ratio may decline from 3.8 per cent to 3.3 per cent in March 2019, the report said. 

Foreign banks' GNPA ratio under baseline scenario might decline to 3.1 per cent in March 2019 from 3.6 per cent in September 2018, it said. The report said the ratio of restructured standard advances (RSAs) steadily declined in September 2018 to 0.5 per cent following the withdrawal of various restructuring schemes in February 2018. 

"This suggested increasing shift of the restructured advances to NPA category," the report said. 

As of September 2018, provision coverage ratio (PCR) of all banks was higher as compared to 51 per cent in March 2018, with improvements noticed for both state-run banks and private sector banks, the report said. 

Distribution of banks GNPA ratio shows that the number of banks having GNPA ratio less than 10 per cent has gone down in September 2018 as compared to March 2018, the report said. 

The capital to risk-weighted assets ratio (CRAR) of banks declined marginally from 13.8 per cent in March 2018 to 13.7 per cent in September 2018, it said. The CRAR of state-run banks declined from 11.7 per cent to 11.3 per cent, the report said. 

The asset quality of the industry sector improved to 5 per cent in September 2018 compared to 13.6 per cent in March 2018, while that of agriculture and retail sectors declined to 6.3 per cent and 2.3 per cent respectively in September 2018, it said. 

The share of large borrowers in total loan portfolios of banks and their share in GNPAs was at 54.6 per cent and 83.4 per cent respectively at the end of September 2018, the report said.  The top 100 large borrowers accounted for 16 per cent of the gross advances and 21.2 per cent of GNPAs of banks, the report said. 

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PSU banks recovered large amount of bad loans in 4 years to FY18, says minister

Public sector banks recovered Rs 2.33 lakh crore worth of bad loans during the four years from financial year 2014-15 to fiscal 2017-18, Parliament was informed Friday. As per RBI data on global operations for PSBs, during the financial years 2014-15 to 2017-18, PSBs recovered Rs 2,33,339 crore, of which Rs 32,693 crore was from written-off accounts, Minister of State for Finance Shiv Pratap Shukla said in a written reply in Lok Sabha.

He was responding to a question asked on non-performing assets (NPAs) and write-offs by public sector banks (PSBs) during April 2014 to April 2018 and the amount recovered by them. Shukla said, write-offs of NPAs is a regular exercise of the banks to clean up their balance sheet, tax benefit and capital optimisation.

“Borrowers of such written-off loans continue to be liable for repayment. Recovery under relevant legal processes from written-off accounts may extend beyond the financial year in which the account is written off,” he said.

During 2014-15 to 2017-18, the PSBs witnessed reduction in their NPAs due to write-offs (including compromise) to the tune of Rs 3,16,515 crore.

Aggressive lending practices, wilful default/loan defaults as well as corruption in some cases and economic slowdown were the primary reasons for spurt in stressed assets, he further said. Country’s largest lender SBI, stood on a gross bad loans of Rs 2.02 lakh crore as on September 30, 2018, showed the data furnished by the minister which was sourced from the Reserve Bank.

Among the rest of the 20 PSBs, Punjab National Bank had grossed NPAs to the tune of Rs 80,993 crore by end of second quarter of the current fiscal, IDBI Bank Rs 50,690 crore, Bank of India Rs 50,338 crore, Union Bank of India Rs 48,575 crore.

Bank of Baroda also had NPAs to the tune of Rs 46,454 crore, Canara Bank Rs 41,907 crore, Central Bank of India Rs 37,411 crore, Indian Overseas Bank Rs 35,607 crore and UCO Bank Rs 28,822 crore.

In reply to a query on gross advances done, the minister said aggregate gross advances of PSBs increased from Rs 16.98 lakh crore as at end-March 2008 to Rs 45.91 lakh crore by the end of March 2014.

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SBI and BoI seek bids for NPAs worth Rs 7,000 crore

Seven months after the Supreme Court (SC) ordered the maintenance of status quo on insolvency proceedings against manufacturing firm Jayaswal Neco Industries, State Bank of India (SBI) on Thursday sought bids from asset reconstruction companies (ARCs) for the company. The lender said it already has a bid in hand from an investor interested in buying the asset and the auction will be through the Swiss challenge method, based on the existing bid. “Besides the fund-based outstanding of Rs 1,362.89 crore at reserve price of Rs 885.89 crore, the bidder would also be required to furnish guarantee/100% cash margin for the non-fund-based outstanding to the extent of Rs 171 crore, or the non-fund-based outstanding as on the date of assignment, whichever is higher, subject to a maximum of `219 crore (non-fund-based),” SBI said in an auction notice.

 In April, the apex court had passed its order directing status quo after Jayaswal Neco pleaded that it should not have been subjected to insolvency proceedings because a majority of its lenders had agreed to a restructuring plan for the company’s debt. Jayaswal Neco owes its lenders Rs 3,522 crore and was named in the RBI’s second list of large non-performing assets (NPAs) which were to be resolved under the bankruptcy law, unless resolved by other means by mid-December.
SBI is seeking a 100% cash bid for the asset and the reserve price implies it is willing to take a haircut of up to 65%.
The bank has also put on sale two other bad-loan accounts — Ahmedabad-based Sona Alloys (Rs 648 crore) and MCL Global Steel (Rs 100 crore). For Sona Alloys, it will entertain bids that offer a mix of cash payments and security receipts (SRs), with haircuts ranging between 70% for a full-cash offer and 62% for a bid paying 25% in cash and the rest through SRs. For MCL Global, only full-cash bids will be accepted, with the haircut capped at 68%.

Bank of India (BoI) also invited bids for 44 NPA accounts worth a total Rs 4,703 crore on Thursday. The accounts include Dighi Port (Rs 273 crore), Lavasa (Rs 328 crore), Sona Alloys (Rs 23.45 crore) and Visa Steel (Rs 67 crore). Visa Steel, too, is a second-list account.  BoI has earlier made multiple attempts to palm off some of these accounts such as Lavasa, Visa Steel and Jyoti Power during the last few months.

BoI’s recoveries from sale of bad assets during the September quarter did not match its expectations. Dinabandhu Mohapatra, MD and chief executive officer, BoI, said, “We have recovered around Rs 282 crore during this quarter and that process will continue through Q3 and Q4 also. We have identified accounts worth `10,000 crore for sale, from which we are expecting good recoveries.”

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NPAs on the decline, credit growth rising, says Arun Jaitley after key review meet with PSBs

Finance minister Arun Jaitley on Tuesday said bad loans for public sector banks are on a decline and that the economy is passing through a phase of good growth.

“Banks are very confident that under the circumstances they will maintain liquidity for the various sections of the economy, the liquidity which is required,” Jaitley said after reviewing the annual performance of public sector banks. The FM also inaugurated a website of public sector banks — psbloansin59minutes.com — where MSMEs can avail loan of up to Rs 1 crore in less than an hour.

Banking activity is bound to pick up as consumption has moved up and growth figures are encouraging, he said. Jaitley also launched the Financial Inclusion Index. Financial services secretary Rajiv Kumar in a presentation said banks expect cash recoveries of Rs 1.80 lakh crore in 2018-19. PSBs will also be able to monetise non-core assets worth Rs 18,665 crore, he said. “There is equal focus on arresting fresh slippages,” he added.

Earlier in the day, Jaitley told chief executives and senior officials of state-run financial institutions that banks must strive to be always seen as institutions of clean and prudent lending.

Jaitley exhorted the banks to ensure all steps at their end for clean lending and effective action in cases of fraud and wilful default to justify the trust reposed in banks, the finance ministry said in a statement. He observed that formalisation of Indian economy through the Insolvency and Bankruptcy Code (IBC), GST, demonetisation and digital payments have enabled better assessment of financial capacity and risks.

Coupled with inclusive growth through massive financial inclusion, this has unlocked purchasing power which will drive India’s growth,” Jaitley said, adding that this should help India sustain a growth rate of around 8%. The FM flagged the need to revisit efficacy of the Debts Recovery Tribunal mechanism, particularly in view of long lead times in disposal of cases. “Amendment of IBC to debar wilful defaulters has had the unintended positive consequence of defaulting borrowers stepping forward to make payment to participate in the resolution process,” he said.

The perception regarding the health of PSBs has become more positive as banks have posted positive results in terms of resolution, recovery, provisioning and credit growth, Jaitley said.

Source- Economic Times

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Bank of India (BoI) put on sale its exposures to Essar Steel & other NPA acs, Up to Rs 8,831 crore

Bank of India (BoI) on Wednesday put on sale its exposures to Essar Steel, Bhushan Power and Steel and Alok Industries along with 38 other non-performing assets (NPAs) worth a total Rs 8,831 crore. Although Essar Steel has attracted a fairly reasonably bid of Rs  42,000 crore from ArcelorMittal, BoI is probably concerned about the delay in the resolution process. All three accounts, part of the Reserve Bank of India’s (RBI) first list of large NPAs, remain unresolved over a year since the list was issued amid several rounds of litigation. BoI’s exposure to Essar Steel, including foreign currency loans to its Cayman Islands subsidiary, stands at Rs 1,492 crore.

The Bhushan Power exposure includes foreign currency loans extended through the bank’s Hong Kong, New York and Tokyo branches and adds up to Rs 2,441 crore. BoI’s exposure to Alok Industries is Rs 621 crore. Last week, State Bank of India shelved its plan to sell its over Rs 12,000-crore exposure to Essar Steel following a National Company Law Appellate Tribunal order on Friday. In June, Bank of Baroda had moved to sell its Rs 1,200-crore exposure to the indebted steel company.

BoI has also put on the block a bunch of exposures to companies named on the central bank’s second list, including Asian Colour Coated Ispat (Rs 191 crore), Jai Balaji Industries (Rs 124 crore), Orchid Chemicals and Pharmaceuticals (Rs 340 crore), Uttam Galva Steel (Rs 199 crore), Visa Steel (Rs 67 crore) and Wind World (India) (Rs 126 crore). Also on the list is GMR Chhattisgarh Energy (Rs 562 crore), which is one of the 11 large power accounts lenders and power producers are trying to resolve, and Binani Cement (Rs 61 crore).

All the accounts are being offered on a 100% cash basis and for the Bhushan Power and Essar Steel accounts, BoI also intends to retain an equity stake to benefit from an upside. So far, a full resolution has been reached only in the cases of Bhushan Steel, Electrosteel Steels and Monnet Ispat & Energy from the first RBI list of 12 accounts.

While excessive litigation has delayed the resolution in some accounts, others, such as seven of the 11 large power projects have not achieved resolution because of a lack of consensus among lenders. As a result, banks continue to resort to sales to asset reconstruction companies (ARCs). The only large account of over Rs 2,000 crore to be resolved outside the insolvency court before the RBI-mandated deadline of August 27 was Bombay Rayon Fashions, which was sold to JM Financial ARC at a 60% haircut.

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NPA provisions take a toll on Q1 bank results

For every rupee of operating profit, Indian banks had to set aside 97 paise as bad loan provisions in the June quarter of FY19, data compiled from Capitaline showed. In other words, 39 listed banks could plough back only about 3% of their operating profits into capital as they had to set aside money to cover bad loans.

In the same period the previous fiscal year, the same banks could use around 22% of their operating profits after setting aside money for loan loss provisions. While the aggregate operating profit of these banks in Q1 FY19 stood at Rs.67,550.23 crore, their loan loss provisions were at Rs.65,929.26 crore in the same period. This was owing to a 21% year-on-year (YoY) increase in gross non-performing assets (NPAs) along with ageing provisions on legacy assets.

Of these, aggregate NPA provisions of private sector banks increased at a faster pace—61% year-on-year—compared with the 29% rise reported by their public sector counterparts.

The banks have already made provisions for bad loans the Reserve Bank of India (RBI) has recommended for bankruptcy proceedings in its first and second lists; however, lenders are expected to see another surge in provisions after the central bank’s stress resolution deadline of 27 August. Under RBI guidelines, banks have to make provisions of 40-50% when they refer an account to the National Company Law Tribunal (NCLT).

These pertain to provisions banks need to make for unresolved stressed assets under RBI’s 12 February circular, which gave banks 180 days from 1 March to approve resolution plans for loans above Rs. 2,000 crore. A substantial portion of this is from the power sector. Power is one of the highly stressed sectors with close to Rs.1 trillion of loans soured or recast. A report on the impact of RBI’s stressed asset rules, tabled in the Parliament on 7 August, said about 66 gigawatt (GW) capacity of independent power producers is under various degrees of financial stress. This includes 54.8GW of coal-based power (44 assets), 6.83GW of gas-based power (nine assets) and 4.57GW of hydropower (13 assets).

According to Karthik Srinivasan, group head, financial sector ratings at Icra, the amount of incremental provisions for accounts that are referred to NCLT after 27 August is uncertain at the moment. He said it might not be a one-time hit on banks’ books and that the central bank might allow it to be spread over a few quarters.

“Provisions are going to remain elevated in the coming quarters and the only way provisions could fall is if haircuts in NCLT one and two accounts are lower than the expected level of 50-55%. Therefore, pressures on banks’ P&L (profit and loss) will continue throughout FY19,” Srinivasan added. For instance, SBI has made provisions for 71% of the total loans in the two RBI lists. “What we have done is that, particularly for NCLT one list, it is now completely aligned for all accounts, whatever is the resolution plan—recovery or liquidation or whatever is the situation. So, there is no requirement for provision on NCLT one list,” Rajnish Kumar, chairman, State Bank of India recently told analysts. These two lists name loan accounts the RBI wants referred to the bankruptcy court if they fail to find suitable turnaround plans. However, some bankers believe provisions for bad assets have been largely taken care of and going forward, they would not erode their profits.

Rajnish Kumar, chairman, SBI told reporters after announcing the bank’s first quarter results that it hopes to turn profitable from the December and March quarters of FY19.

Among private sector banks, Dhanlaxmi Bank has seen the highest y-o-y growth in provisions at 248% in Q1 FY19, albeit on a smaller base. Others who witnessed substantial rise in provisions include Kotak Mahindra Bank (131% y-o-y), ICICI Bank (129%) and Yes Bank (119%). Most of the 21 public sector banks reported higher provisions in the June quarter led by Punjab & Sind Bank (207%), Dena Bank (186%), Central Bank of India (147%) and IDBI Bank (146%).

Sandeep Bakhshi, chief operating officer, ICICI Bank told analysts at a conference call following the bank’s first quarter earnings that the core operating profit of the bank remains strong. “However, provisions in FY19 are expected to remain elevated,” he added.

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Punjab National Bank(PNB) NPA woes: Big wilful defaulters list out

Liabilities of big willful defaulters of scam-hit Punjab National Bank (PNB) fell by 1.8 per cent to Rs 15,175 crore by July-end over the previous month, according to the state-run bank’s data.

Big wilful defaulters are those who took loans of over Rs 25 lakh from the bank. Such borrowers had an outstanding of Rs 15,355 crore at end of June this year.

In teh list of big wilful defaulters who took loans solely from PNB are:'

1. Winsome Diamonds & Jewellery Rs 899.70 crore; 

2. Forever Precious Jewellery & Diamonds Ltd Rs 747.97 crore; 

3. Zoon Developers Rs 410.18 crore; 

4. Shree Sidhbali Ispat Rs 165.98 crore; 

5. Ramsarup Nirmaan Wires Rs 148.10 crore; 

6. S Kumar Nationwide Rs 146.82 crore.

7. Ramsarup Industrial Corporation Rs 133.20 crore; 

8. Ramsarup Lohh Udyog Rs 129.34 crore; 

9. Mahuaa Media Rs 104.86 crore; 

10. KG Corporation Rs 98.92 crore; 

11. Vishal Exports Overseas Rs 98.39 crore.

List of those who borrowed money through a consortium lending from several banks are:

1. Kudos Chemie Rs 1,301.82 crore; 

2. Kingfisher Airlines Rs 597.44 crore; 

3. Jas Infrastructure and Power Ltd Rs 410.96 crore; 

4. VMC Systems Ltd Rs 296.08 crore; 

5. MBS Jewellers Rs 266.17 crore; 

6. Arvind Remedies Ltd Rs 158.16 crore; 

7. ICSA (India) Ltd Rs 134.76 crore. 

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