Tag: npa

Wilful defaults near Rs 2.5 lakh crore mark during pandemic, BFSI News, ET BFSI

Banking & Finance

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Banks have tagged 662 borrowers with loans of Rs 38,976 crore as wilful defaults during the last calendar year.

With this, the total wilful defaults have reached Rs 244,602 crore from 12,917 accounts as of December 2020, from Rs 205,606 crore from 12,255 accounts in December 2019, according to a report.

While wilful defaults have doubled since 2017, the recovery from top borrowers remains negligible.

The country’s top 100 wilful defaulters owe Rs 84,632 crore to banks as of March 2020, with the top 10 including Winsome Diamonds & Jewellery and accounting for 32% of it, data from the Reserve Bank of India shows. While banks wrote o nearly three-fourth of it to clean their balance sheet and get tax benefits, the default borrowers continue to appear in RBI‘s internal CRILC database till they clear the default.

Top 100 wilful defaulters

The total size of the top 100 wilful defaults rose 5.34% in FY20 from Rs 80,344 crore as of March 2019.

Mehul Choksi-owned Gitanjali Gems topped the wilful defaulters’ list with Rs 5,693 crore dues, followed by Jhunjhunwala brothers’ REI Agro with Rs 4,403 crore and Jatin Mehta’s Winsome Diamonds & Jewellery with Rs 3,375 crore.

The top 10 wilful defaulters include another jewellery maker Forever Precious Jewellery, and Vijay Mallya’s Kingfisher Airlines Punjab National Bank had the highest exposure to Gitanjali Gems with Rs 4,644 crore of non-performing assets (NPA) as on March 2020. PNB also had Rs 1,447 crore exposure to Gili India and Rs 1,109 crore to Nakshatra Brands.

Write-offs

State Bank of India had Rs 1,875 crore dues from top 10 wilful defaulter ABG Shipyard with the bank writing o the entire amount. Uco Bank had Rs 1,970 crore exposure to REI Agro with half of it being written off.

Write-offs are accounting entries for shifting NPAs from active balance sheet to off-balance sheet accounts. These are backed by 100% provision and therefore any recovery from these accounts adds to net profit.

RBI collects credit data from banks monthly, with data on defaults being collected on a weekly basis. The regulator has mandated banks to provide fully against NPAs older than four years and allowed to write these old NPAs.

The reduction in NPAs during FY20 was largely driven by write-os, RBI had said in its report on Trend & Progress of Banking in India. Banks’ total gross NPA reduced to 8.2% at the end of March 2020 from 9.1% a year earlier.



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Allow us to sell bad loans back to defaulting promoters, ARCs tell RBI, BFSI News, ET BFSI

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As the government gears up to roll out National Asset Reconstruction company or bad bank, next month, asset reconstruction companies (ARCs) have sought more leeway from the banking regulator.

They have asked the RBI to let them sell assets of defaulting promoters back to them and want corporates and high net worth individuals to be allowed to invest in troubled loans through the securities issued by ARCs.

Level-playing field

Responding to the RBI’s call for suggestions to overhaul their structure in the country, it has said that special regulatory dispensation/benefit if any given to proposed ARC should apply to all existing ARCs and level playing field from the regulatory perspective be given to all existing ARCs.

ARCs were allowed to sell bad loans back to defaulting promoters under the SARFAESI Act. However, it was disallowed under the IBC clause, which has hampered the ARCs.

ARCs have asked for this minimum investment to be brought down to 2.5% in cases where the bank selling the bad loan is not the investor. Other suggestions include a request to be classified as non-banking financial companies, which will enable ARCs to borrow from banks.

Bad bank

National Asset Reconstruction Company Ltd (NARCL), the name coined for the bad bank announced in the Budget 2021-22, is expected to be operational in June.Bad bank refers to a financial institution that takes over bad assets of lenders and undertakes resolution.

The new entity is being created in collaboration with both public and private sector banks.

NARCL will take over identified bad loans of lenders. The lead bank with offer in hand of NARCL will go for a ‘Swiss Challenge’, where other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding higher valuation of an NPA on sale.

The company will pick up those assets that are 100 per cent provided for by the lenders, he added.

Finance Minister Nirmala Sitharaman in Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.

“An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget speech. It will then manage and dispose of the assets to alternate investment funds and other potential investors for eventual value realisation, she added.

Last year, IBA had made a proposal for creation of a bad bank for swift resolution of non-performing assets (NPAs). The government accepted the proposal and decided to go for asset reconstruction company (ARC) and asset management company (AMC) model for this.

Mehta further said NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts.

The government guarantee would be invoked if there is loss against the threshold value, he added.



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IBA CEO, BFSI News, ET BFSI

Banking & Finance

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National Asset Reconstruction Company Ltd (NARCL), the name coined for the bad bank announced in the Budget 2021-22, is expected to be operational in June.

Bad bank refers to a financial institution that takes over bad assets of lenders and undertakes resolution.

The new entity is being created in collaboration with both public and private sector banks, Indian Banks’ Association Chief Executive Officer (CEO) Sunil Mehta said.

“Various preparatory work is going on and we hope that it should be operational next month. The biggest advantage of NARCL would be aggregation of identified NPAs (non-performing assets).

“This is expected to be more efficient in recovery as it will step into the shoes of multiple lenders who currently have different compulsions when it comes to resolving a bad loan,” he said.

NARCL will take over identified bad loans of lenders, Mehta said. He added that the lead bank with offer in hand of NARCL will go for a ‘Swiss Challenge’, where other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding higher valuation of an NPA on sale.

The company will pick up those assets that are 100 per cent provided for by the lenders, he added.

Finance Minister Nirmala Sitharaman in Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.

“An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget speech. It will then manage and dispose of the assets to alternate investment funds and other potential investors for eventual value realisation, she added.

Last year, IBA had made a proposal for creation of a bad bank for swift resolution of non-performing assets (NPAs). The government accepted the proposal and decided to go for asset reconstruction company (ARC) and asset management company (AMC) model for this.

Mehta further said NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts.

The government guarantee would be invoked if there is loss against the threshold value, he added.

The Reserve Bank of India (RBI) has said that loans classified as fraud cannot be sold to NARCL. As per the annual report of the RBI, about 1.9 lakh crore of loans have been classified as fraud as on March 2020.

To facilitate smooth functioning of asset reconstruction companies, the RBI last month decided to set up a panel to undertake a comprehensive review of the working of such institutions.

After enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act in 2002, regulatory guidelines for ARCs were issued in 2003 to enable development of this sector and to facilitate smooth functioning of these companies.

Since then, while ARCs have grown in number and size, their potential for resolving stressed assets is yet to be realised fully.



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Profit rises 13% to Rs 78 crore, BFSI News, ET BFSI

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Private lender DCB Bank on Saturday reported a 13 per cent increase in net profit to Rs 78 crore for the January-March quarter compared to that of Rs 69 crore in the year-ago quarter. Total income of the bank during the January-March quarter of 2020-21 fell to Rs 971 crore from Rs 1,012 crore in the same quarter of 2019-20, DCB Bank said in a regulatory filing. The income from interest as well as from investment fell during the reported quarter from a year ago.

For the FY2020-21, the bank’s net profit remained nearly flat at Rs 336 crore against Rs 338 crore in FY20. Income also was a tad down at Rs 3,917 crore in FY21 against Rs 3,928 crore in FY20.

The bank’s asset quality worsened with the gross non-performing assets (NPAs) spiking to 4.09 per cent of the gross advances as of March 31, 2021, as against 2.46 per cent by the end of March last year.

In value terms, the gross NPAs stood at Rs 1,083.44 crore, significantly higher than Rs 631.51 crore in the year-ago period.

Provisions for bad loans and contingencies in Q4FY21 came down to Rs 101.18 crore from Rs 118.24 crore a year earlier. Net NPAs stood at 2.29 per cent (Rs 594.15 crore) as against 1.16 per cent (Rs 293.51 crore).

On returning the compound interest to eligible borrowers post the Supreme Court final order in March and subsequent the RBI notification, the lender said it is in the process of account by account calculation of interest relief due to the eligible customers.

In the meantime, as of March 31, 2021, the bank has created liability towards estimated interest relief of Rs 10 crore and reduced the same from the interest income.

The bank said it held contingency provision of Rs 229.11 crore against the likely impact of Covid 19 regulatory package, impact of the conclusion of the interim order (of Supreme Court on not declaring accounts as NPAs till August 31, 2020 and after) and other contingencies.

On the impact of second wave of the pandemic, it said under the current circumstances the bank during March quarter, on a prudent basis, has made a contingency provision of Rs 124 crore towards further likely impact of Covid-19 on restructured and stressed assets.

“In addition to this contingency provision of Rs 124 crore, the bank also holds floating provision amounting to Rs 108.80 crore, besides, provisions for standard assets and specific non-performing assets,” it said.

Besides, the amount in overdue categories where the moratorium or deferment was extended as of March 31, 2020 was Rs 1,908.08 crore at end of March this year, it said. The provisions held on these by the end of September 2020 was Rs 68 crore and similar amount was kept as provisions adjusted against slippages (NPA and restructuring), DCB Bank said.

The lender also said that its board has not recommended any dividend for fiscal ended March 2021 in view of the situation developing around Covid-19 in the country and the related uncertainty that it creates.



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IDBI Bank’s officers, employees’ unions urge Government to drop proposal on stake sale

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The United Forum of IDBI Officers and Employees said its members may resort to industrial action if the Government does not drop its proposed move to sell IDBI Bank to a strategic buyer.

“We fervently urge upon the Government of India to drop its contemplated move to sell IDBI Bank to a strategic buyer, failing which the Officers and Employees will be left with no other option but to take recourse to organizational forms of action which on our part are anxious to avoid at this juncture,” the Forum’s Joint Convenors Ratnakar Wankhade and Vithal Koteswara Rao A.V., said in a letter to the Finance Minister.

The Government and the Life Insurance Corporation of India (LIC) together own 94.72 per cent of equity of IDBI Bank (Government: 45.48 per cent and LIC: 49.24 per cent). LIC is currently the promoter of IDBI Bank with management control and Government is the co-promoter.

The Forum demanded that the Government put in place stringent measures for recovering the Non-Performing Assets (NPAs) and fix accountability on all the concerned for the burgeoning NPAs and mammoth “write offs”.

The Joint Convenors observed that the request made by Unions and Associations repeatedly to initiate criminal proceedings against willful defaulters of Bank Loans has not been implemented by the Government so far.

“In case of sale of IDBI Bank to a strategic buyer. The private sector entities who will become the owners of the Bank will no longer be interested to cater to the needs of common man and general public with zero balance Savings Bank accounts,” the Forum said.

Various products/schemes of Government of India meant for common man and general public cannot be offered through a Bank owned by private entities, it added.

“Private Banks will be profit-oriented. We may be forced to collect minimum balance charges and other penalties from common man and general public to get more profits,” the Joint Convenors said.

They emphasised that India needs more Government Banks to improve financial inclusion parameters/aspects.

“Reduction in the number of Government Banks leads to less competition, which is nothing but monopoly. This is totally against the interest of the common man and general public,” the Forum said.

The Forum underscored that given that LIC is the promoter and Government is the co-promoter of IDBI Bank, common man and general public have continued their faith in the Bank because of which its deposits stood at Rs.2,30,898 crores as on March-end 2021.

“In case of sale of IDBI Bank to a strategic buyer, the hard-earned money of common man and general public will be at great risk,” the Joint Convenors said.

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IDBI Bank back in black in FY21 after 5 years, posts profit of Rs 1,359 cr, BFSI News, ET BFSI

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LIC-controlled IDBI Bank turned profitable in the fiscal ended in March 2021 after five years, posting a net profit of Rs 1,359 crore for the year. In 2019-20, the lender had posted a net loss of Rs 12,887 crore.

IDBI Bank is back in black after five years, said the lender.

In the last quarter of the fiscal year 2020-21, the bank reported a nearly four-fold jump in its net profit to Rs 512 crore, IDBI Bank said in a release. The bank had posted a profit of Rs 135 crore in the year-ago quarter.

The bank, which came out of the RBI‘s prompt corrective action (PCA) framework earlier in March this year, said its turnaround strategies led to the transformation.

Total income during Q4FY21 rose to Rs 6,969.59 crore from Rs 6,924.94 crore in the same period of 2019-20.

The full year income, however, was down at Rs 24,557 crore as against Rs 25,295 crore.

Gross NPA (non-performing asset) ratio improved to 22.37 per cent as on March 31, 2021 as against 27.53 per cent in the year-ago period. Net NPA improved to 1.97 per cent from 4.19 per cent, IDBI Bank said.

The bank said its recovery from technically written off accounts improved to Rs 269 crore in Q4FY21 as against Rs 105 crore in the third quarter FY21.

Provisions for bad loans and contingencies were raised to Rs 2,457 crore during the reported quarter as against Rs 1,584 crore.

The bank said it has made Covid-related provisions of Rs 363 crore at the end of March 2021.

IDBI Bank shares traded at Rs 36.25 on BSE, up 2.69 per cent from the previous close.



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As Covid rises, RBI sharpens risk tools to gauge banks, NBFCs, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank has decided to review and strengthen the Risk Based Supervision (RBS) of the banking sector to enable financial sector players to address the emerging challenges.

The RBI uses the RBS model, including both qualitative and quantitative elements, to supervise banks, urban cooperatives banks, non-banking financial companies and all India financial institutions.

More robust

It is now intended to review the supervisory processes and mechanism in order to make the extant RBS model more robust and capable of addressing emerging challenges, while removing inconsistencies, if any,” the RBI said while inviting bids from technical experts/consultants to carry forward the process for banks.

In case of UCBs and NBFCs, the Expression of Interest (EOI) for ‘Consultant for Review of Supervisory Models’ said the supervisory functions pertaining to commercial banks, UCBs and NBFCs are now integrated, with the objective of harmonising the supervisory approach based on the activities/size of the supervised entities (SEs).

It is intended to review the existing supervisory rating models under CAMELS approach for improved risk capture in forward looking manner and for harmonising the supervisory approach across all SEs,” it said.

RBI monitoring

Annual financial inspection of UCBs and NBFCs is largely based on CAMELS model (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Systems & Control).

The RBI undertakes supervision of SEs with the objective of assessing their financial soundness, solvency, asset quality, governance framework, liquidity, and operational viability, so as to protect depositors’ interests and financial stability.

The Reserve Bank conducts supervision of the banks through offsite monitoring of the banks and an annual inspection of the banks, where applicable.

NPA threat

As per the Financial Stability Report of RBI, the NPAs of the banking sector were projected to surge to 13.5 per cent of advances by September 2021, from 7.5 per cent in September 2020, under the baseline scenario.

The report had warned that if the macroeconomic environment worsens into a severe stress scenario, the NPA ratio may escalate to 14.8 per cent.

Risk based internal audit

RBI earlier this year issued guidelines on risk-based internal audit (RBIA) system for select non-bank lenders and urban co-operative banks (UCBs)

to strengthen the quality and effectiveness of the internal audit system. While NBFCs and UCBs have grown in size and become systemically important, prevalence of different audit systems/approaches in such entities has created certain inconsistencies, risks and gaps, RBI said. The entities have to implement the RBIA framework by March 31, 2022, and have been asked to constitute a committee of senior executives, to be entrusted with the responsibility of formulating a suitable action plan



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Will try to keep soft interest rate regime as long as possible: SBI chief

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State Bank of India will try to keep the interest rates benign as long as possible with a view to supporting the economic growth, its chairman Dinesh Kumar Khara has said.

On the impact of the second wave of Covid-19 on non-performing assets of the bank, the SBI chief said that as the lockdown was not pan-India, one will have to wait and watch to assess its impact on the banking sector.

Impact of local restrictions

Observing that multiple variables including inflation have a bearing on the interest rates, he said, “our effort is to support the growth initiatives. To really ensure that happens, we will try to keep the soft interest rate regime for as long as possible.” In an interview to PTI, Khara said it is too early to give any colour to likely scenario of NPAs because of local restrictions.

Also read: SBI’s Business Activity Index dips to a new low

The impact of lockdown differ from State to State as it is not uniform, he said, adding, “so, probably we can wait and watch for some more time before making any comment on impact on economy and NPA situation.” Speaking about various initiatives of the country’s largest lender, Khara said, SBI has decided to set up makeshift hospitals with ICU facilities for Covid-19 patients in some of the worst affected States.

Fighting the pandemic

The bank has already earmarked ₹30 crore and is engaging with non-governmental organisations (NGOs) and hospital management for setting up medical facilities on an emergency basis for the treatment of Covid-19 patients.

He said the bank intends to put in place 1,000 beds with 50 ICU facilities in the States that are the worst affected.

SBI is also collaborating with hospitals and NGOs to provide oxygen concentrators for patients.

“We have put in place an action plan. We have earmarked ₹70 crore-plus out of which we are giving ₹21 crore to 17 circles for Covid-19 related initiatives,” he said.

For the safety of employees and their families, he said, the bank has tied up with hospitals across the country to facilitate treatment of those who have fallen sick on a priority basis.

Also read: Banks roll out special schemes to protect, treat employees amidst Covid surge

About 70,000 employees out of 2.5 lakh strong staff strength have already got vaccinated. The bank has decided to bear the cost of vaccination for its employees and their dependent family members.

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Lenders to approve the transfer of 30-40 loans by next week, BFSI News, ET BFSI

Banking & Finance

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The Indian Banks’ Association (IBA) has identified 102 corporate bad loans, totalling to Rs 2 lakh crore, where the amount outstanding in each is over Rs 500 crore that can be transferred to the proposed National Asset Reconstruction company (NARC) or bad bank.

It has asked its member banks asked members to identify large loans where they are lead bankers and get approval from co-lenders so that these loans can be sold to a National Asset Reconstruction company.

The loans identified by IBA include NPAs in a variety of industries — including oil, steel, cement and roads, with many admitted under the insolvency process. These loans are almost fully provided for over the years and they exclude the ones where there is fraud involved or those currently under liquidation. About 75% of the lenders by value need to approve to transfer the loans to an ARC.

The process

In the first phase, lenders are expected to approve the transfer of 30-40 loans by next week for transferring the loans from the books of banks is already in place.

Once the lenders decide on selling the loan, the NARC will make them an offer based on the scope of recovery. With the NARC’s offer on hand, the lenders will hold a ‘Swiss Challenge’, where rivals are allowed to better the offer made by a chosen bidder.

While rival in the private sector will be given an option to bid, it is unlikely they will succeed. This is because the security receipts issued by the NARC for 85% of the value of the loans would be guaranteed by the government. Since private companies do not have a government guarantee, they can only hope to win if they can provide cash. The Swiss Challenge will enable the public sector banks to comply with RBI’s norms that require banks to sell loans through a price-discovery process rather than doing a one-to-one deal.

The NARC will pay up to 15% of the agreed value for the loans in cash. The bad bank is also expected to do a good job in recovery as it will create a trust that will assign the task to an asset management company (AMC) in the private sector.

Each corporate nonperforming asset (NPA) will be converted into a special purpose vehicle, which will be sold by the AMC.

The bad bank

Nine banks and two non-bank lenders, including the State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB), are coming together to jointly invest Rs 7,000 crore of initial capital in a proposed bad bank that aims to help extract funds stuck in bad loans. Two other state-run financiers of power projects will also own stock in the bad bank.

Canara Bank, Union Bank of India and Bank of India will join their larger state-run peers as investors in the bad bank. ICICI Bank, Axis Bank and Life Insurance Corp of India-owned IDBI Bank are also among the shareholders. State-owned Power Finance Corp and Rural Electrification Corp will also be equal shareholders in the new company.

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ICICI Bank pushes on retail as other lenders slow down, BFSI News, ET BFSI

Banking & Finance

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– By Shashank Singhal

ICICI Bank Ltd. reported strong fourth-quarter earnings, with revenues and core income increasing and asset quality remaining stable driven by loan growth and higher profitability.

Credit Growth:

The Total advances of the bank increased by 14% year-on-year to 733,729 crores on March 31, 2021 from ` 645,290 crore on March 31, 2020. Bank’s credit growth was mainly driven by retail segment. On March 31, 2021, the retail loan portfolio had grown by 20% year on year and 7% sequentially which has been double the system retail loan growth. Retail accounted for 67% of the overall portfolio. Retail mortgages grew by 22% year on year being the largest incremental contributor to growth. Banks continue to push for higher retail loan growth. Disbursements to higher rated corporates and public sector undertakings (PSUs) across various sectors drove growth in the performing domestic corporate portfolio by about 13% year on year.

Among other retail segments, business loans increased by 40% year over year, while rural loans (which include 50% Jewel loans) increased by 27% year over year. The book in the CV, two-wheeler, and credit card segments increased Quarter on quarter, but the book in the CV, two-wheeler, and credit card segments remained flat.

Bank’s retail growth can be attributed to digitization. Digital initiative such as ‘EMI @ Internet Banking’ which allows preapproved customers to convert their high value transactions into instant EMIs at the time of purchase on their retail internet banking platform and graining traction in the cards business through digital platform boosted the retail growth. The growth was also aided by the bank’s expansion of footprint in tier 2, 3 and 4 cities and low interest rates.

Slippages

According to CLSA, ICICI Bank’s slippage at Rs 5,500 crore (0.75 per cent of loans) was a positive surprise. Retail slippage increased by less than 2x to 2.4 per cent in FY21 vs 1.4 per cent in FY20 which, the brokerage believes, is manageable given the pandemic which indicates that Bank has been cautious rather aggressive in lending retail loans.

Asset Quality

ICICI Bank’s gross non-performing asset ratio stood at 4.96% compared with 5.42% in the October-December quarter while the net NPA ratio declined to 1.14% on March 31, 2021 from 1.26% (on a proforma basis on December 31, 2020) and 1.41% on March 31, 2020.Bank maintains healthy specific provision coverage ratio of 78% of NPAs and contingent buffer at 1% of loans.

HDFC slows down on Retail

HDFC Bank reported 14% year-on-year growth in domestic advances on 31st March 2020 mainly driven by growth in wholesale loans which grew by 21.7% from last year while as per regulatory [Basel 2] segment classification, domestic retail loans grew only by 6.7%. Wholesale loans now form 53% of the total loan book. Retail loans accounted for 47% compared to 67% of ICICI Bank showing different target segments of the Banks.

For the first time in many years, ICICI Bank’s loan growth exceeded that of HDFC Bank. The Overall domestic loan growth of 18% year-on-year (6% quarter-on-quarter) of ICICI has been 3x that of system loan growth and 400 basis points above HDFC Bank.

Banks cautious on Retail loans

Amid the uncertainty provided by the pandemic other lenders such as Kotak has also cut down on the retail front. Banks are taking cautious stance on extending credit to avoid a spike in asset quality issues. Banks are falling back on the secure options.

ICICI Securities in a note recently said, “Kotak Mahindra Bank’s management had highlighted that unsecured retail and CV (bus operator segment) portfolios were reflecting disproportionate stress. Beside this, MTM gain on investment portfolio, cost agility and low cost deposit based will cushion earnings impact.”



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