SBI invites bids to sell NPA account KSK Mahanadi Power with dues over Rs 4,100 crore

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The State Bank of India (SBI) has invited bids from asset reconstruction companies, and other financial institutions to sell an NPA account KSK Mahanadi Power Company, with total outstanding against the company standing over Rs 4,100 crore.

“In terms of the bank’s policy on sale of financial assets, in line with the regulatory guidelines, we place the account (KSK Mahanadi) for sale to ARCs/ Banks/ NBFCs/ FIs,” SBI said in an auction notice.

The e-auction of KSK Mahanadi is scheduled to take place on December 31, 2021.

With fund based outstanding of Rs 3,815.04 crore and non-fund based outstanding of Rs 286.83 crore, company’s total loan dues towards SBI stands at Rs 4,101.87 crore as on date, as per SBI.

The country’s largest lender has set a reserve price of Rs 1,423.17 crore for selling this non-performing asset (NPA).

SBI said the interested parties can conduct their due diligence of this asset with immediate effect after submitting an expression of interest by December 6.

A former subsidiary of KSK Energy Ventures, KSK Mahanadi had ceased to be its arm from May 2018, following invocation of pledged shares by a consortium of lenders upon default of loan repayment by the power company.

Back then, KSK Energy Ventures had said that KSK Mahanadi constituted over 80 per cent of the total power generation capacity of the group in the last 10 years (3,600 MW of the 4,472 MWs being operated/developed under the company and that lenders action would have adverse impact on the KSK Energy Ventures and its various stakeholders.

KSK Mahanadi Power Company is under the corporate insolvency resolution process.

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Study, BFSI News, ET BFSI

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The recent clarification by the Reserve Bank of India on non-performing advances (NPA) may increase non-banking financial companies’ (NBFC) bad loans by one-third, says a report.

Last month, the RBI had provided clarification on income recognition asset classification and provisioning (IRAC) norms for banks, NBFCs and All-India Financial Institutions.

The clarification included classification of special mention account (SMA) and NPA on a day-end position basis and upgrade from an NPA to standard category only after clearance of all outstanding overdues.

“The RBI’s clarification on non-performing advances (NPAs) accounting is likely to increase NPAs by around one-third for non-banking finance companies (NBFCs),” domestic rating agency India Ratings and Research said in a report on Friday.

However, the impact on provisioning could be modest, given NBFCs are using Indian Accounting Standards (IND-AS) and generally for higher rated NBFCs, provision policy is more conservative than IRAC requirements.

The report said the RBI circular also calls for daily stamping of accounts to count the number of days they are overdues instead of a monthly or quarterly stamping.

This again would result in an accelerated pace of NPA recognition for accounts, it said.

NBFC borrowers, typically where there is cash collection, pay their overdues generally with some delays. Accounts can get into NPA category just for a day’s delay in paying the instalments and once it gets categorised as NPA it will not be able to become standard unless all the arrears are cleared, the report said.

“So, in other words, accounts would get categorised as NPAs at a faster pace and would remain sticky in that category for a longer period of time. Both these accounting treatments would result in higher headline numbers for NBFCs,” it said.

It may so happen that NBFCs would disclose NPA numbers as per IRAC norms and stage 3 numbers as per Ind-As separately in their disclosures, the agency said.



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NCLAT rejects Kotak Bank’s plea to set aside insolvency proceedings against MSEL, BFSI News, ET BFSI

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The National Company Law Appellate Tribunal (NCLAT) has dismissed a petition filed by Kotak Mahindra Bank along with a director of debt-ridden McNally Sayaji Engineering Ltd (MSEL) to set aside insolvency proceedings against the manufacturer of mineral processing equipment.

A two-member NCLAT bench upheld the orders of the Kolkata bench of the National Company Law Tribunal (NCLT), which had on February 11, 2021, admitted a plea by ICICI Bank and directed to initiate insolvency proceedings against MSEL.

The NCLT order was challenged by Kotak Mahindra Bank and a director of the suspended board of MSEL before the appellate insolvency tribunal NCLAT.

Kotak Mahindra Bank had contended that besides it, four other banks — ICICI Bank, DBS, IDBI and SBI — had advanced loans to MSEL and NCLT had failed to appreciate that more than 50 per cent members of the lenders’ consortium had opposed initiation of corporate insolvency resolution process (CIRP), as they were considering restructuring of loan outside the IBC.

Restructuring of loans is more beneficial to the creditors as they will not have to take a haircut, Kotak Mahindra Bank had submitted.

In the eventuality of a resolution plan being implemented or liquidation process being initiated, financial creditors, including Kotak Mahindra Bank, will have to take a haircut, it added.

Moreover, the appellant contended that the case was not maintainable as it was filed after the permissible period of three years after the default.

However, ICICI Bank opposed both the petitions.

It said the account of MSEL was classified as NPA on March 31, 2019 and loan recall notice was issued on January 3, 2020 — thus the application was filed within three years from the date of acknowledgement.

ICICI Bank further said Kotak Mahindra Bank’s appeal was not maintainable and filed at the behest of MSEL.

Moreover, Kotak Mahindra Bank has not raised any challenge to the existence of debt, default and completeness of the application filed by ICICI Bank. The CIRP is not adversarial to the interest of the corporate debtor or its creditors, it said.

The Insolvency and Bankruptcy Code (IBC) is a beneficial legislation for equal treatment to the creditors and to revive MSEL, submitted ICICI Bank.

Rejecting the submissions of the appellant, the NCLAT said the Supreme Court has already held that the date on which a bank declares an account of corporate debtor as NPA is the date of default. In the present case, the MSEL acocount was classified as NPA on March 31, 2019.

NCLAT said Kotak Mahindra Bank has no valid ground to challenge the NCLT order and it was “convinced with the argument of Counsel for the Respondent No 1 (ICICI Bank) and hold that the Appellant has no locus standi” to file this appeal.

The appellant has “failed to point out any legal or factual flaw in the impugned order”, it added.

“With the aforesaid discussion, we are of the view that no interference is called for in the impugned order. Thus, the Appeals are dismissed,” said NCLAT.

On Kotak Mahindra Bank’s plea to consider restructuring of debt outside the purview of IBC, the appellate tribunal said NCLT was aware of the proposal but the lenders’ consortium has not filed any application for deferment of the proceedings before it.

“There is no duty cast on the NCLT that no sooner NCLT gets information that outside the purview of IBC any restructuring proposal is under consideration before the consortium of lenders then…(it) should defer the proceedings for initiation of CIRP,” it said.

In the present case, MSEL has committed default and the application is complete, Therefore, NCLT has no option except to admit the plea to initiate the insolvency process, it said.



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Banks write off Rs 46,382 crore NPA in H1, BFSI News, ET BFSI

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Banks have written off bad loans amounting to Rs 46,382 crore during the first six months of 2021-22, the finance ministry informed the Lok Sabha on Monday. As per the RBI guidelines and policy approved by bank boards, non-performing loans, including, inter-alia, those in respect of which full provisioning has been made on completion of four years, are removed from the balance sheet of the bank concerned by way of the write-off.

In a written reply, Minister of State for Finance Bhagwat Karad said banks evaluate/consider the impact of write-offs as part of their regular exercise to clean up their balance-sheet, avail of tax benefit and optimise capital, in accordance with the RBI guidelines and policy approved by their boards.

“As per RBI data on global operations, scheduled commercial banks have written-off loans of Rs 46,382 crore during the first six months of the current financial year 2021-22,” he said.

The borrowers of written-off loans continue to be liable for repayment and the process of recovery of dues from the borrower in written-off loan accounts continues.

In another reply, Karad said the total loans outstanding of Regional Rural Banks (RRBs) stood at Rs 3,34,171 crore at end-March 2021, up from Rs 2,98,214 crore at end-March 2020.

He said RRBs have been playing an important role in purveying agricultural credit, particularly to small and marginal farmers and weaker sections of society.



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RBI tweak will lead to more NPAs for non-banking lenders: ICRA

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The Reserve Bank of India’s modified norms on non-performing asset (NPA) recognition and upgration will lead to a spike in the NPAs of non-banking financial companies (NBFCs), including housing finance companies (HFCs), in the near term, ICRA has cautioned.

The credit rating agency expected the stricter NPA recognition and upgradation requirement to push up the March 2022 NPAs of NBFCs and HFCs by 160-180 basis points (bps) and 60-80 bps, respectively, over the March 2021 level. One basis point is equal to one-hundredth of a percentage point.

ICRA observed that this will impact earnings over the next few quarters if the forward flows into the NPA category were not contained.

SBR framework: A brand new armour for NBFCs

“The increase in NPAs and corresponding increase in provisions as per IRAC (income recognition and asset classification), on account of the new RBI guidelines, is not expected to significantly impact earnings in the near term.

“However, it would be critical to contain the flow into the NPA category over the medium term,” the agency said in a report.

Internal controls

AM Karthik, Vice-President-Financial Sector Ratings, ICRA, said the increase in NPAs factors in the expected slippages from the restructured book, slippages from the 31- to 90-day category (Stage-2), and the delay in upgradation to the standard category.

He felt that entities would have to tighten their internal controls and augment their MIS for timely recognition and updation of collections, especially cash collections.

NBFC regulation needs to be strengthened

ICRA estimates the restructured books of NBFCs and HFCs to have increased to 4.1-4.4 per cent and 1.8-2.2 per cent, respectively, as of September 2021, vis-à-vis 2.2 per cent and 1.0 per cent, respectively, in March 2021.

The agency estimated the slippage from the NBFC restructured book to be higher, at 20-25 per cent vis-a-vis 3-5 per cent for HFC, considering the prolonged stress witnessed in key NBFC segments, namely vehicle, business loans and so on.

Arrears

Referring to the norm for the upgrade of an NPA to standard category only after all arrears are cleared, the agency said the movement to standard category for NBFC NPAs would be impacted as their target borrowers generally have a limited ability to clear all dues.

Until now, NBFCs have been upgrading an NPA account even with a partial payment of the outstanding overdues, as long as the total overdues on the reporting date were for less than 90 days.

Tightening processes

Provisions made by NBFCs under IndAS are generally higher than the IRAC norms, and the provisions were further augmented because of the pandemic.

Thus, no significant incremental impact is envisaged on the near-term profitability, ICRA said, adding that pressure would be felt over the medium term if the forward flows into the NPA category is not contained.

“Entities would have to tighten their internal processes to capture their collections, especially cash collections by branches, agents etc. It is estimated that 40-45 per cent of NBFC and 5-10 per cent of HFC collections are in cash,” the agency said.

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Asset quality pains for banks ease, focus on growth likely in H2

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Asset quality pains for banks have largely eased after the second quarter and they are now likely to focus on growth, believe analysts.

A report by ICICI Securities noted that overall the quarter ended September 30, 2021 saw improvement in broad business parameters and management commentaries have been positive suggesting better traction in the second half of the fiscal.

“We believe profitability should see a boost in coming quarters with better top-line growth and lower provisions. Loan growth is to be largely driven by retail and MSME segment while corporate segment should witness gradual pick up in working capital utilisation,” it said.

Also read: NPAs of NBFCs, HFCs may rise for 3-4 quarters due to tweak in norms

Asset quality performance was better than previous quarter with less slippages and better recoveries, the report said.

Slippages were mostly at about 1- 1.4 per cent compared to 2-2.5 per cent quarter-on-quarter while gross non performing assets declined by 30 to 70 basis points, except for a few banks.

With the opening up of the economy and normalisation of business activities, most banks have reported better collection efficiencies as well as higher credit demand.

“The asset quality pain for most banks is largely behind and the focus now is on the growth acceleration. The one-off gains helped public sector banks to maintain a strong profitability; whereas the private banks’ performance was a shade better than the first quarter,” said a report by Emkay Global Financial Services.

The second quarter of the fiscal was marked by sequential moderation in stress formation, mainly led by retail, and more so for large private and public sector banks, the report said, adding that it expects non performing asset ratios to moderate due to lower slippages and higher recovery and write offs as most banks, barring a few small private banks, sit on a comfortable provision cover.

Motilal Oswal in a report also said that the asset quality outlook for public sector banks is improving gradually after a prolonged corporate NPL cycle – GNPA ratios had reached the peak of about 15 per cent in 2017-18.

A recent report by CARE Ratings had also noted that the NPA situation of the Indian banking system as represented by 23 banks – 9 PSBs and 14 private sector lenders, indicates a gradual improvement in the NPA ratio in September 2021.

The NPA ratio for these 23 banks was 6.97 per cent as on September 30, 2021 compared to 7.36 per cent as on September 30, 2020.

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PM Modi, BFSI News, ET BFSI

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Underlining the reforms made by the Centre to improve the financial health of banks, Prime Minister Narendra Modi on Thursday said the banking sector of India is currently in a major milestone phase that can give a great push to the country’s economy.

Addressing the concluding session of the conference on “Creating Synergies for Seamless Credit Flow and Economic Growth” Prime Minister Modi said, “The reforms made by the government in the banking sector in the last 6-7 years led the banking sector of the country towards a very strong position today. The financial health of banks is now in a much-improved condition. We brought reforms like IBC, reformed many laws, empowered Debt recovery tribunal.”

He said a dedicated Stressed Asset Management Vertical was also formed in the country during the COVID period.

“We have found ways to solve problems and challenges that were there before 2014. We addressed the problem of Non-Performing Assets (NPA). We recapitalized the banks and increased their strength. Today the capacity of the banks of India has increased so much that they can play a great role in giving new energy and a great push to the economy of the country and making it self-reliant. I consider this phase as a major milestone in the banking sector of India,” he added.

The Prime Minister further said banks should adopt the model of partnership leaving the traditional approver-applicant system.

The two-day conference is being organised by the Ministry of Finance from November 17. The conference has been attended by top officials from Ministries, Banks, Financial institutions and Industry representatives. (ANI)



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Punjab & Sind Bank adjusts net loss for FY21 at Rs 2,750 cr after divergence in asset classification, BFSI News, ET BFSI

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Public sector Punjab & Sind Bank (P&SB) on Wednesday said it has adjusted the net loss for fiscal ended March 2021 slightly higher at Rs 2,750 crore due to divergence in asset classification. The bank had reported a net loss of Rs 2,733 crore in 2020-21.

Whereas the bank reported gross non-performing assets (NPAs) at Rs 9,334 crore, the Reserve Bank assessed it at Rs 9,363 crore, thus leading to a divergence of Rs 29 crore.

Similarly, the net NPAs too had a divergence of Rs 29 crore.

Based on the difference of the provisions for NPAs reported by the bank and that assessed by the RBI, the divergence in provisioning for the financial year 2020-21 stood at Rs 17 crore.

The adjusted (notional) net profit after tax (PAT) for the year ended March 31, 2021, after taking into account the divergence in provisioning stood at Rs 2,750 crore, the bank said in a regulatory filing.

The bank published the divergence in asset classification and provisioning in accordance with RBI’s Risk Assessment Report as on March 31, 2021.

P&SB stock closed at Rs 17.25 apiece on BSE, down 1.43 per cent from previous close. PTI KPM SHW SHW



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Private banks lead, overall NPA provisioning falls in Q2, BFSI News, ET BFSI

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The worst seems to be over for banks in the pandemic, going by the drop in bad loan provisioning numbers. The bad loan provisioning by banks fell sequentially for the second consecutive quarter in the three months ended September 2021, led by a significant drop in some of the private sector banks. The trend is likely to continue on account of improved collections and lower slippages.

The aggregate provisioning towards non-performing assets (NPA) or loan loss provision for a sample of 29 banks fell by 20.5 per cent sequentially and 10.9 per cent year-on-year to Rs 30,400 crore. It has softened over the past two quarters after peaking at Rs 65,986.9 crore in the March 2021 quarter when banks resumed accounting for slippages.

Private banks at the forefront

The fall in the September quarter was driven by a sharp 43.9 per cent drop in loan loss provisioning by the private sector banks at the aggregate level. Top banks including HDFC Bank, Axis Bank, Kotak Bank, and IndusInd Bank recorded a double-digit sequential drop in the NPA provisioning.

The public sector banks on the other hand reported a modest 1.6 per cent fall in the NPA provisioning. Their share in the sample’s NPA provisioning increased to 68.5 per cent from 55.3 per cent in the previous quarter.

Analysts expect the asset quality of banks to improve gradually in the coming quarters following a pick up in economic activity and recovery in collections.

“Banks slippage ratios reduced substantially by 100 basis points QoQ on an average in the September quarter. The asset quality situation is likely to improve further driven by a reduction in retail as well as SME nonperforming loans in the coming quarters,” a Macquarie Capital Securities (India) note said.

The banks’ net interest income increased by 3.7 per cent sequentially and 2.4 per cent year-on-year to Rs 1.3 lakh crore. The sequential growth was faster for PSU banks at 5 per cent compared with 2.1 per cent for the private sector banks.



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RBI governor to banks, BFSI News, ET BFSI

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RBI governor Shaktikanta Das on Tuesday asked lenders to proactively identify loans to firms that have turned non-viable but not yet recognised as a non-performing asset (NPA) due to the special dispensation during Covid. The governor also asked banks to review the usability of capital for absorbing losses during a crisis.

Pointing out that numerous high-frequency indicators are showing that economic recovery is taking hold, Das said that there have been several resolution frameworks announced in the wake of the pandemic. “As the support measures start unwinding, some of these restructured accounts might face solvency issues over the coming quarters. Prudence would warrant proactive recognition of such non-viable firms for pragmatic resolution measures,” said Das.

Speaking at an economic conclave organised by the State Bank of India, Das noted that banks have weathered the Covid shock better than expected and, according to early trends, their bad loans and capital position has improved in September 2021 from their levels in June 2021. He said that the profitability metrics of banks were highest in several years. However, the improved parameters partly reflect regulatory relief provided to banks during Covid as well as fiscal guarantees and financial support given by the government, he said.

“Certain concerns have re-emerged from the crisis which warrant our attention. Most importantly, we are faced with the question of capital and provisioning buffers of banks, their adequacy and resultant usability during a crisis,” said Das. He urged banks to focus and further improve their capital management processes to envisage the capacity for loss absorption as an ongoing responsibility of the lending institutions.

In his speech, the governor also cautioned banks on the “technological invasion” that they face. “A word of caution is in order: Globally, the ‘phygital’ revolution has played out into several collaborative models between banks, NBFCs and fintech players such as incubation, capital investment, co-creation, distribution and integration… it must be recognised that the risks ultimately lie in the books of banks and NBFCs and hence the collaboration should be appropriately strategised,” Das said.



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