Private banks’ NPAs fall in Q2 as economy charts recovery path, BFSI News, ET BFSI

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With the economy opening up, the asset quality of private banks improved in the September quarter. Further, banks efforts in reducing slippages, improved collections, better recoveries from written off accounts and RBI mandated loans recast also helped banks keep a lid on NPAs.

While the year on year NPA figures of most banks were higher than the last quarter’s figures, they are not comparable as after the Supreme Court‘s stay on classifying loans that were standard as on August 31 from NPAs banks had reported NPAs under proforma figures.

The drop

HDFC Bank, India’s largest private sector lender, reported a drop in gross non-performing assets (GNPAs) to Rs 16,346 crore during July-September against Rs 17,099 crore in the preceding quarter. Provisions and contingencies also dropped to Rs 3,924.70 crore during the quarter compared with Rs 4,830.84 crore in the June quarter. GNPA ratio fell to 1.35 per cent as of September from 1.47 per cent in the June quarter. It was 1.08 per cent in the same quarter, a year ago.

ICICI Bank‘s gross non-performing assets fell to 4.82 per cent of gross advances as on September 30, against 5.15 per cent in the June quarter. Net NPAs (bad loans) also fell to 0.99 per cent from 1.16 per cent sequentially in the September quarter.

Federal Bank‘s asset quality improved on a sequential basis as gross NPA came at 3.24% as against 3.50% in the previous quarter. Its net NPA stood at 1.12% from 1.23% quarter-on-quarter (QoQ). However, the gross NPA during the year-ago quarter stood at 2.84% whereas net NPA at 0.99%. Provisions (other than tax) and contingencies declined to Rs 245 crore as against Rs 543 crore in the previous quarter and Rs 532 crore in the year-ago quarter.

Axis Bank and Kotak Bank

Axis Bank’s gross NPAs came in at 3.53% in the second quarter, lower than 3.85% in the June quarter and 4.18% in the previous year period. Meanwhile, the net NPA ratio during the quarter stood at l.08%.

Kotak Mahindra Bank’s gross NPAs during the second quarter stood at 3.19% compared with 3.56% in the June quarter. However, it was higher than 2.70% in the year-ago quarter. Meanwhile, the net NPA improved to 1.06% versus 1.28% on a sequential basis, and remained flat on a year-on-year basis.

What Crisil says

GNPAs of banks will rise to 8-9 per cent this fiscal, well below the peak of 11.2 per cent seen at the end of fiscal 2018, with the COVID-19 relief measures such as restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS) helping limit the rise, according to CRISIL Ratings.

GNPAs as at March-end 2021 had declined to 7.5 per cent against 8.2 per cent as at March-end 2020.

With about 2 per cent of bank credit expected under restructuring by the end of this fiscal, stressed assets ― comprising gross NPAs and loan book under restructuring ― should touch 10-11 per cent (against March-end 2021 estimate of about 9 per cent), the credit rating agency said.



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RBI imposes Rs 90 lakh penalty on Vasai Vikas Sahakari Bank, BFSI News, ET BFSI

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The RBI on Tuesday said it has imposed a Rs 90 lakh penalty on Vasai Vikas Sahakari Bank, Maharashtra, for non-compliance with certain directions, including on classification of loans as NPAs, and other directions. In a statement, the Reserve Bank said the bank had not complied with its directions on ensuring end-use of funds in borrowal accounts and classification of loans/ advances as non-performing assets, specific direction of RBI for ensuring that the bank’s balance sheet and profit and loss account are signed by at least three of its directors.

This was revealed following the statutory inspection of the bank with reference to the bank’s financial position as of March 31, 2019, the Inspection Report pertaining thereto and examination of all related correspondence, the central bank said.

The penalty was imposed after considering the bank’s replies to a show-cause notice and oral submissions made during the personal hearing, the RBI said.

In another statement, the RBI said it has imposed a monetary penalty of Rs 7 lakh on The Citizens Urban Co-operative Bank, Jalandhar, Punjab for “non-adherence with/violation” of certain directions related to non-identification of NPAs, wrong classification of assets and inadequate provisions made due to the wrong classification of assets.

In both cases, the RBI said, penalities were based on the deficiency in regulatory compliance and not intended to pronounce upon the validity of any transaction or agreement entered into by them with their customers.



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Canara Bank Q2 net jumps 200% to ₹1,333 crore

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Canara Bank reported a 200 per cent year-on-year (y-o-y) jump in second quarter net profit at ₹1,333 crore against ₹444 crore in the year-ago period, supported by healthy growth in other income and lower loan loss provisions.

Net interest income (difference between interest earned and interest expended) was down a shade at ₹6,273 crore (₹6,305 crore in the year ago period).

Non-interest income, comprising fee-based income, trading income, recovery in written-off accounts, and others, was up 37.54 per cent y-o-y at ₹4,268 crore (₹3,103 crore).

Loan loss provisions declined 24 per cent y-o-y at ₹2,678 crore (₹3,533 crore).

Slippages and recovery

Fresh slippages during the quarter increased by ₹6,525 crore (₹4,253 crore in the preceding quarter). This includes ₹3,200 crore exposure to the SREI Group.

The public sector bank made higher cash recovery of ₹3,002 crore (₹1,598 crore in the preceding quarter). Upgradation and write-offs amounted to ₹2,671 crore (₹2,292 crore) and ₹1,585 crore (₹2,574 crore), respectively.

Gross non-performing assets (NPAs) position improved 8 basis points to 8.42 per cent of gross advances against 8.50 per cent as on June-end 2021.

Net NPA position improved 25 basis points to 3.21 per cent of net advances against 3.46 per cent as on June-end 2021.

LV Prabhakar, MD & CEO, observed that going forward, the bank’s balancesheet will strengthen further, with gross non-performing assets (excluding transfer of stressed assets to the National Asset Reconstruction Company) expected to decline to at least 7.5 per cent by March-end 2022 and credit growth (global) projected at 7.5 per cent for FY22, seen picking up steam from third quarter onwards.

The bank recovered about ₹1,700 crore from DHFL’s corporate insolvency resolution process (CIRP) and made 50 per cent provision towards its exposure to the SREI Group, which has become a non-performing account, Prabhakar said.

Net interest margin declined to 2.72 per cent from 2.82 per cent as on September-end 2020.

Global (domestic plus overseas) gross advances grew about 6 per cent y-o-y to ₹6,86,813 crore.

Within domestic advances (which were up 5.71 per cent yoy), Agriculture & Allied advances grew by 13.92 per cent; retail (10.46 per cent); MSME (0.31 per cent); and corporate and others (2.23 per cent). Overseas advances increased by 9.36 per cent yoy.

Global Deposits rose about 9 per cent to ₹10,32,536 crore. Domestic deposits and overseas deposits increased by 7.61 per cent and 38.15 per cent, respectively.

The proportion of low-cost CASA deposits improved to 34.11 per cent in total domestic deposits as at September-end 2021 against 32.77 per cent as at September-end 2020.

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YES Bank posts 74% jump in Q2 net profit

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Private sector lender YES Bank’s standalone net profit surged by 74.3 per cent to ₹225.5 crore in the second quarter of the fiscal led by a sharp jump in non interest income and lower provisions.

The bank’s standalone net profit was ₹129.37 crore in the second quarter of last fiscal.

For the quarter ended September 30, 2021, YES Bank however, reported a 23.4 per cent drop in its net interest income to ₹1,512 crore as against ₹1,973 crore a year ago.

Net interest margin was at 2.2 per cent.

Non interest income jumped up by 30.2 per cent on a year on year basis to ₹778 crore in the July to September 2021 quarter.

Provisions were 65 per cent lower at ₹377 crore in the second quarter of the fiscal as against ₹1,078 crore a year ago.

Asset quality saw some improvement but non performing assets remained high.

Gross NPAs was ₹28,740.59 crore or 14.97 per cent of gross advances as on September 30, 2021 versus 16.9 per cent a year ago. Net NPAs was 5.55 per cent of net advances at the end of the second quarter as against 4.71 per cent a year ago.

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IDBI Bank Q2 profit surges 75% to Rs 567 crore, BFSI News, ET BFSI

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New Delhi, IDBI Bank on Thursday reported a 75 per cent jump in net profit to Rs 567 crore for the second quarter ended September 30. The LIC-controlled bank had earned a net profit of Rs 324 crore in the same period (July-September) of the last fiscal.

The net interest income grew 9 per cent to Rs 1,854 crore during the reported quarter against Rs 1,695 crore a year ago. Net Interest Margin (NIM) improved by 32 basis points to 3.02 per cent, compared to 2.70 per cent in the second quarter last fiscal, IDBI Bank said.

The lender’s stressed assets ratio also improved, with gross non-performing assets (NPAs) declining to 20.92 per cent of gross loans as of September 30, 2021, against 25.08 per cent a year ago. Net NPAs improved to 1.62 per cent from 2.67 per cent.
Provisions for bad loans and contingencies rose to Rs 434.47 crore for the September quarter from Rs 389.44 crore in the year-ago period.

Staff costs fell 12 per cent to Rs 698 crore in September 2021 from Rs 789 crore a year earlier while tax expenses fell 39 per cent to Rs 208 crore from Rs 341 crore a year earlier.

“As of September 30, 2021, the bank had COVID-19 related provisions of Rs 863 crore (other than provisions held for restructuring under COVID-19 norms). The provision made by the bank is more than minimum required as per the RBI guidelines,” the lender said.

The provision coverage ratio, including technical write-offs, stood at 97.27 per cent as of September 30, 2021.



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Bank of Maharashtra net profit jumps ₹264 crore in Q2

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Bank of Maharashtra reported a 107 per cent year-on-year jump in second quarter net profit at ₹264 crore against ₹130 crore in the year ago quarter.

Net interest income in the reporting quarter rose 34 per cent yoy at ₹1499 crore. Other income was up 23 per cent yoy at ₹493 crore.

Loan loss provisions jumped to ₹583 crore, including towards increase in provisions on account of implementation of resolution plans under RBI’s “Resolution Framework for COVID-19 related stress” (August 6, 2020 circular) against a write back of ₹4.55 crore in the year ago quarter.

Gross non-performing assets (GNPAs) declined by ₹618 crore during the quarter to ₹6403 crore.

GNPAs declined to 5.56 per cent of gross advances as at September-end 2021 against 6.35 per cent as at June-end 2021.

Net NPAs position also improved to 1.73 per cent of net advances against 2.22 per cent.

Deposits increased by 14.46 per cent yoy to ₹1,81,572 crore. Advances rose by 13.55 per cent yoy to ₹1,10,728 crore.

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As India’s bad bank knocks, ARCs seek relaxations from RBI, BFSI News, ET BFSI

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With the bad bank on the anvil, asset reconstruction companies have sought relaxation of the pricing structure for the purchase of bad loans, funding from banks, and clarity on participating in insolvency cases as a resolution applicant. These are among the suggestions made by ARCs to the committee formed by the Reserve Bank of India in April.

Usually, sales take place either on a full-cash basis or under the 15:85 structure, where 15% is paid as upfront cash and the remaining in the form of security receipts.

ARCs have sought a reduction in the minimum investment requirement to 2.5% from 15% in cases where cash is fully paid upfront.

The cash proportion of 15% has pushed the ARCs to raise their returns through securitisation and asset reconstruction.

Unless the ARC recovers 130% of the acquisition value, it will not make its return. Even at 100%, an ARC will make a loss because the management fee of 1-2% doesn’t make any ARR for ARC. Recovery should be over 130% so that 100% of security rights will be redeemed.

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

Also, in September 2016, the Reserve Bank of India introduced new regulatory guidelines regarding provisioning. From April 2018 banks have to sell at 90% cash and 10% SRs. If a bank holds more than 10% SR, it had to continue provisioning for the loan which is not even on their books. So there is no incentive for them to transfer to ARCs. Now no banks transfer on 15:85 and all deals are in cash.

Bank funding

Asset reconstruction companies have asked RBI to allow bank funding for them on the lines of provided to non-banking finance companies. They have also sought doing away with dual-provisioning norms, a move which will benefit banks the most.

ARCs have suggested that bank provisioning needs to be solely based on the rating agency-determined net asset value of the security receipts.

From April 2018, banks have had to make provisions for stressed assets that are sold, assuming they remain on the books. This is applicable in cases where security receipts make up for more than 10% in the sale of non-performing assets.

Banks also have to make mark-to-market provisions in cases where the rating of security receipts is downgraded. Security receipts are valued on net asset values, linked to recovery ratings, which is an assessment of probable recovery from an underlying non-performing asset by rating agencies.

With banks not having to go for dual provisioning, they sell NPAs on a 15:85 structure, making more NPAs available for ARCs.

Currently, outstanding security receipts are estimated to be around Rs 1.1 lakh crore.

The RBI committee

In April this year, the RBI has formed a six-member panel under the chairmanship of Sudarshan Sen, former RBI executive director, to examine the role of asset reconstruction companies (ARCs) in stressed debt resolution, including under the Insolvency & Bankruptcy Code (IBC), 2016 and review their business model.

The committee is reviewing the legal and regulatory framework of ARCs and recommend measures to improve their efficacy. It will submit its report within three months from the date of its first meeting. As of January, the number of ARCs registered with the RBI stood at 28.



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Srei firms found ever-greening NPAs, in payment default

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Concerns over ever-greening of loans, negative Capital-to-Risk (Weighted) Assets Ratio (CRAR) and default in payments of over ₹10,000 crore to lenders had prompted the Reserve Bank of India to supersede the boards of Srei Infrastructure Finance and Srei Equipment Finance.

Documents seen by BusinessLine reveal that the RBI had conducted a special audit in December 2020 and January 2021 that revealed that funds disbursed by Srei Infrastructure Finance to certain borrowers were received back from the borrowers and their group companies the same date or dates close to disbursement, indicating ever-greening of loans.

Bombay HC dismisses petition by Srei promoters

All norms flouted

The statutory inspection of Srei Equipment by the central bank revealed “serious deterioration in its financial position” as on March 31, 2020. It revealed a negative CRAR of 3.4 per cent against the regulatory requirement of 15 per cent and non-adherence to Income Recognition, Asset Classification and Provisioning norms, which revealed huge divergences. The RBI listed out several other reasons too for superseding the boards of the two firms. It said that Srei Equipment had remained non-compliant with RBI regulations despite continuous engagement and follow up and had failed to take corrective action on governance, systems, control and compliance.

Srei Infra and Equipment Finance have debt obligations of over ₹29,000 crore

Srei Equipment had defaulted in repayment of bank and market borrowings, raising serious concerns. Its borrowings totalled ₹20,411 crore as on June 30, 2021 and it had defaulted with 13 lenders for ₹10,457 crore.

“The supervisory concerns (example, negative CRAR, high net NPA ratio, violation of IRACP norms, ever-greening of NPA accounts, connected lending, weak corporate governance standards, inadequate systems and control, poor compliance standards) observed during past inspections by the RBI were communicated through supervisory letters, DO letters and also reiterated in the meetings the Reserve Bank had with the management of the company,” the RBI noted in its internal report.

The central bank said that the companies gave effect to the slump exchange despite not getting a NOC (no objection certificate) from the majority of the lending institutions. “The board of directors of SEFL and SIFL had on July 4, 2019 approved the transfer of assets of SIFL by way of slump sale to SEFL with effect from October 1, 2019,” it said.

No fund diversion: Kanoria

When contacted, Hemant Kanoria, promoter and former chairman of Srei Infrastructure, said, “From our side, we have been very clear that there has been no diversion of funds and all the money has gone into projects, and assets have been created out of that. It is sad that these kinds of charges were levelled.”

The NBFC reported a sharp decline in CRAR and this was mainly due to all the provisions “we made in the last two quarters,” he said. On the appeal in the Bombay High Court, Kanoria said it was only to see if the RBI would give it time to seal a deal with two investors — US-based Arena Investors LP and Singapore-based Makara Capital Partners Pte Ltd, which had earlier evinced interest to pick equity stake in Srei.

“But then it was not accepted (by the court). With full faith, we have built this organization and we have full faith in the regulator, the bankers and the government to take necessary steps to do what is appropriate for the company,” he told BusinessLine.

When asked if he would consider moving the Supreme Court, he said, “We have to see what is the stand of the regulator…..this is a financial institution so we have to work as per the blessing of the regulator only.”

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Chairman, BFSI News, ET BFSI

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Bombay Mercantile Bank recovered bad loans worth over Rs 6 crore in 2020-21 and expects better realisation going forward, a senior official has said. Recovery of NPAs (non-performing assets) has been a major thrust area for the bank. The bank has taken specific steps for reduction of NPAs by formulating policy for recovery of NPA through personal follow-ups and other legal measures, Zeeshan Mehdi, Chairman, Bombay Mercantile Co-operative Bank, said in his address at the annual general meeting (AGM).

“These efforts have resulted in the bank posting a recovery of Rs 6.10 crore, in NPA accounts. Due to the pendency of cases in various courts whose functioning was hampered because of the pandemic, resulting in delays in final verdicts, the recoveries in many NPA accounts could not be achieved as targeted,” he added.

Mehdi said the bank expects a healthy recovery of NPAs during the ensuing year.

The bank’s gross bad loans stood at 6.61 per cent and the net NPAs were 5.11 per cent during FY21.

The NPA is slightly higher due to the pandemic, however, it is still within the permissible limit of the regulators, he added.

The CRAR (capital to risk-weighted assets ratio) stood at 17.26 per cent against 16.88 per cent in the preceding fiscal.

BMC Bank registered a net profit of Rs 3.78 crore in FY21. Mehdi said the bank posted a second consecutive year of profit, however, the target was much higher.

The total business of the bank during 2020-21 stood at Rs 3,467.55 crore, of which deposits were Rs 2,363.38 crore and advances Rs 1,104.17 crore.

“During the year, the bank has been allotted its own IFSC code by the RBI, with all branches using exclusive IFSC codes. The bank is now a direct member of IFTAS and has been given permission to use INFINET connectivity to provide a variety of services to our customers and our treasury department,” the chairman said.

These services are RTGS, NEFT, SGL account with RBI, NDS-OM, NDS-Call, SWAP, LAF and MSF. Earlier, the bank did not have such facilities, he added.

The implementation of these digital initiatives would result in the enhancement of the customer experience, he said.

“The bank is moving ahead digitally at a fast pace…we are launching Mobile-App to our valued customers to meet the emerging business challenges and be at par with the best in the industry,” Mehdi added. PTI KPM BAL BAL



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Several NPAs transferred to bad bank may head to liquidation, cost govt a bomb, BFSI News, ET BFSI

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The government has announced the setting up of National Asset Reconstruction Company Ltd with much fanfare and committed over Rs 30,000 crore guarantee for bad assets acquired by it, but it may be used up soon, going by the initial assets going by the list of assets proposed to be transferred to the bad bank.

Banks have identified Rs 82,496 crores worth of bad loans that could be transferred to the NARCL, which includes the following companies.

COMPANIES TOTAL BAD LOANS
Videocon Rs 22,532 crore
Reliance Naval & Engineering Rs 8,934 crore
Amtex Auto Rs 9,014 crore
Jaypee Infratech Rs 7, 950 crore
Castex Technologies Rs 6,337 crore
GTL Ltd Rs 4,866 crore
Visa Steel Rs 3,394 crore
Wind World India Ltd Rs 3,161 crore
Lavasa Corporation Rs 1,424 crore
Consolidated Construction Consortium Ltd Rs 1,353 crore

Also read: NARCL will empower lenders, but recovery from 26 accounts is not easy, industry says
Several assets such as Videocon have seen realisable value close to liquidation value in National Company Law Tribunal proceedings. Many big-ticket resolutions at Insolvency and Bankruptcy Code have seen haircuts over 90%. With most of the NPAs proposed to be transferred to the bad bank being old legacy ones, there has been an erosion in value, making them more likely to head to liquidation.

Lavasa Corporation has got bids worth Rs 700 crore for loan claims of over Rs 8,000 crore at NCLT.

Several NPAs transferred to bad bank may head to liquidation, cost govt a bomb

Close to liquidation

Though banks have made 100% provision for these assets, even Rajkiran Rai, chairman of Indian Banks Association, and MD & CEO of Union Bank of India does not expect more than 20-25 per cent recovery from these legacy accounts, he told a television channel.

The State Bank of India has identified NPAs with Rs 17,000-18,000 crore outstanding to be transferred to the NARCL, while Punjab National Bank has identified Rs 8,000 crore worth of NPAs, Union Bank of India Rs 7,800 crore of NPAs to be transferred to the National ARC. The Bank of India has identified about Rs 5,500 crores of assets for transfer while Indian Bank about Rs 1,900 crore.

“I am not hopeful. Because these are bad assets. Finally, all these will go under liquidation,” Siby Antony, chairman of the ARC Association of India.

The bad bank

Finance Minister Nirmala Sitharaman 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.

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

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.

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

This sovereign guarantee would be for a period of five years and NARCL would have to pay a fee for this.

“The SRs are getting the backstop through government funding only in as much as to pay the gap between the realised value (resolution/liquidation) and the face value of SRs and this will hold good for five years,” Sitharaman said.

The fee for the guarantee would be initially 0.25 per cent, which would progressively increase to 0.5 per cent in case of delay in resolution of bad loans.

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