Tag: Indian Banks’ Association

Bankers protest against Chaudhuri’s arrest, want FinMin to intervene

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Bankers are up in arms against what they perceive as an unjust punitive action against former SBI Chairman Pratip Chaudhuri who was arrested on Sunday for an alleged loan scam.

While prominent bankers have condemned the arrest as being detrimental to lending and credit flows, the Indian Banks Association (IBA) has asked the Centre to put in place a procedure to safeguard bankers against state-level authorities, including police, in cases of loan defaults.

Former SBI Chief arrested in Jaisalmer hotel loan case

Sunil Mehta, Chief Executive Officer of IBA told BusinessLine that the mechanism to protect bankers should be on the lines of that already in place for central investigative agencies such as the CBI. Mehta said IBA has written to the Secretary, Department of Financial Services (DFS) in the Finance Ministry and the Chief Secretary, Rajasthan Government, seeking their intervention. In its communication to the DFS, the IBA has said the bona fide decisions on loans should not be subject to arrest without a mechanism in place.

‘Examine the evidence’

“How can you arrest a person until you have sufficient evidence against him? It is humiliating to subject a person of Chaudhuri’s stature to go through this. People with sufficient knowledge should examine the documented evidence and find out if there is something mala fide,” Mehta said.

Bankers, including former SBI chiefs Rajnish Kumar and Arundhati Bhattacharya, have also voiced support for Chaudhary and highlighted the bankers’ precarious situation. Uday Kotak, Managing Director and CEO, Kotak Mahindra Bank and Chairman of the IL&FS board, said on Tuesday, “Based on what I have read, we need to have a criminal justice system which protects bona fide actions taken by lenders to recover their money.”

Meanwhile, industry observers pointed out that Chaudhuri retired as SBI Chairman on September 30, 2013. SBI had assigned the asset in March 2014 to Alchemist ARC. Pratip Chaudhuri joined the ARC Board only in October 2014. Some bankers pointed out that the allegation against Chaudhuri is not borne out as he was neither with the SBI nor with Alchemist when the asset was assigned to the ARC.

Alchemist ARC in a statement alleged that defaulters in the Hotel Gaudavan matter are taking the “judicial machinery for a ride”.

With inputs from Surabhi

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To spur lending, finance ministry pushes to ease fears of bankers, BFSI News, ET BFSI

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To protect the people taking bona fide business decisions, the finance ministry issued a uniform staff accountability framework for NPA accounts up to Rs 50 crore.

These guidelines shall be implemented with effect from April 1, 2022, for accounts turning non-performing assets (NPAs) beginning next financial year.

The Department of Financial Services (DFS), under the finance ministry, “vide its order dated October 29 advised broad guidelines to be adopted by all public sector banks (PSBs) on ‘Staff Accountability Framework for NPA Accounts up to Rs 50 crore’ (Other than Fraud Cases)”, the Indian Banks’ Association (IBA) said in a statement.

Banks have been advised to revise their staff accountability policies based on these broad guidelines and frame the procedures with approval of the respective boards, it said.

The IBA, being a key stakeholder of the framework, was involved in the process right from the beginning.

These guidelines will help quell apprehension that bankers could be hauled up for their bonafide commercial decision to go wrong. It will also help bankers to take credit decisions faster and help support the economy.

Stressing that the new guidelines will surely boost the morale of the PSBs employees immensely, it said banks will have to complete staff accountability exercises within six months from the date of classification of the account as NPA.

Further, it said that depending on the business size of the banks, threshold limits have been advised for scrutiny of the accountability by the chief vigilance officer (CVO).

Past track record

Past track record of the officials in appraisal or sanction/ monitoring will also be given due weightage, it added.

“At present, different banks are following different procedures for conducting staff accountability exercises. Also, staff accountability exercise is being carried out in respect of all accounts which turn into NPA. This approach not only adversely affects staff morale but also puts a huge strain on the bank’s resources,” it said.

Punitive measures

While punitive action needs to be taken against the officers having malafide intent/involvement, it is essential to ensure that bonafide mistakes are dealt with compassion, IBA said.

It added that there is a need to protect the people taking bonafide business decisions in this competitive environment.

Moreover, IBA said that at a time when the country is in need of an economic boost, slow credit delivery to industries due to the fear of implication is a matter of concern and needs urgent attention.

Banks with the approval of their board may decide on a threshold of Rs 10 lakh or Rs 20 lakh depending on their business size for the need of examining the aspect of staff accountability, it said.



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IBA welcomes proposed staff accountability norms

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Our Bureau The Finance ministry’s decision to ask Public Sector Banks (PSBs) to complete staff accountability exercise within six months from the date of classification of an account as a non-performing asset (NPA), will boost the morale of employees, according to the Indian Banks’ Association (IBA).

PSBs have been asked to implement the directives with effect from April 1, 2022 for accounts turning NPA on or after this date. Banks have been advised to revise their Staff Accountability Policies based on these broad guidelines and frame the procedures with approval of the respective boards. At present, different Banks are following different procedures for conducting staff accountability exercise. Also, staff accountability exercise is being carried out in respect of all accounts which turn NPA.

‘Strain on resources’

“This approach not only adversely affects staff morale but also puts a huge strain on the bank’s resources. While punitive action need to be taken against the officers having malafide intent/involvement, it is essential to ensure that bonafide mistakes are dealt with compassion,” per the IBA statement. The Association noted that at a time when the country is in need of an economic boost, slow credit delivery to industries due to the fear of implication, is a matter of concern and needs urgent address.

It emphasised that there is a need to protect people taking bonafide business decisions in this competitive environment.

‘Protect bonafide action’

Banks with the approval of their Board may decide on threshold of ₹10 lakh or ₹20 lakh depending on their business size for the need of examining the aspect of staff accountability, IBA said.

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Indian Banks’ Association: A K Goel elected Chairman for 2021-22

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The Managing Committee of the Indian Banks’ Association (IBA) has elected A K Goel, Managing Director & CEO, UCO Bank, as the Chairman of the Association for the term 2021-22.

The other office-bearers of the Association elected on Thursday are Dinesh Kumar Khara, Chairman,State Bank of India, L V Prabhakar, MD & CEO, Canara Bank, and Rakesh Sharma, MD & CEO, IDBI Bank Ltd as Deputy Chairmen of the Association. Madhav Nair, Country Head & CEO, Mashreqbank PSC, has been elected as Honorary Secretary of the Association, according to IBA.

IBA — set up in September 1946 – is a representative body of the management of banking in India. It is a non-profit association. IBA is managed by the managing committee and the current committee consists of one Chairman and three Deputy Chairmen and one Honorary Secretary, besides members.

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India needs 4-5 more large banks of SBI’s size: Finance minister Nirmala Sitharaman

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The minister asked the IBA to conduct a digitised mapping of bank branches in each district of the country. (File)

Finance minister Nirmala Sitharaman said on Sunday India requires at least 4-5 more large banks like State Bank of India (SBI) to support the growing credit appetite of a fast-recuperating economy in the post-Covid world.

Addressing the 74th annual general meeting of the Indian Banks’ Association (IBA) in Mumbai, the minister said the economy is on a reset mode after the devastation caused by the pandemic. Banks, being the backbone of the financial system, would have to continue to play a critical role in supporting the economy’s resurgence, the minister said. Non-food credit growth remained far from satisfaction and stood at 6.2% in July 2021, against 6.4% a year earlier.

Already, the wide-scale consolidation exercise in the public-sector banking space in recent years has created some large lenders with strong balance-sheet to lend to big projects. Thanks to the amalgamation exercise, the number of state-run banks has come down from 27 in 2017 to 12 now.

She also asked lenders to firm up models to better focus on exporters.

“Be nimble, agile, adaptive, it is a must for attaining $2-trillion export (both goods and services) target for 2030,” she told bankers.

As for funding infrastructure projects, the minister said the proposed development financial institution is coming up soon.

Banking activities need to be scaled up substantially to ensure all business centres in the country are covered with physical or digital banking presence.

In the post-pandemic world, banks need to change the way they undertake their businesses. Since digitisation has changed the way of doing businesses, banks will have to innovate and keep pace with evolving technology, she said.

The minister asked the IBA to conduct a digitised mapping of bank branches in each district of the country. This would help identify the areas that need greater banking presence.

Sitharaman said: “Not necessary to have physical banking presence everywhere. The country’s optic fibre network has covered two-third of about 7.5 lakh panchayats. This could be used to deliver banking services in unconnected areas as well.”

“If we look at post-Covid scenario, India’s banking contour will have to be very unique to India, where there has been an extremely successful adoption of digitization. While banks in many countries could not reach out to their clients during the pandemic, the level of digitization of Indian banks helped us to transfer money to small, medium and big account holders through DBT and digital mechanisms,” she said.

The minister appreciated the efforts of the public-sector banks in implementing the amalgamation exercise even during the pandemic period and completing it without causing any inconvenience to customers.

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NARCL will empower lenders, but recovery from 26 accounts is not easy, industry says, BFSI News, ET BFSI

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The National Asset Reconstruction Company Ltd (NARCL) will kill all communication gaps that bank consortiums face, and will speed up the process. But chances are high that the NARCL will face a tough time recovering from the 26 accounts that have been identified.

Finance Minister Nirmala Sitharaman on Thursday said that the government has allocated more than Rs. 30,600 crore to the NARCL. The government will transfer the funds to the bad bank, according to their calendar. The Cabinet has approved to set up the NARCL, backed by the government securities, she added.

Read: Finance Minister Sitharaman announces bad bank, Cabinet approves backing of up to Rs 30,600 crore on securities receipts

NARCL – sole decision maker

Industry veterans believe that NARCL will strengthen the recovery process.

“The first and foremost advantage is that the NARCL will provide consolidation of the debt. The debt, which is spread out in 10-20 different entities of the consortium or the multiple banking arrangement, will be consolidated into one entity, providing ease of resolution. In a multiple banking arrangement, there is always a difference of opinion, which makes it difficult to reach a resolution plan,” said Sunil Mehta, chief executive officer at Indian Banks’ Association.

The biggest benefit banks will have is that they will get 15% funds upfront from the NARCL as soon as they transfer the assets. In the current scenario, it takes months for bankers to get their first cheque after a rigorous process either at the National Company Law Tribunal or at Debt Recovery Tribunals.

Read: What are NARCL and IDRCL? How do they work and what is the plan?

“The intention and the idea behind bad banks is that all the bad loans of the banks are concentrated at one place so there will be one common decision making entity. This will make the execution of asset resolution far faster,” said Jyoti Prakash Gadia, managing director at Resurgent India.

NARCL will empower lenders, but recovery from 26 accounts is not easy, industry says
Operations and recovery

Public sector banks will hold 51% stake in the NARCL, while debt management and other financial institutions will hold 49%. NARCL will be managed by professionals, and non performing asset accounts, which are larger than Rs. 500 crore, will be transferred to it. Currently, banks have identified 26 accounts, worth around Rs. 90,000 crore, which the NARCL will take over from them.

The hope is that the government-backed bad bank will bring in the right value for the banks. Because in the current situation, liquidation is much higher compared with resolution, and lenders have taken more than 90% haircuts in many accounts, including Videocon Industries, Siva Industries etc.

But while NARCL will reduce the gaps and speed up the recovery, experts have their own doubts on its recovery ratio, considering the quality of 26 assets, which will be transferred.

“I am not sure if NARCL will be able to fully recover all the accounts mentioned in the list. However, it is still better than individual recovery,” said Gadia.

Recovery has always been a challenge for lenders. RBI Governor Shakikanta Das had recently highlighted that the total recovery from Lokadalat is 5%, from DRT is 6% and from SARFAESI is 20%. The highest recovery was from the Insolvency and Bankruptcy Code, which was 30-45% in earlier days, is now reduced to 5% amid the pandemic, Das said.

Hence, despite having an NARCL, the industry is not hoping for a significant recovery. “The major challenge is that assets mentioned in the list are not very lucrative and buyers will also offer the cheapest rate,” said an industry expert, who did not wish to be quoted.

Siby Antony, former MD and CEO of Edelweiss Asset Reconstruction and a veteran in the sector, believes that ARCs will be better at reviving assets, but is not very sure whether the NARCL will recover.

“I am not hopeful. Because these (the 26 accounts) are bad assets, and finally all will go under liquidation,” Antony said.

Watch: Bad bank can only be a warehouse of bad assets, says Siby Antony



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What are NARCL and IDRCL? How do they work and what is the plan?, BFSI News, ET BFSI

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Finance Minister Nirmala Sitharaman on Thursday announced the formation of a government-backed bad bank, National Asset Reconstruction Company Ltd (NARCL). The Union Cabinet has approved up to Rs 30,600 crore of securities receipts.

What is NARCL?

The NARCL has been incorporated under the Companies Act and has applied to the Reserve Bank of India for license as an Asset Reconstruction Company (ARC). NARCL is basically a bad bank created by the government in the mould of an asset reconstruction company.

The NARCL will pick up bad loans above a certain threshold from banks and would aim to sell them to prospective buyers of distressed debt. The NARCL will also be responsible for valuing bad loans to determine at what price they would be sold. The bad bank would provide government receipts to banks as it takes on non-performing assets from their books.

State-owned banks will hold 51% stake, while FIs or debt management companies will hold 49%.

What is IDRCL?

Along with NARCL, the government will also set up the India Debt Resolution Company Ltd (IDRCL). The IDRCL is a service company or an operational entity, which will manage assets and loop in market professionals and turnaround experts. Public Sector Banks (PSBs) and Public FIs will hold a maximum of 49% stake and the rest will be with private sector lenders.

Background

Last year, The Indian Banks’ Association had proposed to create a bad bank for swift resolution of non-performing assets (NPAs). Following this, the finance minister in the 2021-22 Union Budget proposed the setting up of an ARC, along with an Asset Management Company (AMC), to take over the stressed debt of banks.

During the Union Budget 2021-22, Sitharaman said the bad bank will manage and dispose the assets to alternate investment funds and other potential investors for eventual value realisation.

In August, IBA moved an application to the RBI seeking licence to set up the over Rs 6,000-crore bad bank. The NARCL was incorporated last month in Mumbai, following the registration with the Registrar of Companies.

Also read: Finance Minister Sitharaman announces bad bank, Cabinet approves backing of up to Rs 30,600 crore on securities receipts

The Plan

The government will not have any direct equity contribution to NARCL. It will guarantee securities receipts issued by NARCL, which will buy the bad loans from banks.

These receipts will be valid for five years, and condition precedent for invocation of guarantee will be resolution or liquidation.

NARCL is intended to resolve stressed loan assets above Rs 500 crore each, amounting to about Rs 2 lakh crore. In phase I, fully provisioned assets of about Rs 90,000 crore are expected to be transferred to NARCL, while the remaining assets with lower provisions would be transferred in phase II.

As per industry practice, it will pay up to 15% of the agreed value for the loans in cash and the remaining 85% would be securities receipts.

The NARCL will acquire assets by making an offer to the lead bank. Once NARCL’s offer is accepted, IDRCL will be looped in for management and value addition.

How is NARCL different from existing ARCs?

The proposed bad bank will have a public sector character and majority ownership is likely to rest with state-owned banks.

At present, ARCs typically seek a steep discount on loans. With the NARCL, the valuation issue is unlikely to come up since this is a government initiative.

The government-backed ARC will have deep pockets to buy out big accounts, and thereby free up banks from carrying these accounts on their books.

Watch: Bad bank can be only a warehouse of bad assets, says Siby Antony

What benefit do banks get from this new structure?

It will incentivize quicker action on resolving stressed assets, and help in better value realisation. This approach will also permit freeing up banks personnel to focus on increasing business and credit growth.

As holders of these stressed assets and securities receipts, banks will receive the gains. Further, it aims to bring improvement in banks’ valuations and enhance their ability to raise market capital.

Watch: Bad bank to preserve value, timely sale of stressed assets: IBA CEO



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Banks call on government to ease pressure on India’s Vodafone Idea, BFSI News, ET BFSI

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By Nupur Anand and Aftab Ahmed

MUMBAI: Banks led by State Bank of India (SBI) have called on the Indian government to give debt-laden Vodafone Idea more time to clear its tax dues and spectrum fees, two bankers and a government official familiar with the matter said.

An Indian court last year ordered the mobile carrier, a joint venture between the Indian unit of Britain’s Vodafone Group and Aditya Birla Group’s Idea Cellular, to pay just over $8 billion to the government to settle long-standing dues. Vodafone has a stake of about 44% in the company and Aditya Birla owns nearly 27%.

In June, Vodafone Idea’s then non-executive chairman Kumar Mangalam Birla warned that without a government reprieve the Indian mobile carrier’s “financial situation will drive its operations to an irretrievable point of collapse”.

Vodafone Idea’s gross debt as of June 30 was 1.9 trillion rupees, comprising of deferred spectrum payment obligations of 1.06 trillion rupees and an adjusted gross revenue liability of 621.8 billion rupees, its latest stock exchange filing in June showed.

The adjusted gross revenue is the usage and licensing fee that telecom operators are charged by the Indian government.

The mobile operator also reported that it owes 234 billion Indian rupees ($3.18 billion) to financial institutions.

Senior SBI officials and representatives of the Indian Banks’ Association (IBA) met finance and telecom department officials this month and proposed an immediate breather on the repayment of spectrum dues, the two bankers and the government official, who requested anonymity, told Reuters.

“We’ve had these discussions with the banks but the issue is the finance ministry needs to be comfortable with the measures,” the government official said.

SBI, IBA, and the finance and telecom departments did not respond to Reuters requests seeking comment.

The government is also evaluating whether to take a small stake in financially struggling Vodafone Idea, in order to allay investor concerns regarding the future of the telco.

The company is facing a repayment of 5-10 billion rupees of non-convertible debentures around January, one of the bankers said.

Vodafone Idea declined to comment. Vodafone Group did not immediately reply to an email seeking comment. An Aditya Birla Group spokesman declined to comment.

Vodafone Idea had cash and cash equivalents of 9.2 billion rupees at the end of June, a transcript of a company conference call published on its website said.

“All eyes are on New Delhi right now as banks are getting increasingly nervous,” another banker with exposure to Vodafone Idea said.

The bankers have also proposed providing some relief to Vodafone by restructuring its dues, one government official and two bankers said.

Birla stepped down as chairman early last month after appealing for the government bailout.

The government has been considering a broader package to help a telecom industry disrupted by the 2016 entry of Mukesh Ambani-controlled Reliance Jio, which shook up the market with its free voice and cut-price data plans.



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RBI standardises bank locker rules, BFSI News, ET BFSI

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Reserve Bank of India (RBI) has standardised the rules for opening and maintaining bank lockers across banks, in response to directions by a two judge bench of the Supreme Court in February. RBI has asked all bank boards to frame a agreement for safe deposit lockers based on a model locker agreement to be framed by Indian Banks Association (IBA).

Banks have time to comply with the new norms till January 1 2022 and have to renew their locker agreements with existing locker customers by January 2023, RBI said. Banks have been allowed to obtain a term deposit from the locker holder at the time of allotment covering three years’ rent and the charges for breaking open the locker in case of such eventuality to ensure lockers are used and rent paid on time. “Banks, however, shall not insist on such term deposits from the existing locker holders or those who have satisfactory operative account.

The packaging of allotment of locker facility with placement of term deposits beyond what is specifically permitted above will be considered as a restrictive practice,” RBI said. In case the locker rent is collected in advance, the remaining amount from the advance should be refunded to the customers during the surrender of the locker. In case of a merger or closure or shifting of branch warranting physical relocation of the lockers, the bank shall give public notice in two newspapers (including one local daily in vernacular language) and the customers will have to be intimated at least two months in advance along with options for them to change or close the facility.

Banks have also been asked to formulate a policy for nomination and release of contents to nominees. The contents have to be released within 15 days of the death of the depositor. “In order to ensure that the articles left in safe custody and contents of lockers are returned to the genuine nominee, as also to verify the proof of death, banks shall devise their own claim formats, in terms of applicable laws and regulatory guidelines,” RBI said.

Banks have also been directed to maintain a branch-wise list of vacant lockers as well as a wait-list for the purpose of allotment of lockers and ensure transparency in allotment of lockers. Customers who do have any banking relationship with the bank may also be given the facilities of safe deposit locker/safe custody article, RBI said.



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RBI extends current a/c freeze deadline, BFSI News, ET BFSI

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Mumbai: The RBI has given banks time until October 31 to comply with its circular on introducing discipline in the opening of current accounts.

The RBI has said that banks should escalate to the Indian Banks’ Association (IBA) any issues they face in implementing the directive, and if it still remains unresolved they should be forwarded to the RBI for regulatory consideration.

According to a PSU bank chief, the RBI in its meeting with public sector lenders made it clear that the circular needs to be implemented in spirit but if there are operational issues faced by customers, they should be resolved at the industry level.

In a fresh circular on the guidelines for current accounts, the RBI reiterated that it does not apply to borrowers who have not availed of cash credit (CC) or overdraft (OD) facility and the banking sectors exposure to them is below Rs 5 crore.

In the case of borrowers who have not availed of CC/OD facility from any bank and the exposure of the banking system is Rs 5 crore or more but less than Rs 50 crore, there is no restriction on lending banks to such borrowers from opening a current account. Even non-lending banks can open current accounts for such borrowers though only for collection purposes.

According to bankers, technically there is no reason for a borrower with CC/OD facility to undertake transactions through another account. Bankers said that the main reason why many borrowers sought to keep a separate current account was to control their collections. “Many customers choose to transfer funds from their other account to repay their loans as they fear that using their loan account for collections could lead to problems when they are short on funds,” said a banker.

However, several businessmen said that while they have old loans with public sector banks, they need the technology-based products of private banks particularly in the area of trade finance. The central bank’s circular comes at a time when some customers in Kerala initiated legal action to stall the implementation of the RBI directives.



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