Month: March 2021

Our Bureau

Banks will be back to the usual way of recognising non-performing assets (NPA) and initiating normal recovery proceedings following the Supreme Court vacating its September 2020 interim order.

The earlier order had directed lenders that accounts that were not declared as NPA till August 31, 2020, shall not be declared as NPA till further orders.

‘Recognising NPAs’

Rajkiran Rai G, MD and CEO, Union Bank of India, and Chairman, Indian Banks’ Association, observed that banks are already recognising NPAs (where there was asset classification standstill) as proforma NPAs and have been proactively making provisions. “So, now only actual NPAs will get recognised at March-end in the book. Banks may have to make only incremental provisions in the fourth quarter. It will be back to normalcy. We will be able to go through our recovery process and all that,” said Rai.

Advantage for customer

The Union Bank chief noted that for a customer the advantage during the asset classification standstill period was that even though he was defaulting, it was not getting reported to the rating agencies and the credit information bureaus.

“Now the customer’s NPA status will be recorded everywhere. So, if a customer is defaulting, his rating may be impacted and banks may start normal recovery action.

“Till now, it has been a soft recovery effort because we have not actually marked the account as NPA,” he said.

Krishnan Sitaraman, Senior Director, Crisil Ratings, said the SC judgment clears the way for lenders to recognise NPAs as per the delinquency record of borrowers, which they had not been able to since the end of the moratorium period in August 2020.

Most lenders, however, had disclosed proforma NPAs and also made provisions against the same, which may limit the immediate impact on profitability.

“Standstill on recognition of NPAs had tied the hand of lenders and, consequently, impacted the credit discipline of borrowers.

“Withdrawal of the same will enable lenders to enforce various legal measures and support their recovery efforts,” said Sitaraman

Banking stocks gained on Tuesday soon after the Supreme Court pronounced its verdict on loan moratorium. Bank Nifty was up 1.73 per cent. Indusind Bank, Axis Bank, SBI, and HDFC Bank were among the gainers on the Sensex.

Rating agency Crisil said the verdict clears the way for lenders to recognise non-performing assets as per the delinquency record of borrowers, which they have not been able to since the end of the moratorium in August 2020.

Most lenders have, however, disclosed proforma NPAs and also made provisions against them, which may limit the immediate impact on profitability, it further said.

“Reported Gross NPAs of the banking system is estimated to be about seven per cent as of December 31, 2020. These would have clocked about 100 basis points higher at about eight per cent if the NPA standstill had not been announced by the Supreme Court earlier,” it said.

Standstill on recognition of NPAs had tied the hand of lenders and impacted the credit discipline of borrowers. Lenders will now be able to enforce legal measures and support their recovery efforts, said Crisil.

The Centre may have to allocate an additional ₹7,000 crore as relief to borrowers following the Supreme Court verdict on loan moratorium on Tuesday, according to ICRA.

“As per our estimates, the compounded interest for six months of moratorium across all lenders is estimated at ₹13,500 crore to ₹14,000 crore,” said Anil Gupta, Vice President, Financial Sector Ratings, ICRA.

Pointing out that the Centre has already announced relief for borrowers having borrowings up to ₹2 crore, which was estimated to cost about ₹6,500 crore to the Exchequer, Gupta said: “With the announcement of waiver for all borrowers, the additional relief of about ₹7,000 crore to ₹7,500 will need to be provided to borrowers.”

Satyam Kumar, CEO, and Co-founder, Loantap, also said the verdict will allow regular functioning of the banking system and ensure the economy continues its course to normalcy.

According to Samantak Das, Chief Economist and Head of Research and REIS, India, JLL, the refusal to not extend the moratorium period is unlikely to considerably impact the developers since not many of them opted for the moratorium in the first place.

“As far as home buyers are concerned, significantly low-interest rates offered by various banks have already pushed up affordability,” he said.

Our Bureau

Esaf Small Finance Bank has been awarded ‘Great Place to Work’ certification by the Great Place to Work Institute.

The certification is the result of an employee survey conducted by the third-party global authority on recognising high-trust and performance culture at workplaces. This recognition acknowledges the bank’s commitment and credibility amongst its employees.

K Paul Thomas, MD and CEO, Esaf Small Finance Bank, said: “Employees are always the pillars behind the success of our organisation. This certification is an honour and true recognition for our continued efforts making every day better for employees. We have always provided our employees the best work atmosphere upholding our brand values. Great Place to Work Institute recognises organisations on multiple parameters. and undergoes a rigorous assessment to arrive at the coveted list of companies.”

The Supreme Court’s decision in the loan moratorium case to reject pleas seeking complete waiver of interest during moratorium period has been widely hailed by industry and the legal fraternity, although public sector banks are not entirely enthused about it.

The apex court has also now denied requests seeking extension of moratorium period.

Reacting to the SC ruling, Sanjay Tibrewala, CEO, Phoenix ARC, said: “Supreme Court decision is a welcome one. Complete waiver of interest during the moratorium would have badly hurt the balance sheet of lenders and today’s SC decision was right in denying that. The lenders can now recognise their NPAs and start taking appropriate corrective action for recoveries.”

No compound interest on loan, irrespective of amount, during moratorium, rules SC

Eshwar Karra, CEO-Kotak Special Situations Fund, Kotak Investment Advisors, said, “The SC verdict will throw up a lot of opportunities for special situation funds. A lot of leveraged companies who have asset:liability mismatch will need to re-tenure their existing loans to match their cash flows. Our $1-billion KSSF fund has the flexibility to give customised solutions for such situations.” However, banks will have to take a hit with the SC ruling that the benefit of no interest on interest be extended to all borrowers and not only those who sought moratorium, said a former chief executive of a public sector bank.

Supreme Court verdict: Additional relief of about ₹7,000 crore may have to be given to borrowers

‘Balanced decision’

Anshuman Panwar, Co-Founder, Creditas Solutions, a holistic digital-based debt collection platform, said, “It is a great and balanced decision by the Supreme Court. It ensures the payment culture of retail borrowers remains intact while at the same time providing them relief from the burden of additional interest.”

Siddharth Srivastava, Partner, Khaitan & Co, feels it is a “Very balanced view by apex court. Charging interest on interest would have eventually diluted the relief granted by RBI to ailing borrowers and they may perhaps be worse off than pre-Covid stage. The decision therefore should be welcomed by the borrowers.

Loan moratorium: SC orders full waiver of interest on interest

The apex court has also taken a very prudent view by not granting a complete waiver of interest, which would have severely impacted the banking system. All in all, it is a win-win situation for all the stakeholders involved”.

Jinni Sinha, Partner, IndusLaw, a law firm, said this judgement by the Supreme Court will help corporates, in particular SMEs and MSMEs who were impacted by the pandemic. Waiver of interest on interest will certainly boost these corporates in increasing cash flows and help them meet their operating expenses.

The Supreme Court has also directed to refund the interest already collected, this will have an impact on the balance sheet of the lenders. However, the magnitude of this impact will have to be seen, Sinha added.

‘Shot in the arm’

Jay Parikh, Partner, L&L Partners, said the refusal to extend moratorium and the vacation of the stay on the classification of NPAs by banks is a shot in the arm for the banking sector. On the other hand, the effect of waiver of interest on interest and compound interest will have to be seen, given banks may have declared them as income. On balance, the SC has effectively put to rest the discussions around the moratorium and should provide a lot of clarity to banks, going forward, Parikh said.

Meanwhile, on the SC ruling on NPA standstill issue, Karan Mitroo, Partner, L&L Partners, said the decision of the Supreme Court to vacate the stay on declaration of NPAs will now enable banks to take actions on defaulting borrowers, which will also boost recovery. This will also provide a clearer picture with respect to balance sheets of the banks.

The United Forum of Bank Unions (UFBU) has decided to undertake further preparatory programmes to go for intermittent strikes, prolonged strikes, and also indefinite strike to protest against the government’s proposal to privatise public sector banks (PSBs).

This comes in the wake of about 10 lakh employees and officers, owing allegiance to nine unions under the aegis of UFBU, going on a two-day strike on March 15 and 16.

“…We must intensify our campaign amongst the people, particularly the beneficiaries and other sections of the people.

“…It was decided to undertake a mass campaign of collection of supportive signatures in the petition to Prime Minister,” said Sanjeev K Bandlish, Convenor, UFBU, in a statement.

UFBU decided to embark upon programmes, including collecting five crore signatures from the people in the Petition to Prime Minister during April, May and June; and organisational meetings at all levels in Aprilto ensure total membership contact.

The forum’s constituents will also hold mass rallies, dharnas, seminars and workshops in all the States in April, May and June.

“We are opposed to privatisation of banks and are convinced that privatisation is not the solution to the problems faced by the banks.

“It is imperative that we should prepare ourselves for a prolonged and sustained struggle and also elicit support from the people,” said Bandlish.

In her Union Budget speech on February 1, Finance Minister Nirmala Sitharaman said: “Other than IDBI Bank, we propose to take up the privatisation of two Public Sector Banks and one General Insurance company in the year 2021-22.”