Bank of Baroda starts 'aggressive action' to recover bad loans of large amount

State-owned lender Bank of Baroda has set up a team of lawyers, called the ‘War Room Team’, to deal with bad loans whose recovery is now embroiled in legal complications, reports The Economic Times.

BoB has 380 high-value bad loan accounts, in which the bank is either the sole lender or the consortium leader. The total outstanding amount of these loans is about Rs 15,000 crore.

The bank witnessed a net loss of Rs 3,102 crore in the January-March quarter of 2018. In the same period last year, it had made a net profit of Rs 154 crore.

Following this, the bank has taken up several “aggressive” actions for recovery to bring back the bank’s profit. “We have started directly monitoring the progress of enforcement action in those high-value accounts,” Venugopal Narayanan, head (legal), Bank of Baroda, told the publication.

The lender has also created a stressed asset management vertical, under which 15 existing stressed asset-recovery branches and another 32 newly-created regional stressed asset recovery branches are working.

The bank has arranged for special grooming of officers on various modes of recovery before they are posted to the stressed assets branches to yield better results.

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Unsecured bank loans rise four-times in FY15-18: Report

Banks' unsecured loan book has grown four times the bank credit during the past three years, helped by a rise in discretionary spending, technology-driven disbursements and lower interest rates, says a report. 

Unsecured loans are the loans where individual exposures are smaller and more distributed and given without any collaterals but banks get higher margins. Typically personal loan, education loans and credit card spends fall under this category of loans. 

"Between fiscals 2015 and 2018, unsecured credit - comprising personal, small and medium enterprise (SME), and credit card loans - clocked a compound annual growth rate (CAGR) of 27 per cent, or almost four times growth in bank credit," Crisil said in a report today. 

As of March 2018, outstanding unsecured loans stood at around Rs 5 trillion, accounting for 26 per cent of retail lending, compared to 21 per cent three years ago. 

Growth in unsecured loans is on account of a surge in discretionary spending, increased availability of customer data, faster disbursements driven by technology, and lower interest rates in some segments. 

The report said financiers are expected to focus more on this segment due to attractive yields. 

Return on assets are 2.5-3 per cent for personal and SME loans, and 3-4 per cent for credit cards, compared to under 2 per cent for home loans and new passenger vehicle loans, it said, adding rising competition has led to lower rates in some segments such as personal loans. 

In unsecured SME loans, rates have remained sticky, but average tenure and commissions paid to direct selling agents have increased, it said. 

Source- Economic Times

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Govt accepts 5-point plan to resolve NPAs, rules out bad bank

The government on Monday agreed to a five-pronged strategy to resolve toxic loans, with the larger ones among them going to an asset management company (AMC) or an alternative investment fund (AIF).

Finance minister Piyush Goyal, who accepted the report by a committee of bankers set up in this regard, told reporters that the strategy, called Project Sashakt, will help retain the value of the asset through operational turnaround. The finance ministry had set up the committee, led by Punjab National Bank chairman Sunil Mehta, in June.

There is no proposal to create a bad bank, and Project Sashakt does not require any regulatory forbearance, Goyal said.

Project Sashakt outlines the resolution of bad loans depending on their size. Bad loans of up to Rs. 50 crore will be managed by a focused vertical to be set up at the bank level itself, which will ensure the loan is resolved within 90 days. For bad loans of Rs. 50-500 crore, banks will enter into an inter-creditor agreement, authorizing the lead bank to implement a resolution plan within 180 days, which includes appointing turnaround specialists. If the lead bank does not complete the process in time, the asset would be referred to the National Company Law Tribunal (NCLT).

For loans above Rs. 500 crore, the committee has recommended setting up an independent AMC supported by institutional funding in stressed assets or an AIF. The idea is to help consolidate stressed assets under the AMC model for better and faster decision making.

“There can be more than one AMC. It will be completely market-driven. Small equity required. No capital required from the government. Investors can come and invest. It’s an open process.” Goyal said.

Bigger loans which cannot be resolved through any of the above methods will be transferred to the NCLT for resolution under the Insolvency &

Bankruptcy Code (IBC). The committee also recommended an asset trading platform for both performing and non-performing assets.

“It should create a more vibrant market and each sector requires specific skills. For instance, institutional investors can decide their sector of interest,” Mehta said.

Besides Mehta, the committee included State Bank of India chairman Rajnish Kumar, Bank of Baroda managing director and chief executive officer P.S. Jayakumar and SBI deputy managing director C. Venkat Nageswar.

“Having an AMC will consolidate the bad loans of all lenders at one place,” a banker told Mint. “However, what is crucial is where the AIF is going to get funding from to invest in these stressed assets,” he said on condition of anonymity.

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Banks' Gross bad loans may rise to over 12% in FY19: RBI

The gross non-performing assets (GNPAs), or bad loans, ratio in the Indian banking system is likely to rise from 11.6 per cent in March 2018 to 12.2 per cent by the end of March next year, the Reserve Bank of India said on Tuesday.

Referring to the 11 state-owned banks under prompt corrective action framework (PCA) on account of NPAs, the RBI, in its Financial Stability Report (FSR), also said these may see a worsening of their GNPA ratio from 21 per cent in March 2018 to 22.3 per cent by the end of the ongoing 2018-19 fiscal.

“Macro-stress tests indicate that under the baseline scenario of current macroeconomic outlook, SCBs’ (scheduled commercial banks) GNPA ratio may rise from 11.6 per cent in March 2018 to 12.2 per cent by March 2019,” it said.

Of the 11 banks, six are likely to experience capital shortfall relative to the required minimum risk-weighted assets ratio (CRAR) of 9 per cent, the central bank said.

The 11 banks under PCA framework on account of their high bad loans are IDBI Bank, UCO Bank, Central Bank of India, Bank of India, Indian Overseas Bank, Dena Bank, Oriental Bank of Commerce, Bank of Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank.

Though the overall system level CRAR may come down from 13.5 per cent to 12.8 per cent during the period in review, the FSR said profitability of all commercial banks had declined partly reflecting increased provisioning on account of bad loans.

“The stress in the banking sector continues as GNPA ratio rises further,” the report said “Spillover risk from advanced financial markets to emerging markets has increased,” it added.On the domestic situation, the RBI said economic growth is firming up.

“However, conditions that buttressed fiscal consolidation, moderation in inflation and a benign current account deficit over the last few years, are changing, thereby warranting caution,” the report said.

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Bank write-offs in FY18 widens to large amount

Public sector banks have written off bad loans worth a whopping Rs 1.20 lakh crore, an amount that is nearly one-and-a-half times of their total losses posted in 2017-18, according to official data. This is a double whammy for the struggling PSBs as they had massive write-offs as well as huge losses in the last financial year. This is for the first time in a decade that banks have made huge write-offs of bad loans along with booking of hefty losses. Till 2016-17, 21 state-owned banks made combined profit while in 2017-18, they posted a staggering loss of Rs 85,370 crore, as per the data.

During 2016-17, PSU banks wrote off non-performing assets (NPAs) worth Rs 81,683 crore as against combined net profit of Rs 473.72 crore. SBI alone has written off bad loans of Rs 40,196 crore, nearly 25 per cent of the total write-offs during 2017-18. This was followed by Canara Bank (Rs 8,310 crore), Punjab National Bank (Rs 7,407 crore) and Bank of Baroda (Rs 4,948 crore).

As per the data provided by rating agency Icra, Indian Overseas Bank has written of NPAs worth Rs 10,307 crore, followed by Bank of India (Rs 9,093 crore), IDBI Bank (Rs 6,632 crore) and Allahabad Bank (Rs 3,648 crore). These banks along with 7 others come under Prompt Corrective Action framework of RBI. As per the government data, banks’ write-offs stood at Rs 34,409 crore in 2013-14. The figure has jumped nearly four-fold in five years. In 2014-15, the banks wrote off Rs 49,018 crore ; Rs 57,585 crore in 2015-16, Rs 81,683 crore in 2016-17 and hitting a record high of Rs 1.20 lakh crore (provisional) in 2017-18.

The write-off in banking parlance means that the bank has made 100 per cent provision from its earning against that account. Following this, NPA is no longer part of its balance sheet. However, a write-off puts pressure on balance sheet of banks as it erodes operating profit. Indian banking sector is grappling with mounting NPAs and host of scams and frauds. NPA in the banking sector stood at Rs 8.31 lakh crore as of December 2017.

Weak financials due to mounting bad loans have already pushed 11 banks, out of 21 , under the Prompt Corrective Action (PCA) framework of RBI. The recent tight prudential norms released by RBI on February 12 have added to the NPA woes. Interim Finance Minister Piyush Goyal has announced setting up of a committee to give recommendations in two weeks on formation of an Asset Reconstruction Company (ARC) for faster resolution of stressed accounts.

The committee under Sunil Mehta, non-executive chairman of PNB, will make recommendations for the same.  The finance minister said the committee will consider whether such an arrangement will be good for the banking system and, if any such suggestion is advisable, it will also consider the modalities by which such an ARC should be set up.
Source- Financialexpress

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Modi Government is losing the plot on Public Sector Banks(PSBs)

Narendra Modi government seems to have run out of ideas to turn around public sector banks which are in dire straits. As a result, old ideas appear to be having a re-run. One is the idea of creating a vehicle, asset reconstruction or management company (ARC/AMC), to take over troubled loans and pursue them for whatever they will fetch. This will enable the banks, relieved of their large non-performing assets (NPAs), to begin life anew, so to speak, with a clean slate or balance sheet.

Like all ideas which have been around for some time but have not been accepted, the ARC/AMC has pluses and minuses. While banks will indeed get a new lease of life, the same result can be achieved by recapitalising the banks so that they can provide adequately for the bad loans, turn over a new leaf and get ahead with a normal way of life. Moreover, having seen the loans turn NPA under their own eyes, they will be better than most to pursue recovery.

The other issue is that a committee has been appointed under the chairman of a large public sector bank to present a report to the minister on the feasibility of the ARC/ARM idea in 15 days. This exercise is quite unlikely to yield anything new. All the relevant ideas and information already exist within the finance ministry itself and depending on which way the government wishes to move, the necessary papers can be prepared and forwarded to the cabinet/PMO for approval.

The impression that is created is that a new minister, who is holding additional charge of a portfolio as critical as finance, while also looking after such important portfolios as railways and coal, is keen to both educate himself and be seen to be doing something. In the event, salvation for the troubled banks seems to remain as far away as ever.

Another old idea which has just been reworked is bank mergers. At a meeting with the minister during a discussion on achieving global scale for Indian banks, the chairman of the State Bank of India (SBI) made a presentation on his bank’s experience of merging with itself its associate banks. The reigning thought seems to be that 21 is too big a number for public sector banks. Why too many or too few should be an issue is not clear. What should matter is whether a bank is weak or strong. It is quite possible and perhaps desirable to have a whole lot of mid-sized banks (state-owned if need be) focused on particular geographies which they historically know well (like some of the erstwhile SBI associates) where they can lend to businesses with potential and keep good track of them.

After mergers have been officially touted for so long, the SBI chairman has now said that his bank is big enough so as not to want to inorganically grow any more. The whole point is there are not enough big and strong public sector banks to be able to absorb weak ones and it is quite right for the SBI chief to not want to weaken his bank further by being forced to absorb any more weak banks. It is high time the government stopped considering mergers as a solution.               

While old ideas which have been around for long are being looked at afresh, action is not being taken where it is due or overdue. Several public sector banks are headless and the minister has promised that this situation will end in 30 days. This is as much of an admission that this should not have happened in the first place. Not only should no bank find itself headless, particularly when there is an NPA crisis on hand, with superannuation dates known far in advance, new incumbents should have been in place to take over from those departing.

One of the key areas which the Banks Board Bureau under Vinod Rai was meant to address was identifying in good time the right professional talent for top slots in public sector banks. But in its wisdom, the government chose to let the bureau have limited powers and sphere of engagement so that today Rai is gone and the bureau has become yet another faceless bureaucratic construct which can do little to change the way banks are run.

Top public sector slots remaining vacant is not something new. In the life of the present administration (2014-18) the gross NPAs of listed public sector banks have gone up by a phenomenal more than four times. It is not as if the rot has taken place in these years. It had set in earlier. What has now happened is that banks have been forced to call an NPA an NPA and not keep sweeping them under the carpet. Also, and this is critical, there has been no change in the last four years in the way the government oversees these banks. So a better governance culture has not emerged which could enable them to run professionally and competently.

Vacancies persist and are not filled up on time because of intensive lobbying by politicians, bureaucrats and bankers which ties the hands of the bureaucrats who have to move the papers. The persistence of top vacancies indicates that the present government is being held to ransom by lobbying the same way the previous one was.

The sad truth is that under UPA-rule, public sector banks, for the most part, were allowed to run to the ground and under NDA rule little has been done to change the way they are run. The insolvency and bankruptcy code will speed up recoveries of past bad debts and create a consciousness about the ills of over leveraging among promoters and bankers. But a lot more needs to be done for banks to be run professionally. That is what Rai tried to do with his multiple recommendations. But the government found them too difficult to swallow.

Now, with just about a year to go for elections, a finance minister who can only slowly recover from major surgery and get back to work full time, and leadership in the hands of a minister holding additional charge along with a whole lot of other serious responsibilities, there is little chance of a new regime being put in place soon. This is not much of a record to speak of, going into the polls.

Source - The Wire

Subir Roy is a senior journalist and the author of Made in India: A study of emerging competitiveness (Tata Mcgraw Hill, 2005) and the forthcoming Ujjivan: The microfinance frontrunner (OUP).

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Will 'bad bank' be good for the banking sector?

It's a commonly known fact that India's public-sector banks are in a bad shape. Then why would anyone want to create another 'bad bank' from scratch? Well, the idea of setting up a bad bank doesn't mean a bank that would be bad in its business but that it will take over bad business of other banks. A bad bank handles the bad business of other banks, freeing them of the burden of resolving their bad loans themselves. 

Why is the bad bank in news? 

The government has set up a committee under Punjab National Bank non-executive chairman Sunil Mehta to consider the establishment of an asset reconstruction or asset management company in yet another push to help resolve the bad loan burden that afflicts the banking industry. That company will be what is generally called a bad bank. 

What is a bad bank? 

A bad bank is an entity or structure that buys non-performing assets (NPAs) or distressed loans from banks and financial institutions (FIs), mostly at a discounted market price. It then works to recover and turnaround the assets through professional management, sale or restructuring.

This helps banks or FIs clear-off their balance sheets by transferring the bad loans and focus on its core business lending activities.

Addressing the media after a long brainstorming session with heads of PSBs in Mumbai on Friday, Piyush Goyal, who temporarily holds additional charge of the finance ministry, said a committee under Punjab National Bank’s non-executive chairman Sunil Mehta, has been formed.

The committee members will include SBI Chairman and one of its Managing Directors and Bank of Baroda CEO who will appraise the desirability of an ARC and frame the possible modalities of its structure and framework in next two weeks.

How 'bad' are India's PSU banks 

The 21 banks majority-owned by the government, which account for two-thirds of banking assets in the country, hold close to 90 percent of bad loans. 

Gross NPAs of banks increased to around Rs 10.3 lakh crore, or nearly 11.2% of advances, as on March 31, 2018, compared with Rs 8 lakh crore, or around 9.5% of advances, as on March 31, 2017. Higher provisioning and the resultant losses have materially eroded the Rs 1.2 lakh crore of capital raised by PSBs last fiscal, of which Rs 90,000 crore was from the government in the form of a bail-out plan. Crisil has said the government's bailout plan may not be enough. “Given the higher-than-expected losses last fiscal, probable loss in the current fiscal, and recall of the Additional Tier 1 instruments by a few PSBs, the Rs 2.1 lakh crore recapitalisation program announced in October 2017 may be insufficient to meet the capital requirements of PSBs by the end of this fiscal. 

Success or Failure?

The concept of a bad bank has been experimented in several countries especially after the financial crisis of 2008-09. It has witnessed some success in places like Malaysia, Sweden, Spain and few other countries.

In theory, the concept works well. However, it must be properly implemented and can probably be the starting-point for broader reforms to turnaround the banking sector, which is the backbone of any economy.

Experts have argued that the existing ARCs whose functions are largely confined to recovering stressed loans through liquidation of asset can’t address the problem.

Former RBI governor Raghuram Rajan also said that it would simply mean the transfer of NPAs from one entity to other. However, the larger focus must be on the ‘Twin Balance Sheet’ (TBS) problem of corporates and banks.

For a bad bank to find success, lenders will require to assign a realistic value to banks’ soured loans and also cooperation from the promoters of those assets.

This would mean banks may have to take hefty hair-cuts or discounts while selling the loans, even at the cost of their profitability. Further, equity may be required from owners and private investors.

Two weeks later, the banking sector might see more clarity on the structure and modalities of the bad bank, if at all the idea gets implemented. Meanwhile, banks continue to hope improved recovery from the ongoing time-bound resolutions under the insolvency and bankruptcy code (IBC).

If implemented, this may come to aid the 19 public sector banks of the total 21, which have made losses worth nearly Rs 60,000 crore in the January to March period this year. Strict provisioning norms to set aside capital for bad loans, losses in bond portfolio and a string of scams are straining the balance sheets and finances of most state-owned banks, especially the ones under PCA.

Bad loans or gross non-performing assets (NPAs) with these government-owned banks touched a staggering Rs 10.25 lakh crore as of March 2018.

Source- Moneycontrol

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Uco Bank to recover ‘major amount’ via NCLT

State-run Uco Bank expects to recover a “major amount” from its bad assets through NCLT route as accounts eligible for insolvency resolution are being explored ‘vigorously’. The Kolkata-based lender’s total cash recovery plus upgradation for the last financial year stood at Rs 4290.12 crore, which met its expectations. However, this reduction in NPAs through cash recovery and upgradation was over 32% less than that of FY17.

Commenting on major focus areas of Uco Bank in its latest annual report, RK Takkar, MD & CEO, said: “The bank expects to recover a major amount in NPAs through NCLT resolution.” The lender has exposures to nine of the 12 large stressed accounts identified by the Reserve Bank of India (RBI) last year to get resolved under the Insolvency and Bankruptcy Code (IBC). The bank’s overall exposure to these nine accounts is around Rs 4,300 crore.

“We are looking to recover over Rs 4,000 crore in this fiscal (FY18) through cash recovery and upgradation,” Takkar had told FE in an interview earlier. He had said, for the turnaround, the bank was betting on recovery of stressed assets. RBI had initiated a prompt corrective action (PCA) against it in May last year in view of high non-performing assets and negative return on assets (RoAs).

In the annual report for the financial year 2017-18, Uco Bank said its recovery mechanism was geared up at all levels of the organisation. “Accounts eligible for NCLT are being explored vigorously. Bank closely remained in touch with other lenders/operational creditors, on regular basis, for discussion on way forward in respect of filing NCLT cases.

Most of the accounts under NCLT are consortium/multiple banking accounts, and are monitored for resolution on case to case basis in consultation with leader of consortium etc,” the bank said, adding, where it was leader of the consortium, it was meticulously following up each account for resolution.

“Recovery in loss assets has a direct impact on the profitability and the bank is giving priority in monitoring follow-up for recovery in such accounts. A separate vertical in the bank is monitoring consistently for recovery in loss assets including technically as well as prudentially written-off accounts,” it added.

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