Tag: npa

Quality of banks’ retail loans dips, India Ratings projects total gross NPA at 8.6% for FY22, BFSI News, ET BFSI

Banking & Finance

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India Ratings & Research has estimated banks’ gross non-performing assets to rise to 8.6% by March 2022 while maintaining a stable outlook on the overall banking sector for the rest of FY22.

The rating company’s NPA estimate is much more benign than 9.8% projected by Reserve Bank of India’s Financial Stability Report even as it expressed concerns over significant stress on banks’ retail and MSME loan books. It projected overall stressed assets at 10.3% for FY22 expecting provisioning cost to rise to 1.9% from its earlier estimate of 1.5%.

The banking sector gross NPA was at 7.7% at the end of March 2022.

Retail loans, which have been considered as a safe bastion for lenders, are showing cracks as the pandemic drives higher delinquencies due to salary cuts and job losses. The rating firm estimated that the asset quality impact in the retail segment has been significantly higher for private banks, forcing them to restructure loans helping to defer immediate rise in slippages. Overall stressed assets in the segment are expected to increase to 5.8% by end-FY22 from 2.9% earlier.

The micro, small and medium enterprises sector has been under pressure with demonetisation, introduction of Goods & Services Tax and Real Estate Regulatory Authority (RERA), slowing down of large corporates and now COVID-19, India Ratings said.

Although the government support in form of liquidity under the Emergency Credit Line Guarantee Scheme (ECLGS) and permission to restructure loans comes as an immediate relief for the sector immediately, a part of this credit support could turn bad when moratorium ends beginning the third quarter this fiscal. The rating firm projected gross NPA from MSME to rise to 13.1% by FY22 from 9.9% in FY21. Stressed assets similarly would increase to 15.6% from 11.7%.

The stable outlook on large private banks indicated their continued market share gains both in assets and liabilities, while competing intensely with public sector banks. “Most have strengthened their capital buffers and proactively managed their portfolio. As growth revives, large private banks are likely to benefit from credit migration due to their superior product and service proposition,” the rating company said.

The stable outlook on public sector banks took into account the continued government support through large capital infusions leading to a significant boost in capital buffers over the minimum regulatory requirements, significant improvement in provision coverage. The government injected Rs 2.8 trillion over FY18-FY21 and has budgeted another Rs 20000 crore for this fiscal.

The outlook on non-banking finance companies is however mixed depending on the category of their businesses. The outlook on NBFCs engaged in commercial vehicle loans and loans against property is negative while the rating company maintained stable outlook for NBFCs engaged in housing finance as well as gold loans.



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India Ratings maintains stable outlook on banking sector in FY22, BFSI News, ET BFSI

Banking & Finance

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Domestic rating agency India Ratings on Tuesday maintained a stable outlook on the banking sector for 2021-22 while it expects an increase in stressed assets in retail and MSME segments by end-March. It estimates gross non-performing assets (GNPA) of the banking sector to be at 8.6 per cent and stressed assets at 10.3 per cent for fiscal 2021-22.

“We have maintained a stable outlook on the overall banking sector for the rest of FY22, supported by the continuing systemic support that has helped manage the system-wide COVID-19 linked stress,” the rating agency said in its mid-year banks outlook released on Tuesday.

Banks will continue to strengthen their financials by raising capital and adding to provision buffers which have already seen a sharp increase in the last three to four years, it said.

The agency said its stable outlook on large private banks indicates their continued market share gains both in assets and liabilities, while competing intensely with public sector banks (PSBs). Most have strengthened their capital buffers and proactively managed their portfolio.

Outlook on PSBs takes into account continued government support through large capital infusions (Rs 2.8 lakh crore over FY18-FY21 and further Rs 0.2 lakh crore provisioned for FY22), it said.

The agency has a negative outlook on five banks (about 6.5 per cent of system deposits), driven primarily by weak capital buffers and continued pressure on franchise.

It estimates that the asset quality impact in the retail segment has been higher for private banks with a median rise of over 100 per cent in gross NPAs over Q1 FY21 to Q1 FY22 (about 45 per cent for PSBs).

“Banks have also undertaken restructuring in retail assets (including home loans), which could have postponed an immediate increase in slippages. Overall stressed assets (GNPA + restructured) in the segment is expected to increase to 5.8 per cent by end-FY22,” the report said.

It said the MSME sector has been under pressure with demonetisation, introduction of GST and RERA, slowing down of large corporates and now COVID-19.

However, the government has supported the segment by offering liquidity under the Emergency Credit Line Guarantee Scheme (ECLGS) and restructuring, it said adding that it expects that beginning Q3 FY22, a portion of such advances would start exiting moratoriums a part of which could slip.

GNPAs of MSMEs is expected to increase to 13.1 per cent by end-FY22 from 9.9 per cent in FY21. Stressed assets similarly would increase to 15.6 per cent from 11.7 per cent.

For corporate segment, the agency estimates GNPAs to increase to 10.2 per cent and stressed asset to increase to 11.3 per cent.

The rating agency has kept its FY22 credit growth estimates unchanged at 8.9 per cent for FY22, supported by a pick-up in economic activity post Q1 FY22, higher government spending especially on infrastructure and a revival in demand for retail loans.

Last week, the agency had changed the outlook to improving from stable for retail non-banking finance companies (NBFCs) and housing finance companies (HFCs) for the second half of FY22.

It said non-banks have adequate system liquidity (because of regulatory measures), sufficient capital buffers, stable margins due to low funding cost and on-balance sheet provisioning buffers.

These factors provide ‘enough cushion to navigate the challenges that may emanate from a subdued operating environment leading to an increase in asset quality challenges due to the second covid wave impacting disbursements and collections for non-banks’, it had said.



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Equitas Small Finance Bank eyes 25% growth in advances this fiscal

Banking & Finance

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Equitas Small Finance Bank (Equitas SFB) is hopeful of clocking at least 25 per cent growth in its loan book from this fiscal, a top official said.

This is likely to happen provided there is no further disturbance in the coming days such as any third Covid wave, PN Vasudevan, Managing Director & CEO, Equitas SFB, told BusinessLine.

Equitas SFB’s advances growth target of 25 per cent is higher than the 17 per cent clocked during 2020-21, but lower than the pre-pandemic growth level of 35 per cent, he noted.

He highlighted there was no situation of any low-base effect playing out given that the Equitas SFB advances growth was 17 per cent last fiscal.

“I am assuming that if life returns to being reasonably normal, we should clock 25 per cent growth even this fiscal. Going forward we should be able to deliver annual credit growth of 25 per cent on a consistent basis,” Vasudevan said.

In the last five years since its formation, Equitas SFB balance sheet has grown from ₹9,000 crore to ₹25,000 crore. Advances have tripled to ₹18,000 crore from ₹6,000 crore. The number of branches doubled from 400 to about 850. “While the branches have doubled, the volumes have tripled,” Vasudevan said.

Equitas SFB, which has completed five years of existence, expects its non-performing assets to come down from 4.5 per cent last year (pandemic times) to normal level of 2.5-2.7 per cent over next 2-3 quarters. “We have never had an issue on the asset quality front in 14 years ( five years as a bank and about nine years as NBFC). We expect our NPA level to come back to absolutely normal level in next 2-3 quarters,” he said.

On capital raising to support growth, Vasudevan said that Equitas SFB is not projecting any capital requirement for next 2-3 years and is quite comfortable on this front.

On the proposed merger of its parent Equitas Holding with Equitas SFB, Vasudevan said that an application has been made to the RBI for the merger. “This proper merger of the holding company with SFB won’t have any impact on the operations of the bank as the holding company is a non-operating company,” he added.

Digital banking

Going forward, Equitas SFB intends to leverage digital to expand the customer base and would not go in for any large scale physical branch expansion. “This does not mean we will not set up new physical branches in the next few years. It will be a modest increase,” he noted.

He highlighted that the bank had opened 5.5 lakh new savings accounts in the first quarter this fiscal as against 4.8 lakh in the entire previous fiscal and this has been largely aided by the digital channel of the bank. In 2019-20, Equitas SFB had opened 1.6 lakh new savings bank accounts.

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Bank of Maharashtra mulls FPO to cash in on retail investor demand, BFSI News, ET BFSI

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“Investors have shown a lot of enthusiasm in the bank’s scrip considering the promising performance of the bank since the last two years which resulted in a sharp rise in the bank’s share price. The Bank may come up with FPO in view of demand from retail investors in future at an opportune time,”bank’s MD & CEO A S Rajeev

Bank of Maharashtra, which has been adjudged best performer among PSBs for the last fiscal, is looking to come up with a follow-on public offer at an opportune time.

“Investors have shown a lot of enthusiasm in the bank’s scrip considering the promising performance of the bank since the last two years which resulted in a sharp rise in the bank’s share price. The Bank may come up with FPO in view of demand from retail investors in future at an opportune time,” bank’s MD & CEO A S Rajeev told ETBFSI.

The bank recently raised Rs 400 crore via qualified institutional placement as it took benefit of consistent performance in the last ten quarters and the current market scenario.

To support the projected growth and improve the CRAR level, the bank may further raise capital in the form of Tier I /Tier II bonds at an opportune time.

At present, the bank is well capitalised with CRAR as of Q1 FY22 at 14.46% as against the minimum requirement of 10.875%. The CET-1 capital ratio of the Bank stood at 11% as against the minimum requirement of 7.375%.

“Looking forward and considering present market condition, we are targeting growth in gross advances by 16-18% for the current fiscal, the bank’s Board has created an enabling provision to raise Rs 5,000 crore capital for business growth. We are projecting advances level of Rs 125,000 crore in this financial year,” Rajeev said.

Expansion plans

Bank of Maharashtra is on an expansion mode and wants to have branch presence in all the districts of the country. In the last fiscal, the bank opened 132 outlets, of which new branches are 86. The bank has been able to mobilise Rs 1,000 crore in just nine months of their operation.

“During current fiscal, we are all set for opening branches at 200 banking outlets with a hub and spoke model i.e. branches to act as hubs and surrounding centres through customer service points (CSPs) managed by Business Correspondents as spoke. We are targeting the Business centres, where ample opportunities are available for business growth, Rajeev said.

The bank plans utilisation of technology and data analytics to tap into previously untapped markets through product innovation & using artificial intelligence.

Bank of Maharashtra mulls FPO to cash in on retail investor demand
Reducing NPAs

Rajeev said the bank is taking conscious efforts to monitor recoveries including asset sales, one-time settlements etc. To push loan recoveries in stressed assets, the lender has come up with effective settlement schemes with attractive terms. “Keeping present scenario into consideration, we are also giving priority in small NPA accounts up to Rs 1 crore dues by extending compromise offer under non-discretionary and non-discriminatory policy. Recovery machinery at all levels are geared up through phone calls, emails, virtual interaction with the borrowers and through the Specialized SAMB and ARB branches,” he said. The bank organises recovery camps at regular intervals which helps in arriving amicable resolution. Mega e-auction through e-Bikray platform with appropriate publicity has been carried out including tie-up arrangements with real estate agencies at notified places to fetch favourable outcome, Rajeev said.



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Can the bank take your assets if you have defaulted on a personal loan?, BFSI News, ET BFSI

Banking & Finance

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What happens to the borrower if he/she defaults on a personal loan? In case of a secured loan like a home or car loan, the lender can take over the asset that is used as collateral to secure the loan. However, in the case of an unsecured loan like a personal loan, what is the legal recourse that a lender will take to recover dues from the borrower?

An unsecured loan does not offer any security to the lender and hence, there is no immediate threat to the borrower about lenders having any claim on their assets. “An unsecured loan is without any security or mortgage as guarantee for repayment and solely based on borrowers credit rating. Hence, assets cannot be appropriated. Recovery is based on the contract term of dispute resolution and through the process of law,” says Harsh Pathak, a Delhi based advocate.

What this means is that the lender on their own does not have the right to possess any of your assets. “Assets of a borrower can only be attached following the due process and through a court order on whatever assets the court deems fit. Borrower’s assets are beyond the recovery net of the lender, and only come for realisation of debt pursuant to the assessment and order of the competent court,” adds Pathak.

Here is a look at how the lender will recover dues from a borrower who has defaulted on a personal loan and the options available with such a defaulting borrower.

Damage control at first instance
Lenders typically get serious with regards to recovery when there is a prolonged delay in repayment of the loan. “The borrower’s account is classified as a non-performing asset (NPA) if the repayment is overdue by 90 days,” says Sonam Chandwani, Managing Partner at KS Legal & Associates. The lender will start legal proceedings once your loan account turns into an NPA, which means only after you have not paid three consecutive EMIs. The lender will give you a notice of 60 days to clear the dues before starting the legal proceedings. This is the time you should try your best to settle the default.

“At the outset, if borrowers can convince the lender that defaults are temporary and repayment would soon become regular, the lender may delay the legal proceedings. Therefore, clear and honest communication with the lender can stall or at the very least delay proceedings initiated by the lender, if any,” says Chandwani.

Lender may set off debt with bankers’ lien
There are many unsecured loans where the asset is not mortgaged but only a lien is marked on the assets like safe custody, bond, fixed deposit, shares, mutual funds etc. Once a lien is marked, the borrower cannot sell the assets before clearing the dues and lender removing the lien.

So, what happens if the borrower has defaulted and is unable to pay the dues?

“The lender may have a right to exercise banker’s lien and right to set off if it has been contractually agreed by the borrower. Banker’s lien is the right of retaining assets delivered to the bank’s possession unless the borrower to whom they belonged has agreed that this right shall be excluded, such as in the case of valuables kept in the bank for safe custody,” says Manisha Shroff, Partner, Khaitan & Co.

A bank may exercise the option to set off the dues against your deposits. “A lender also has a right to set off a debt owed by a borrower against a debt due from him. For example, a bank can set off the amounts owed by the borrower against the money deposited by the borrower in the accounts of the bank, if contractually agreed,” says Shroff.

If you have fixed deposits or savings account with a bank, then in such a situation the bank may recover dues from these deposits.

Lender goes for a lawsuit for recovery of money
In usual circumstances the lender does not have any right on the borrower’s property but if the lender files a suit in the court and gets a favourable order, things can change. “A brief action or summary procedure is available for recovery of money under the Civil Procedure Code, 1908, by way of the institution of a suit in a court of appropriate jurisdiction,” says Shroff.

The jurisdiction of the suit is determined first based on territorial jurisdiction and then on pecuniary jurisdiction. The pecuniary value (total dues claimed by lender) of the suit becomes a deciding factor on whether the lender will file the suit either in the district court or in the high court.

“When the lender obtains a decree from a court of law against the borrower, he is to get the decree satisfied by way of execution proceedings. The execution comes to an end when the judgment-creditor or decree-holder gets cash or other thing granted to him by judgment, decree, or order,” says Shroff. At this stage as well, the borrower can get a final chance to settle the loan without involving attachment of any asset.

However, if the borrower is unable to settle the dues, he/she faces the threat of his/her assets being attached. “In the event the borrower is unable to comply with the decree of court, the court may, upon application by the lender, attach the assets of the borrower,” says Shroff.

Lender can approach Debt Recovery Tribunal for loan above Rs 20 lakh
A lender can initiate recovery dues by approaching the Debt Recovery Tribunal (DRT) under the Recovery of Debt Due to Banks and Financial Institutions Act, 1993 (DRT Act). This option is available only for high value of outstanding as the amount of debt should not be less than Rs 20 lakh, according to the DRT Act.

“The DRT Act is not applicable where the amount of debt due is less than Rs 20 lakh or any other amount not below Rs 1 lakh, in cases where the central government may by notification specify. Thus, in essence, minimum debt which is to be recovered from DRT should not be less than Rs 20 lakh,” says Shroff.

The borrower also gets the opportunity to be heard and present his facts before the tribunal which can be considered by the tribunal before passing a final order. “Upon completion of the proceedings under DRT, if the DRT finds fit, it may pass orders for appointing a receiver of the property/assets of the borrower, before or after the grant of Recovery Certificate (RC) or appoint a commissioner for collecting details of defendant/respondent’s property or sale thereof,” adds Shroff.

After going through the case history and presented facts if the tribunal passes the order for attachment of the property, then the recovery office of DRT may proceed toward attachment and sale of the borrower’s assets.

Rights of a defaulting borrower
A borrower defaulting on an unsecured loan may exercise the following rights: Right to sufficient notice, Right to be heard, Right to humane treatment and Right to report grievance.

“Apart from other contractual rights that an individual borrower may have under the loan agreement, the Reserve Bank of India (“RBI”) has formulated Fair Practices Code (“FPC”) to streamline loan recovery practices for banks and financial institutions,” says Shroff.

Banks cannot indulge in misconduct or bypass the procedure laid down by the law against the defaulters. “In case of misconduct by banks, NBFCs, ARCs, the defaulter shall have legal rights against the same. In the event of harassment or coercion by the bank or recovery agents, the borrower may approach the banking ombudsman under the relevant framework of the RBI. In cases of continued harassment, a police complaint can also be filed or an injunction can be filed before the civil court,” says Chandwani.

If the lender has taken the legal proceedings to a court or DRT you need to follow the proceedings and represent your case. “In case of an unsecured loan, lenders typically try to obtain an injunction on sale or disposition of any and all assets. However, banks cannot sell all the assets; they can only sell such assets as would be sufficient to realise the amount of defaulted loan along with interest, costs and expenses etc.,” says Mani Gupta, Partner at Sarthak Advocates & Solicitors.

If the matter has gone against you in court or the DRT, you need to make sure its impact is limited. “If the borrower has an asset whose sale would realise sufficient proceeds to meet the liability, the borrower should inform the DRT/ court of the same and seek that injunction be limited to such asset. Apart from this, certain types of property cannot be sold in execution of decree,” adds Gupta.

Be pro-active to settle the dues
A serious default, where the lender needs to write off a significant outstanding amount of your loan, can impact your credit history severely. With a poor credit history it is almost unlikely that the borrower will get any credit in future. Even if you settle the dues later on it will always reflect in your credit history and will take many years to improve your credit score.

Though, it may be difficult and time-consuming process for the lender to get a claim on the borrower’s asset to recover the unsecured loan’s due, however, if it happens the cost for the borrower will be much more than the due amount as the lender will not only recover the principal but also the interest, penalties and cost of the legal suit.

“Borrower should be proactive in settling the loan, otherwise it cost penal interest, adverse credit rating, late fees and legal cases. As civil cases are common and permissible on default cases. However, in exceptional circumstances criminal cases for breach of trust or cheating can also be initiated,” says Pathak. So, the better way is to be proactive and take some hard calls about liquidating your own assets and settling the dues at right time at a lesser cost.



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Enforcement Directorate arrests MD of company in Hyderabad, BFSI News, ET BFSI

Banking & Finance

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The Enforcement Directorate (ED) on Thursday said it arrested the MD of a Hyderabad-based company last week in a money laundering case linked to an alleged fraud of Rs 3,316 crore at a consortium of public sector banks. Vuppalapati Satish Kumar, the managing director of Prithvi Information Solutions Limited (PISL), was arrested on August 12 and a special Prevention of Money Laundering Act (PMLA) Court later sent him to ten days custody of the agency.

This is the second arrest in this case after his sister V Hima Bindu, the “prime accused” and managing director of a city-based telecom equipment manufacturing company VMCSL, was taken in custody by the ED earlier this month.

“Although V Satish Kumar claimed that he had no link with the non-performing asset (NPA) of VMCSL, more than 40 hard disks of this company were recovered from his residence during the search carried out on July 20.”

“On forensic examination of the digital devices, it was found that he (Satish Kumar) indulged in benami transactions and was involved in efforts to transfer fraud amounts to off-shore entities,” the ED alleged in a statement issued here.

He was, it claimed, non-cooperative during the investigation and was not supplying documents of his own business entities on one pretext or the other.

The ED case of money laundering against VMCSL and its promoters is based on a CBI FIR earlier filed against them.

“VMCSL had taken loans from a consortium of banks and the present dues outstanding to all the banks is Rs 3,316 crore.”

“Forensic audit revealed that VMCSL circulated loans to various related entities to inflate its books of accounts,” the ED had alleged earlier.

It said the audit also revealed that its related entity PISL was given 3 per cent commission by VMCSL for all receipts from BSNL “without any specific role” of PISL in BSNL tenders.

“Forensic audit found VMCSL had opened various Letters of Credit worth Rs 692 crore in the name of fake or dummy entities which were subsequently devolved,” it alleged.

Bindu, the ED had claimed, through her company VMCSL and with the “active assistance” of her brother V Satish Kumar, in order to dodge the banks, created false and exaggerated operational revenues by generating fake sales and purchase invoices through the companies controlled by their directors and family members.”



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Indian banks brace for bad loans with stronger balance sheets, says new S&P report, BFSI News, ET BFSI

Banking & Finance

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Indian banks’ prior efforts to strengthen their balance sheets will help them mitigate the impact of asset quality as bad loans ticked higher in the April-to-June quarter following a deadlier wave of the COVID-19 pandemic, according to a new report by S&P Global Market Intelligence research.

“Banks have been taking steps to fortify their balance sheets over the last year or so to face the asset quality impact. These have been through enhancing capital base, increasing provisioning cover and having adequate amounts of liquidity,” said Krishnan Sitaraman, senior director at CRISIL, a unit of S&P Global Inc.

The June quarter saw gross NPAs rising, mainly in retail and small and medium-sized enterprise portfolios for banks.

“That is because these segments have been impacted more by the pandemic and the lockdown measures. The pandemic’s second wave has had a much larger health impact and geographical spread as compared to the first,” Sitaraman said.

State Bank of India, the country’s largest lender by assets, reported total nonperforming loans of Rs 1.36 lakh crore for the fiscal first quarter that ended on June 30, up from Rs 1.28 lakh crore in the previous three months and Rs 1.31 lakh crore in the same period of 2020.

ICICI Bank, the second-biggest private-sector lender, said its gross nonperforming assets rose by Rs 7231 crore in the first quarter, mainly from its retail and business portfolio. State-run Bank of Baroda reported fresh slippages of Rs 5129 crore in the first quarter, versus Rs 2740 crores in the prior-year period.

During the fiscal first quarter, Indian banks saw higher-than-expected slippages of more than 200% year over year that largely arose from retail and SMEs, according to an Aug. 16 research note from Jefferies.

Slippages were higher than expected as new COVID-19 restrictions affected collections, Jefferies analysts said, adding that some banks have started to recover in July and normalcy may return in the fiscal second or third quarter.

India’s economy took a severe hit during the second wave of the coronavirus, with the number of daily cases peaking above 400,000 in May. Cases have tailed off in recent weeks as the government stepped up vaccinations.

Still, the high number of COVID-19 cases and deaths are expected to have had a bigger impact on the economy in terms of jobs lost and businesses shut. Also, most forbearance measures announced last year, including a Supreme Court order stopping banks from classifying delinquent loans as nonperforming assets had been lifted after the economy recovered from the initial wave of infections.

Banks are now seeing the full extent of borrower stress with a one-time debt restructuring facility and the Supreme Court’s standstill on NPA recognition no longer available.

“In the absence of regulatory measures such as moratorium, the gross NPA formation due to the recent wave of COVID-19 is being upfronted in the first half of the current fiscal [year] for the system, including us,” said Sandeep Bakhshi, CEO of ICICI Bank, during a July 24 earnings call. Bakhshi expects the bank’s gross NPA additions to be lower in the second quarter and “decline more meaningfully in the second half of fiscal 2022,” based on expectations of economic activity.

Stress tests by the Reserve Bank of India indicated that the bad loans of all banks may rise to 9.80% by March 2022 from 7.50% in the same month of this year under a baseline scenario. However, the bad loans ratio could rise to as high as 11.22% by March 2022 under a “severe stress” scenario for key macroeconomic indicators, the central bank said in its biannual Financial Stability Report released July 1.

“Many banks have set aside higher provisioning buffers and raised capital in the last one year or so. This should help them absorb the rising stress in their retail book,” said Nikita Anand, an analyst at S&P Global Ratings.

“On the other hand, banks with lower provisioning buffers and weaker capitalization could see a sharp impact on their profits and capital levels,” Anand said. “This could be more acute for banks with significant underlying exposure to small business owners or unsecured retail products where loss given default could be higher.”



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Finance Minister Nirmala Sitharaman to meet CEOs of public sector banks on August 25, BFSI News, ET BFSI

Banking & Finance

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Finance Minister Nirmala Sitharaman is scheduled to meet heads of public sector banks (PSBs) on August 25 to review financial performance of the lenders and progress made by them to support the economy battered by COVID-19 pandemic.

Given the importance of the banking sector in generating demand and boosting consumption, sources said the meeting with the MD and CEOs of PSBs is considered important.

Recently, the Finance Minister said the government is ready to do everything required to revive and support economic growth hit by the COVID-19 pandemic.

“Growth will be given its importance. Growth will be pushed both by the Reserve Bank and by us…,” she had said.

Interestingly, this would be the first physical review meeting since the outbreak of the pandemic in March last year.

The meeting is expected to take stock of the banking sector, progress on restructuring 2.0 scheme announced by Reserve Bank of India (RBI), sources said, adding that banks may be nudged to push loan growth in productive sectors.

The revamped Rs 4.5 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) would also be reviewed during the meeting likely to be held in Mumbai, sources said.

Besides, the Finance Minister is expected to take a stock of the bad loan or non-performing asset (NPA) situation, and discuss various recovery measures by banks, they said.

As a result of government’s strategy of recognition, resolution, recapitalisation and reforms, NPAs have since declined to Rs 7,39,541 crore on March 31, 2019, Rs 6,78,317 crore on March 31, 2020 and further to Rs 6,16,616 crore as on March 31, 2021 (provisional data).

At the same time comprehensive steps were taken to control and to effect recovery in NPAs, which enabled PSBs to recover Rs 5,01,479 crore over the last six financial years, the government informed Parliament recently.

As far as credit growth of scheduled commercial banks (SCBs) is concerned, it has remained positive for 2020-21 despite contraction in GDP (-7.3 per cent) due to the COVID-19 pandemic.

Gross loans and advances – outstanding of SCBs increased from Rs 109.19 lakh crore as of March 31, 2020 to Rs 113.99 lakh crore as of March 31, 2021. Agriculture and allied activities, micro, small and medium enterprises, housing and auto have witnessed a year-on-year growth of 12.3 per cent, 8.5 per cent, 9.1 per cent and 9.5 per cent, respectively, during the year.

Notwithstanding economic disruptions caused by the pandemic, PSBs have managed to raise a record Rs 58,700 crore from markets in 2020-21 through a mix of debt and equity to enhance capital base. As a result capital to risk weighted assets ratio rose to 14.04 per cent as of March 31, 2021, as against regulatory requirement of 10.875 per cent boosting the ability of PSBs to further increase lending.

As a result, PSBs in aggregate recorded a profit of Rs 31,816 crore, highest in five years, despite 7.3 per cent contraction in economy in 2020-21.

The primary reason for PSBs to post such a Rs 57,832-crore turnaround from a loss of Rs 26,015 crore in 2019-20 to a combined profit of Rs 31,816 crore was the end of their legacy bad loan problem.



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PSU banks report fourfold jump in MSME slippages in Q1, BFSI News, ET BFSI

Banking & Finance

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Public sector banks have reported sharp slippages in their micro, small, medium enterprises (MSME) loans during the first quarter when the Covid restrictions kept the economy subdued.

The fresh slippages of all public sector banks jumped more than four times to Rs 53,914 crore in Q1FY22 from Rs 13,188 crore in Q1FY21. SBI, PNB, Union Bank of India, Bank of Baroda and Canara Bank accounted for 75 per cent of the total slippages in the April-June quarter.

State Bank of India‘s fresh slippages rose more than four times to Rs 15,666 crore in the first quarter, of which 40%, or Rs 6,416 crore came from the MSME sector.

Nearly 59 per cent of Indian Bank’s fresh slippage in the first quarter at Rs 4,204 crore came from the MSME sector while for Canara Bank, they were 58 per cent of the total slippage of Rs 4,253 crore during the first quarter.

The Reserve Bank take

During the monetary policy review earlier this month, the Reserve Bank had allayed the fears of lenders about the rising delinquency levels among small business loan borrowers, who are hit hard by the Covid second wave, saying the numbers are not alarming yet. The government and the central bank push to support MSMEs during the pandemic through credit measures like the emergency credit line guarantee scheme (ESLGS) saw lending to them jumping to Rs 9.5 lakh crore in the pandemic-hit FY21 from Rs 6.8 lakh crore in FY20, while the asset quality deteriorated to 12.6 per cent as of March 2021 from 12 per cent in December 2020.

‘No crisis’

RBI Deputy Governor Mukesh Jain said there is no crisis now on this front, as the stress level among small business borrowers are not very high, even though slippages and loan restructuring are rising of late. The situation is not very bad as many accounts are going in for restructuring under the Covid package version 2 announced in May, which allowed crisis-ridden borrowers to opt for up to two years of the moratorium, he said. “Yes, there is a visible increase in slippages among MSME borrowers, but the quantum of slippages has not reached an alarming level” Jain said.

“We are constantly monitoring all the regulated entities, particularly banks and large NBFCs to check their asset quality. Our stress tests also prove that there is nothing alarming as of now,” he added. A July 28, 2021, report by Sidbi-Cibil said the NPA levels among MSME borrowers have surged to 12.6 per cent in the March 2021 quarter, from 12 per cent in December 2020, while loans to them have jumped to Rs 9.5 lakh crore in FY21 from Rs 6.8 lakh crore in FY20.



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Yes Bank seeks partners for asset recast company, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: Yes Bank has invited bids from potential partners for a proposed asset reconstruction company that will undertake recovery of bad loans. Management consultancy firm Ernst & Young is assisting the bank in the process.

In an advertisement on Wednesday, the private bank invited applications from investors with assets under management of at least $5 billion and possessing substantial experience in the distressed asset space. According to bankers, given the $5-billion assets under management eligibility criteria, it will be largely global distressed asset funds that will qualify.

Yes Bank had collapsed under the weight of bad debts in March 2020 and was placed under a moratorium by the RBI. Although Yes Bank was part of a consortium of lenders in most of the default cases, it was the worst hit because its exposure was disproportionate to its size and the bank had a presence in almost every major stressed asset. It was reconstructed through a government-notified scheme with banks led by SBI bringing in significant capital.

Given the complexity of recovering from large defaulters, Yes Bank’s new management had pursued setting up an asset reconstruction company from the time it took over in early April 2020. Addressing analysts in a post-results call last week, the bank’s MD & CEO Prashant Kumar said that it had made a cash recovery of Rs 5,000 crore last year, and the recoveries were much more than the provisions.

“The kind of effort that the engagement with those NPA customers which we have made during the last year — and which continued — I think would give us much better recoveries during the current fiscal year, and our recoveries would also result in significant gain on the P&L and there would not be any need to make any additional provision for this,” said Kumar.

The bank had total gross non-performing exposures of Rs 38,821 crore at the end of June 2021 as against Rs 39,034 crore in the previous quarter. “On the recovery side, our specialised stressed asset management team of about 100 professionals have demonstrated a significant track record of cash recoveries. He added that the team is divided into two parts — core resolution & recovery team, and support function. “We expect to have cash recoveries of Rs 5,000 crore in the current financial year,” said Kumar.



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