Tag: npa

Srei lenders face Rs 5,000 cr provisioning for Srei loans, eroding DHFL recovery, BFSI News, ET BFSI

Banking & Finance

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Lenders which were preparing to add the big DHFL recovery of over Rs 35,000 crore to their profits, may have to temper their celebrations. They will have to make provisioning for loans of Srei group firms, on which RBI has put an administrator.

Bankers will have to make an immediate provision of over Rs 5,000 crore, according to the rules.

According to the Reserve Bank of India’s (RBI’s) norms, Srei exposure will be treated as substandard asset, which is the first stage of non-performing asset (NPA). Banks will now have to set aside around 15 per cent provision for secured loans while it would be higher for unsecured credit.

Srei loans were stressed for many quarters, but lenders could not classify them as NPAs due to restrictions by the tribunals. However, they have made provisions for the Srei loans under general and Covid provisions.

Based on the results of a forensic audit, banks may have to even make 100 per cent provisions if the accounts are treated as fraud.

Promoters move court

Meanwhile, Srei Group promoters have moved the Bombay High Court challenging Reserve Bank of India’s decision to supersede the board of two group companies, in preparation for sending them to bankruptcy courts.

Srei group promoters are seeking stay on any insolvency proceedings at group companies Srei Infrastructure Finance Ltd and Srei Equipment Finance Ltd, whose board the regulator sacked and appointed an administrator.

The promoters are also seeking stay on the appointment of the administrator. On October 4, the banking regulator superseded the board of directors of Kolkata-based Srei Infrastructure Finance and Srei Equipment Finance and said that it will initiate insolvency proceedings with the National Company Law Tribunal (NCLT). The RBI move makes Srei the second non-bank lender to be referred to the bankruptcy courts after DHFL.

The RBI cited governance concerns and defaults by the company and appointed Rajneesh Sharma, former chief general manager, Bank of Baroda as an administrator of the company.

In June 2021, Srei companies reported to the exchanges that the RBI inspection had flagged loans worth Rs 8,576 crore as related party loans. These accounted for nearly 30% of the group’s consolidated debt.

The loans

Srei Infrastructure, and its subsidiary Srei Equipment Finance, together owe lenders and debenture holders a total of Rs 30,000 crore. Kolkata-based UCO Bank is the lead lender, with more than Rs 2,000 crore of exposure. State Bank of India (SBI)’s exposure to the group is also more than Rs 2,000 crore.

The bank loans have turned non-performing assets after the end of the September quarter.

The company had earlier announced that Arena Investors, Makara Capital and others had evinced interest to invest in the company to the tune of Rs 2,200 crore. The company had formed a strategic coordination committee to coordinate, negotiate and conclude discussions with the investors.



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Reserve Bank supersedes boards of Srei Infrastructure, Srei Equipment Finance, BFSI News, ET BFSI

Personal Finance

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The Reserve Bank of India said on Monday it has superseded the board of directors of non-banking financial companies Srei Infrastructure Finance Ltd and Srei Equipment Finance Limited due to governance concerns and defaults, adding that it will initiate bankruptcy proceedings against them.

Rajneesh Sharma, the former Chief General Manager of the Bank of Baroda, has been appointed the administrator.

Last week, a consortium of lenders led by UCO Bank sought central bank directions on pursuing recovery of dues from the Srei Group after loans worth about Rs 30,000 crore to the Kolkata-based financier officially qualified to be moved to the list of non-performing assets (NPA) this quarter.

Srei Infrastructure, and its subsidiary Srei Equipment Finance, together owe lenders and debenture holders a total of Rs 30,000 crore. Kolkata-based UCO Bank is the lead lender, with more than Rs 2,000 crore of exposure. State Bank of India (SBI)’s exposure to the group is also more than Rs 2,000 crore.

The bank loans have turned non-performing assets after the end of the September quarter, two senior bank executives told ET.

The company had earlier announced that Arena Investors, Makara Capital and others had evinced interest to invest in the company to the tune of Rs 2,200 crore. The company had formed a strategic coordination committee to coordinate, negotiate and conclude discussions with the investors.

Till date, it received expressions of interest from 11 investors and has signed non-disclosure agreements with nine of them. Two Investors — Makara and Arena — had submitted non-binding term sheets indicating their intent for investment.

Srei Infrastructure, which is a listed entity, reported a net loss of Rs 971 crore in the June quarter as against Rs 23 crore net profit in the year ago period as provisions on loans rose nearly seven times to Rs 439 crore over the same period as repayment collections were hit due to the impact of the Covid 19 pandemic.

with inputs from Atmadip Ray



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Mahindra Finance reports 100% collection efficiency in September, BFSI News, ET BFSI

Personal Finance

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Mahindra Finance, the NBFC arm of the Mahindra Group has reported a 100% collection efficiency for the month of September, as per latest figures revealed by the company. This is on the back of improvement in mobility during September even as the economy opens up post Covid.

The company’s September collection efficiency is an improvement over the levels of 95% and 97% in July and August, 2021 respectively. This has resulted in the further reduction in the NPA contracts during September, a trend which the company feels will continue in the third quarter of FY22.

During September, the company’s total disbursement stood at Rs 1900 crore, a growth of 23% on a YOY basis, albeit on a lower base in FY21 due to the first wave of the pandemic. During Q2 of FY22, the total disbursement stood at Rs 6450 crore, a 60% YOY growth over Q2 of FY21.

Mahindra Finance is hopeful of a good third quarter of FY22, subject to improvement in the auto supply chain as well as a good festive season and harvest cashflow. The company mentioned that it enjoyed a comfortable liquidity position on its balance sheet as on 30th September, 2021.

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Reserve Bank supersedes boards of Srei Infrastructure, Srei Equipment Finance, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India said on Monday it has superseded the board of directors of non-banking financial companies Srei Infrastructure Finance Ltd and Srei Equipment Finance Limited due to governance concerns and defaults, adding that it will initiate bankruptcy proceedings against them.

Rajneesh Sharma, the former Chief General Manager of the Bank of Baroda, has been appointed the administrator.

Last week, a consortium of lenders led by UCO Bank sought central bank directions on pursuing recovery of dues from the Srei Group after loans worth about Rs 30,000 crore to the Kolkata-based financier officially qualified to be moved to the list of non-performing assets (NPA) this quarter.

Srei Infrastructure, and its subsidiary Srei Equipment Finance, together owe lenders and debenture holders a total of Rs 30,000 crore. Kolkata-based UCO Bank is the lead lender, with more than Rs 2,000 crore of exposure. State Bank of India (SBI)’s exposure to the group is also more than Rs 2,000 crore.

The bank loans have turned non-performing assets after the end of the September quarter, two senior bank executives told ET.

The company had earlier announced that Arena Investors, Makara Capital and others had evinced interest to invest in the company to the tune of Rs 2,200 crore. The company had formed a strategic coordination committee to coordinate, negotiate and conclude discussions with the investors.

Till date, it received expressions of interest from 11 investors and has signed non-disclosure agreements with nine of them. Two Investors — Makara and Arena — had submitted non-binding term sheets indicating their intent for investment.

Srei Infrastructure, which is a listed entity, reported a net loss of Rs 971 crore in the June quarter as against Rs 23 crore net profit in the year ago period as provisions on loans rose nearly seven times to Rs 439 crore over the same period as repayment collections were hit due to the impact of the Covid 19 pandemic.

with inputs from Atmadip Ray



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Banks’ credit outlook ‘stable’ for FY22, says Crisil Ratings, BFSI News, ET BFSI

Banking & Finance

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Crisil Ratings has kept a ‘stable’ credit outlook for banks for the second half of financial year 2022.

Strong capitalisation will remain a key factor for private banks to have a stable credit growth, while public sector banks benefit from government support.

However, privatisation of two public sector banks, as announced in Union Budget 2021-22, will be eyed.

Banks’ credit growth is expected to revive 9-10% in FY22, after a fall of around 5% in FY21, the agency said, adding that profitability of the banking sector is set to improve over the medium term.

Gross non-performing assets are likely to touch 10-11% by the end of this fiscal.

According to reports, the GNPA is at 8-9%, supported by government schemes and restructuring dispensation, the agency said. In FY18, the GNPA had hit a peak of 11.2%.

The NPA level improved because banks have lowered their provisioning levels from before, thereby limiting the impact of legacy NPAs on future earnings, Crisil said, in its half yearly ratings round up report.

Retail segment growth is expected to return to the mid-teens this fiscal, after a slow growth reported a year ago. Within retail, housing loans, which constitute more than half of retail advances for banks, saw slow growth last fiscal, but demand remains strong over the long term, the agency said.

With rising affordability and the recent trend of working from home, demand for own houses and larger houses are likely to rise, and banks will benefit from lower competition from non-banks as well as surplus liquidity, it added.

However, a potential third COVID-19 wave remains a key near-term risk, while deceleration in economic and demand growth, both global and domestic, due to tapering of monetary and fiscal stimuli will be key medium-term risks.

The impact of the third wave is likely to be contained due to the increase in the pace of inoculations, with nearly 70% of the adult population receiving at least one dose.

For non-banking financial companies, the agency expects better credit quality than last year, but has retained a ‘monitorable’ outlook.

The credit quality growth for NBFCs is expected to pick up to 6-8% in FY22 from 2% in FY21. However, it remains lower than the pre-pandemic level of 18%.

Crisil expects NBFCs to witness an uptick in stressed assets as MSME and unsecured loans have been hit the most. However, loans to other sectors have been relatively resilient.

Asset quality in these segments continue to be impacted the most, with delinquencies rising almost 300 basis points in June 2021 against March 2021 levels, despite higher restructuring and write-offs last fiscal compared with other asset classes. Delinquency levels for these segments will remain elevated given a likely higher recovery period for borrowers, Crisil said.

Improved capitalisation and strong parentage will be key support factors for non-bank lenders. The agency noted that many NBFCs have strengthened their provisioning buffers, factoring in the COVID-19 crisis, leading to more comfortable liquidity in the sector.

Crisil expects the sector to witness organic consolidation with stronger NBFCs, who have strong parentage, and gain market share.

Performance on asset quality and impact on earnings will remain key monitorables for NBFCs.



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Timely recoveries crucial for profitability of sale-bound IDBI Bank, says Icra, BFSI News, ET BFSI

Banking & Finance

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Timely recoveries will be a key driver of net profitability for IDBI Bank, in the absence of which it may remain at sub-optimal levels in the near to medium term, rating agency Icra has said.

“IDBI Bank’s profitability includes one-time income driven by recoveries from fully-provided legacy stressed assets, and it has utilised the same for accelerated provisioning on other stressed assets and potential asset quality stress in future. Incremental slippages could remain high, given the reasonably large overdue book amid the weak operating environment and certain other vulnerable exposures, the rating agency said in a note while upgrading the rating for the Mumbai-based private lender’s bonds, debentures and tier-II capital instruments from “A” to “A+”

While the bank maintains one of the highest provision coverage ratios on its stressed assets, the timing of recoveries from these could remain uncertain, it said.

The rating upgrade

The rating upgrade factors in the sustained improvement in the credit profile of IDBI Bank Limited with expectations that the internal capital generation is likely to be sufficient for growth as well as for maintaining sufficient cushion over the regulatory capital requirements.

Due to the weak asset quality and capitalisation levels in the past, IDBI Bank was placed under the Prompt Corrective Action (PCA) framework, thereby placing curbs on fresh wholesale lending. This, coupled with increased provision levels on NPAs, resulted in a sustained decline in the net advances to Rs. 1.23 lakh crore as on June 30, 2021 from the peak level of Rs. 2.19 lakh crore as on September 30, 2016. In contrast, the bank’s deposit base moderated less sharply to Rs. 2.23 lakh crore as on June 30, 2021, from Rs. 2.66 lakh crore as on September 30, 2016, that too driven by bulk deposits.

NPA generation

The bank has guided towards the normalisation of NPA generation at 2.0-2.5% in FY2022. However, this will remain contingent on its ability to contain incremental slippages, even as the overdue book, as indicated by the special mention account (SMA)-1 and SMA-2 book (corporate book and retail book combined), remained high at 3.6% of standard advances as on June 30, 2021 (3.3% as on March 31, 2021 and 3.4% as on March 31, 2020).

On a forward-looking basis, normalised operating profitability is expected to remain better compared to past levels although elevated operational costs on a reduced scale along with the continued impact of the high share of low/non-yielding assets on profitability will continue to weigh down the operating profitability, the rating agency said.



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Lenders approach RBI after Rs 30,000 crore Srei loans turn NPA, BFSI News, ET BFSI

Banking & Finance

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A consortium of lenders led by UCO Bank has sought central bank directions on pursuing recovery of dues from the Srei Group after loans worth about ₹30,000 crore to the Kolkata-based financier officially qualified to be moved to the list of non-performing assets (NPA) this quarter, two people aware of the development told ET.

The Srei Group, however, said it expects banks to chalk out a debt recast plan that will map repayment milestones to future cash flows.

Since the group entities involved are non-banking financial companies (NBFC), the lenders concerned compulsorily need the Reserve Bank of India‘s (RBI) approval to take the Srei Group to the National Company Law Tribunal (NCLT) for insolvency proceedings.

In response to a query from ET, a Srei Group spokesperson said the economic downturn and loan moratoriums provided by the regulator had affected operations. The group is now in discussions with banks to implement a restructuring scheme.

‘NPA Ratio to Take a Hit’
“We hope banks will decide on the debt realignment at the earliest so that the company can pay all its bondholders and other creditors,” a Srei spokesperson said in the mailed response to ET. “We are very hopeful that banks will propose a payment schedule in consonance with the company’s cash flow that will enable payments to all creditors and help run the company smoothly.”

To be sure, Srei Infrastructure Finance may become the next big bankruptcy candidate from the financial services space after Dewan Housing Finance (DHFL). Banks are free to classify loans to Srei Group as NPAs after the National Company Law Appellate Tribunal (NCLAT) lifted a stay earlier this month on marking such exposure as bad, setting aside a lower bench order.

  • Srei Infra and its unit Srei Equipment Finance together owe lenders and debenture holders Rs 30,000 cr
  • UCO Bank, SBI have exposure of more than Rs 2,000 cr each
  • Srei Infra reported a loss of Rs 971 cr in the June quarter
  • Provisions on loans surged to Rs 439 cr from Rs 67 cr a year ago
  • In July, Srei disclosed that a RBI-directed audit had flagged Rs 8,576 cr of lending to ‘probable’ related parties of the group

“All banks will have to classify loans to Srei as NPAs this quarter and make the minimum provisions required,” said a person familiar with banking-sector exposure to the Srei Group. “Many banks have excess provisions; so, that should not be a cause for concern. But with such a big loan account slipping, the gross NPA ratio of some banks will increase at the end of the quarter.”Srei Infrastructure, and its subsidiary Srei Equipment Finance, together owe lenders and debenture holders a total of ₹30,000 crore. Kolkata-based UCO Bank is the lead lender, with more than ₹2,000 crore of exposure. State Bank of India (SBI)’s exposure to the group is also more than ₹2,000 crore.

Bankers say they have already set the ball rolling for recovery of loans by writing to the RBI and a regulatory nod to take the company through the bankruptcy courts could mean another DHFL-type insolvency process.

“Already two letters have been sent to apprise RBI of the conditions. If the central bank gives the permission, banks will go ahead with a court monitored process,” said a second person aware of the Srei-related banking-sector exposures. “It remains to be seen what the central bank’s response is.”



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Bombay HC refuses interim relief to Yes Bank in a case against Asit Koticha, ASK Group, BFSI News, ET BFSI

Banking & Finance

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The Bombay High Court has refused to grant any interim relief to YES Bank in the ASK Group transaction involving founder Asit Koticha.

The bank wanted the court to direct Koticha to deposit about Rs 379 crore from the proceeds he is receiving after selling his stake in flagship group company ASK Investments to private equity major Blackstone.

In August, Singapore-based BCP Topco XII Pte Ltd, an investment vehicle of Blackstone, had entered into share purchase agreements with Koticha to acquire his majority shareholding in ASK Investment Managers Ltd.

“I have no manner of doubt that the balance of convenience is not with the plaintiff (Yes Bank),” observed the court in its 17-page order. “The prejudice that is likely to be caused to one or more of the many defendants far outweighs any possible prejudice to the plaintiff.”

Justice GS Patel, in his order of September 24, has now posted the hearing of the case to November 29

The genesis of the dispute lies in the credit facility of Rs 330 crore extended by Yes Bank in 2015 to Lily Realty Pvt Ltd, a company owned by Asit Koticha. At the time of securing the loan facility, Koticha had extended ‘Shortfall Security’ under which if the realty firm fails to pay its dues to the Yes Bank, he will pay the shortfall.

Later, Lily Realty was classified as NPA in February 2020.

Munaf Virjee, Managing Partner of law firm ABH Law that appeared for Asit Koticha, and Senior Advocate Ravi Kadam declined to comment.

A mailed query to Yes Bank did not elicit any response. Rohan Dakshini, partner at Rashmikant & Partners, who appeared along with Senior Advocate Dinyar Madon for the bank, also did not comment.

On August 30, 2021, Yes Bank issued a shortfall demand notice to Koticha asking it to fund the shortfall to the extent of over Rs 379 crore. When Koticha declined, the bank approached the court.

Koticha agreed to sell his majority stake to BCP Topco at Rs 707 a share, for a total consideration of over Rs 606 crore. However, from this amount about Rs 307 crore and Rs 145 crore would be paid to IIFL Wealth Prime and IDBI Trusteeship, respectively, under various debt obligations.

Lawyers for Yes Bank argued that whatever remains after paying both IIFL Wealth Prime and IDBI Trusteeship should be put in an escrow account or should be deposited in court.

However, countering this, Koticha, through his lawyers argued that this is nothing but a recovery suit.

“It cannot be that the attachment before judgment is obtained against Koticha here (High Court) and the final relief that is sought is to be obtained in the Debts Recovery Tribunal (DRT) against Lily Realty and possibly also against Koticha as a personal guarantor,” argued the counsel for Koticha.



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Not one PSU bank in the top 5 lenders with lowest NPAs, BFSI News, ET BFSI

Banking & Finance

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Among Indian banks, HDFC Bank has stayed on top of the list of lenders with the lowest non-performing assets.

However, there is not a single public sector bank in the top five banks with the lowest NPAs.

HDFC Bank, which has reported more than 20 per cent YoY profit growth every quarter for over 40 quarters, has never crossed 0.5 per cent of loans in net non-performing assets. In its latest quarterly results, the bank’s net NPA ratio stood at 0.48%.

For retail loans, the bank relies on the model of wide franchise and low-cost deposit base, which ensures good pricing power and sustainability of above average net interest margins.

IndusInd Bank

The second number is held by IndusInd Bank. In its latest quarterly results, the bank’s gross non-performing assets (GNPAs) stood at 2.88 per cent as it was impacted by the second wave of Covid-19 while the net NPA ratio rose 15 basis points sequentially to 0.84 per cent.

The bank leads in certain retail asset classes with a pan India franchise which gives it strength to manage the asset quality in those segments.

ICICI Bank

The third bank on the list is ICICI Bank, which despite a rise in slippages, saw the net NPAs staying lower at 1.14 per cent as on March 31, 2021, against 1.54 per cent as on March 31, 2020. In its latest quarterly results, the bank reported a net NPA ratio of 1.16 per cent.

Federal Bank

The next on the list is Federal Bank that saw gross NPAs rise to 3.5 per cent and net NPAs increase marginally to 1.23 per cent largely due to the Covid-19 related challenges faced by borrowers in the latest quarterly results.

In fiscal 2021, Federal Bank exhibited a decline in NPAs due to diligent selection of borrowers, while its slippage ratio fell to 1.6%, lower than 1.7% in 2020.

Kotak Mahindra Bank

Kotak Mahindra Bank, the third largest Indian private sector bank by market capitalisation, has seen net NPAs consistently below 1.5 per cent. In its latest quarterly results, the bank’s asset quality weakened as gross NPAs stood at 3.56 per cent. However, net NPAs still came in below 1.5 per cent. The bank’s loan book has grown at a CAGR of over 25% over the past decade, which has been supported by a healthy contribution of low-cost deposits.



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Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs, BFSI News, ET BFSI

Banking & Finance

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Banks may offload about Rs 1 lakh crore of accounts with fraudulent activities to National Asset Reconstruction Company Ltd (NARCL) and other ARCs with the Reserve Bank of India allowed lenders to sell such loans.

In the last three years, banks have declared loan frauds amounting to Rs 3.95 lakh crore.

The new rule is part of the RBIs final norms on the transfer of loan exposures.

The move has opened a new avenue for ARCs, which till now were allowed to take over non-performing assets as well as loans which are in default for 60 days.

This bad loans that ARCs can take over include loan exposures classified as fraud as on the date of transfer provided that the responsibilities of the transferor with respect to continuous reporting, monitoring, filing of complaints with law enforcement agencies and proceedings related to such complaints shall also be transferred to the ARC, the central bank said. The transfer of such loan exposures to an ARC, however, does not absolve the transferor from fixing the staff accountability as required under the extant instructions on frauds.

Banks have to make 100% provision in four quarters for accounts tagged in the fraud category. In the case of non-performing assets without delayed recovery, 100% provisioning effectively happens over eight quarters.

Swiss challenge

Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs

The RBI has clarified on the called Swiss Challenge Method, applicable while transferring stressed loans by lenders. The RBI had proposed de-regulate price discovery by departing from Swiss Challenge auction method, where the highest bid in the first round or unsolicited bid received becomes the base for seeking counter offers.

The central bank said that in cases where the aggregate exposure of lenders to a borrower whose loan is being transferred is above 1 bln rupees, Swiss Challenge method must be followed. In all other cases, the bilateral negotiations shall be subject to the price discovery and value maximisation approaches adopted by the transferor as part of the board approved policy, which may also include Swiss Challenge method, it said However, in case of such transfers used as means for resolution under the RBI’s Jun 7, 2019 circular, Swiss Challenge method would be mandatory irrespective of the exposure threshold.

The RBI said that lenders must have a board-approved policy on the adoption of Swiss Challenge method. The policy could include parameters such as a tolerance limit on haircut required by the lenders in the base-bid and minimum mark-up for over the base for seeking counter offers, the RBI said. Such minimum mark-up, difference between the challenger and the base-bid expressed as a percentage of the base-bid, must not be less than 5% and not be more than 15%.

The bad bank

Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs

Finance Minister Nirmala Sitharaman on Thursday announced a Rs 30,600 crore government guarantee for the National Asset Reconstruction Company Limited (NARCL) for acquiring stressed loan assets, paving the way for operationalisation of the bad bank.

The finance minister in Budget 2021-22 announced the setting up of a bad bank as part of the resolution of bad loans worth about Rs 2 lakh crore.

The bad bank or 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 (SRs). The government guarantee would be invoked if there is a loss against the threshold value.



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