Tag: public sector banks

SBI-led consortium raises Rs 792 crore by sale of Vijay Mallya’s UB shares, BFSI News, ET BFSI

Banking & Finance

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A consortium of banks led by the State Bank of India on Friday realized Rs. 792.11 crore by sale of shares in the bank loan fraud case involving Kingfisher Airlines and its former owner and fugitive economic offender Vijay Mallya.

These shares were handed over by the Enforcement Directorate (ED) to the consortium of banks.

Earlier SBI led consortium had realized Rs. 7181.50 crore by liquidating assets handed over to SBI led consortium by ED, the agency said in a press statement on Friday.

In addition, Rs. 1060 crore worth asset has been allowed to the banks by Fugitive Economic Offense Court in PNB/ Nirav Modi Case & Rs. 329.67 Crore has been confiscated by ED under provisions of Fugitive Economic Offenders Act, the agency added.

On July 1 Purvi Modi (sister of Nirav Modi) transferred Rs. 17.25 crore from proceeds of Crime from her foreign bank account to ED.

Few days back, ED has further handed over assets worth Rs. 3728.64 Crore to the SBI led consortium including shares of Rs. 3644.74 Crore, Demand Draft of Rs. 54.33 Crore and immovable properties worth Rs. 29.57 Crore.

The statement issued by the agency further added that Vijay Mallya, Nirav Modi and Mehul Choksi have defrauded Public Sector Banks by siphoning off the funds through their companies which resulted in total loss of Rs.22,585.83 Crore to the banks.

Till date ED has transferred assets worth Rs. 12,762.25 Crore to the Public Sector Banks and confiscated assets of Rs. 329.67 Crore. ED had also recovered Rs. 17.25 Crore from Purvi Modi. As on date, assets worth 58% of total loss to the banks have been handed over to Banks/confiscated to government of India.

The agency claimed that till date it has attached/seized assets of Rs. 18,217.27 Crore under the provision of Prevention of Money Laundering Act (PMLA).



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Banks to invoke sureties given by promoters of 17 defaulting cos

Banking & Finance

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Several banks, including State Bank of India and Bank of Baroda, are moving to invoke the personal guarantees given by promoters of 17 defaulting companies including Punj Lloyd, Amtek Auto, ABG Shipyard, Videocon, Varun Shipping, and Lanco. They have approached the National Company Law Tribunal.

“Banks have decided that for invoking the personal guarantees, only the lead lender in each case will go to the NCLT. Applications have been filed before NCLT Benches in Delhi, Ahmedabad, Kolkata and Mumbai,”said a source.

In May, the Supreme Court upheld the amendment to the Insolvency and Bankruptcy Code that allowed lenders to invoke the personal guarantees of promoters to recover their dues. This came as a major relief for lenders as under the corporate insolvency process, they are able to recover 35-40 per cent of the total debt in most cases. Now, in the absence of a credible repayment plan, creditors can initiate bankruptcy proceedings against the promoters. According to a PIL in the Supreme Court, lenders can recover ₹1.6-lakh crore from 40 defaulting promoters through this route.

Post SC order, banks move to assess value of promoters’ assets

However, one major hurdle is that many promoters are scam-tainted and are being investigated for fraud. DHFL’s former promoter Kapil Wadhawan, for example, is in prison for alleged fraud. “Most of these promoters in default are scam-tainted and their multi-billion rupee assets already attached by the Enforcement Directorate and the Economic Offences Wing of the Police. Getting the assets released from these agencies will take its own time,” said a lawyer on conditions of anonymity as he represents a defaulting promoter.

Nakul Sachdeva of L&L Partners, said though there is the Supreme Court judgment, the procedure for invoking personal guarantees is yet to be fully tested.

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Fresh NPAs may see a spike, but overall bad loans may decline to 7.1% in FY22, BFSI News, ET BFSI

Banking & Finance

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Notwithstanding the Reserve Bank of India projections of gross non-performing assets rising to 9.8% of total loans this fiscal, the bad loans may decline to at least 7.1 percent by March 2022, as against 7.6 percent at FY21-end.

The NPAs will go lower on higher recoveries and upgrades, and also faster credit growth, ratings agency Icra said, adding that the fresh accretion to the NPAs will be higher in FY22 due to the absence of any regulatory dispensations like moratoriums.

The GNPAs and NNPAs (net NPAs) are expected to decline to 6.9-7.1 percent and 1.9-2.0 percent respectively by March 31, 2022, it said.

What RBI said

The Reserve Bank’s financial stability report had said the GNPAs at March 2021 had come at 7.6 percent and estimated it to rise to 9.8 percent in FY22-end under its base-case assumptions. RBI Governor Shaktikanta Das had said the dent on balance sheets and performance of financial institutions in India has been much less than projected earlier, but a clearer picture will emerge as the effects of regulatory reliefs fully work their way through.

The new math

The rating agency said the fresh NPA generation declined to Rs 2.6 lakh crore or 2.7 percent of advances in FY21 compared to Rs 3.7 lakh crore or 4.2 percent in FY20 and added that the same will be higher in FY22. The headline asset quality numbers of banks do not reflect the underlying stress on the income and cash-flows of the borrowers impacted because of COVID-19 and various regulatory and policy measures such as the moratorium on loan repayment, standstill on asset classification and liquidity extended to borrowers under Emergency Credit Line Guarantee Scheme (ECLGS) had a positive impact on the reported asset quality of lenders.

In the absence of standstill on asset classification, we expect the fresh NPAs generation to be higher, however, we also expect the recoveries and upgrades to improve in FY22, it said, adding that the first half of the ongoing fiscal can see higher accretions due to the second wave of the pandemic. The credit provisions for the banks moderated to 2.5 percent of advances in FY21 compared to 3.7 percent in FY20, even as the core operating profits improved with the cost curtailment measures.

PSB turnaround

Within the sector, the turnaround was remarkable for public sector banks, which reported profits after five consecutive years of losses and with NNPAs at the lowest levels seen over the last six years (3.1 percent as of March 31, 2021), ICRA expects the public sector banks (PSB) to remain profitable going forward. After the capital raising exercises, the improved capital positions coupled with lower NNPAs mean a better solvency profile as well as an improved outlook on the ability to support growth and better future profitability.

“We believe that the banks are relatively better placed to handle the stress from the second wave and hence we continue to maintain a stable outlook on the sector.” the rating agency said.



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Vijay Mallya & PNB cases: ED transfers Rs 9,371-crore assets to banks, govt

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A substantial part of the assets in question was held in the name of dummy entities, trusts, third persons or relatives of these accused and these entities were their proxies for holding the properties.

The Enforcement Directorate (ED) on Wednesday said it had transferred to public-sector banks and the Central government assets worth `9,371 crore belonging to fugitive economic offenders Vijay Mallya, Nirav Modi and Mehul Choksi.

The agency has attached/seized assets worth a total of Rs 18,170 crore, constituting over 80% of the losses of Rs 22,586 crore incurred by banks due to the alleged frauds committed by these three businessmen. These also include properties worth Rs 969 crore located abroad.

Of these, assets worth about Rs 329.67 crore have been confiscated and those amounting to Rs 9,041.5 crore have been handed over to the PSBs (taking the total to Rs 9,371 crore), the ED said.

Meanwhile, Nirav Modi has lost the first stage of his extradition appeal in the London high court, just over two months after his extradition to India was ordered by UK home secretary Priti Patel in the PNB scam case.

Analysts said the move to attach assets was made substantially easier by the enactment of the Fugitive Economic Offenders Act, 2018. The law empowers authorities to attach assets of such offenders who flee India to escape the reach of law even without a conviction.

Also, this law provides for the attachment of all the assets of the offenders, irrespective of whether these are the proceeds of crime or not. It covers offences with a value of Rs 100 crore or more.

The ED said it had recently transferred attached shares worth Rs 6,600 crore to a State Bank of India (SBI)-led consortium following an order of the PMLA Special Court, Mumbai. On Wednesday, the Debt Recovery Tribunal, on behalf of the consortium, sold the shares of United Breweries for Rs 5,824.50 crore. Further realisation of close to Rs 800 crore through share sale is expected by June 25. With its help, state-run banks had earlier recovered Rs 1,357 crore by selling the attached shares, the agency added.

After the cases were registered by the CBI, the ED unearthed “myriad web of domestic and international transactions and stashing of assets abroad”. “Investigation has also irrevocably proved that these three accused persons used dummy entities controlled by them for rotation and siphoning off the funds provided by the banks,” the ED said.

A substantial part of the assets in question was held in the name of dummy entities, trusts, third persons or relatives of these accused and these entities were their proxies for holding the properties.

Complaints were filed against all the three accused after the investigation under the Prevention of Money Laundering Act was completed. Extradition requests were sent for them to the UK (for Mallya and Nirav Modi) and Antigua and Barbuda (for Choksi).

Already, the extradition of Mallya has been ordered by the Westminster Magistrates Court, which has been confirmed by the UK High Court. Since Mallya has been denied permission to file an appeal in the Supreme Court of the UK, his extradition to India is almost final, the agency said.

Choksi, who was recently discovered in Dominica after he disappeared from Antigua, is also facing extradition proceedings.

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Canara Bank to be lead sponsor of bad bank, to pick up 12% stake, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: State-owned Canara Bank on Tuesday said it will be the lead sponsor of National Asset Reconstruction Company Limited (NARCL) or bad bank with 12 per cent stake in the entity.

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

“The Indian Banks’ Association (IBA), vide their letter dated May 13, 2021 requested Canara Bank to participate in NARCL as sponsor. The board of Canara Bank has given in-principle approval for taking stake in NARCL,” Canara Bank said in a regulatory filing.

Following the board nod, it said, the bank has sought the approval from the Reserve Bank of India for participating in NARCL as sponsor contributing 12 per cent stake.

Various public sector banks (PSBs) have also announced that they have earmarked a signification portion of their NPAs to be transferred to NARCL.

For example, Punjab National Bank (PNB) said that it has identified non-performing assets of Rs 8,000 crore to be transferred to NARCL.

The proposed NARCL would be 51 per cent promoted by PSBs and remaining by private sector lender.

Banks have identified around 22 bad loans worth Rs 89,000 crore to be transferred to the NARCL in the initial phase.

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

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

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

The IBA was appointed nodal agency to constitute the Asset Reconstruction and Asset Management Companies designated as NARCL and India Debt Management Company Ltd (IDMCL) respectively.



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Public sector banks support for Covid-19 health infra gathers pace

Banking & Finance

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Public sector banks in the country appear to be supporting the government’s efforts to boost Covid-19 related healthcare infrastructure in the country by actively lending to the healthcare and associated segments that are in need of liquidity.

Last month, the Reserve Bank of India (RBI) announced a term liquidity facility of ₹50,000 crore for Covid-related healthcare infrastructure and services in the country. This was done for fresh lending support to a wide range of entities in the healthcare space.

Fresh lending provided under this facility will be classified as ‘Priority Sector Lending’ till the repayment or maturity of these loans. The RBI has also allowed on-lending to other financial entities that are regulated by the Central bank. Further, banks are eligible to park surplus liquidity equivalent to the loan amount in the reverse repo window at a rate that is 40 bps higher than the prevailing reverse repo rate.

After the RBI announcement, public sector banks are reported to be enthusiastically extending credit to healthcare sector players and entities. A couple of banks have already extended more than ₹500 crore worth of loans each under the Covid loan book.

‘Identifying customers’

Padmaja Chunduru, Managing Director & CEO of Indian Bank, said the bank had already identified many of its own customers to lend. She said the bank had fixed a target of ₹4,000 crore for its Covid loan book, while it had sanctioned more than ₹600 crore till a couple of weeks ago under this portfolio. “There is good traction and a lot of enthusiasm to do this business,” she said.

State Bank of India has indicated that it could create a Covid loan book to the tune of about ₹10,000 crore. The bank is keen on supporting the hospitals and nursing homes in augmentation of their oxygen facilities and other requirements.

LV Prabhakar, Managing Director & CEO, Canara Bank, had indicated that the Bank had done a lot of homework as far as medical services financing is concerned, under this Covid loan book. It had sanctioned more than ₹1,200 crore worth of loans under this medical loan book till a few weeks ago and said it could comfortably sanction and disburse about ₹4,000 crore to ₹4,500 crore.

G Rajkiran Rai, Managing Director & CEO, Union Bank of India, said the bank is very positive about building a good Covid-19 loan book. It has products for this category and the branches are already canvassing and reaching out to potential borrowers.

While the pandemic has created a lot of challenges across sectors, it has also thrown up some new opportunities. Banking sector is also expected to be one of the beneficiaries.

With a greater focus by Central and State governments, the healthcare segment offers potential opportunities for the banks to build a good portfolio over the short and medium terms at a time many other segments are grappling with slowdown.

Several private sector lenders, both old and new, are also actively looking at lending opportunities in the healthcare infra space.

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Private banks see 21% jump in frauds as online frauds rise, BFSI News, ET BFSI

Banking & Finance

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The public sector banks seem to have learnt a lesson from the multi-billion dollar Punjab National Bank scam and worked to put their processes in order.

The number of frauds in PSBS fell 34% during fiscal 2020-21, more than double the overall 15% decline in frauds in the banking system. Interestingly, frauds in private banks rose 21% during the period, according to the RBI annual report for fiscal 2021.

The share of PSBs in total fraud value shrank to 59.2% this fiscal, from 80% in fiscal 2020, while it rose to 33.5% in the case of private sector banks this fiscal. In fiscal 2020 private banks had reported a 18.4% share.

The RBI in its annual report stated that a total of 7,363 frauds worth Rs 1,38,422 crore were reported. These frauds have been reported across all banks and areas of operations.

Online frauds rise

The number of frauds in the online space shot up 34.6% at the end of March 2021. About 99% of the total frauds reported in the fiscal year gone by were from the advances category in value terms. However, the value of frauds in the advances category remained almost the same as compared to the last year and the incidence of frauds in the advance category have come down over the previous year.

In value terms, private banks reported a rise of 35% y-o-y in frauds during FY21, and PSBs have reported a decline of 45%.

The average time lag between the date of occurrence of frauds and the date of detection was 23 months for the frauds reported in 2020-21. However, in respect of large frauds of Rs 100 crore and above, the average lag was 57 months for the same period. In terms of area of operations, frauds have been occurring predominantly in the loan portfolio (advances category), both in terms of number and value, RBI said.

Reducing frauds

In the current fiscal, the central bank is looking at enhancing the fraud risk management system, including improving the efficacy of early warning signal (EWS) framework, fraud governance and response system. This includes augmenting the data analysis for monitoring of transactions, introduction of dedicated market intelligence (MI) unit for frauds and implementation of automated unique system generated number for each fraud.

For an account declared fraud, banks have to make 100% provisioning of the outstanding loans, spread over up to four quarters.



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Public sector banks losing market share in loans to private sector rivals

Banking & Finance

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The proposed privatisation of two public sector banks (PSBs) in FY22 could accentuate the already declining market share of PSBs in loans, with the share of private sector banks (PvSBs) expected to go up further.

A realignment of market share in loans has been happening in the banking space over the last four years.

PSBs’ (or state-owned Banks) market share in loans declined to around 59 per cent (of all scheduled commercial banks’ outstanding credit) in December 2020 against around 65 per cent in December 2017.

However, during this period, PvSBs market share rose to around 36 per cent from around 30 per cent, going by Reserve Bank of India data.

The aforementioned development comes in the backdrop of PSBs turning cautious on loan growth in the face of stress in their balance sheets and IDBI Bank getting classified as a PvSB following the Life Insurance Corporation of India becoming its promoter with management control in January 2019.

Consolidation exercise

PSBs loan growth also slackened as some of them focussed their energies on streamlining operations following mega-mergers within the grouping.

Dena Bank and Vijaya Bank got amalgamated with Bank of Baroda with effect from April 1, 2019.

The aforementioned consolidation exercise was followed by mega-mergers in PSB space in FY20-21.

With effect from April 1, 2020, Oriental Bank of Commerce and United Bank of India merged with Punjab National Bank; Syndicate Bank merged with Canara Bank; Andhra Bank and Corporation Bank merged with Union Bank of India; and Allahabad Bank merged with Indian Bank.

During the last four years, PvSBs pressed ahead with loan growth. Many larger and mid-sized PvSBs were neither constrained by capital nor weighed down too much by bad loans.

Realignment & privatisation

Now, if the Government makes good on its Budget announcement of privatising two PSBs in FY22, the market share of State-owned banks could shrink further by about 3-4 percentage points, with the share of PvSBs correspondingly going up.

In 2018, Uday Kotak, Managing Director & CEO, Kotak Mahindra Bank, observed that private sector banks’ market share will go up significantly and be on a par with that of public sector banks in the next five years.

“…This major mega trend in the redefinition of the industry structure is something which is playing out as we talk,” Kotak then said.

Banking expert V Viswanathan assessed that PvSBs are focussing on credit to small and medium enterprises (which offer collateral), wholesale trade, home loans and related top-up loans, loan against property, auto loans and personal loans, among others, in a big way.

Meanwhile, small finance banks have grown their market share in loans to about 1 per cent in December 2020 from about 0.22 per cent in December 2017. Foreign banks’ share came down to 3.98 per cent from 4.44 per cent.

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NITI Aayog to finalise names of 2 public sector banks for privatisation soon, BFSI News, ET BFSI

Banking & Finance

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Government think-tank NITI Aayog, in consultation with the Finance Ministry, has started deliberations to finalise the names of two public sector banks that will be privatised in the current fiscal as part of the disinvestment process. NITI Aayog has been entrusted with the task of selection of names of two public sector banks and one general insurance company for the privatisation as announced in the Budget 2021-22.

The work in this respect is going on, sources said, adding, a couple of meetings have been convened by the NITI Aayog on the subject.

There are various aspects that have to be looked into including regulatory issues, HR management, financial health etc before reaching a conclusion, sources added.

Once NITI Aayog makes its recommendations, it will be vetted by the Core Group of Secretaries on Disinvestment headed by Cabinet Secretary.

The other members of the high-level panel are Economic Affairs Secretary, Revenue Secretary, Expenditure Secretary, Corporate Affairs Secretary, Secretary Legal Affairs, Secretary Department of Public Enterprises, Secretary Department of Investment and Public Asset Management (DIPAM) and the Secretary of administrative department.

Following clearance from the Core Group of Secretaries, the finalised names will go to Alternative Mechanism (AM) for its approval and eventually to the Cabinet headed by the Prime Minister for the final nod.

Changes on the regulatory side to facilitate privatisation would start after the Cabinet approval.

Last month, Finance Minister Nirmala Sitharaman had said “interests of workers of banks which are likely to be privatised will absolutely be protected whether their salaries or scale or pension all will be taken care of.”

Explaining the rationale behind the privatisation, Sitharaman had said that banks in the country needed to be bigger, just like the State Bank of India (SBI).

“We need banks which are going to be able to scale up… We want banks that are going to be able to meet the aspirational needs of this country,” Sitharaman had said, adding that a lot of thought had gone behind the intention to privatise some public sector banks.

Meanwhile, banking sector regulator RBI also said it is in discussion with the government over the privatisation of public sector banks.

The government has budgeted Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions, including 2 PSU banks and one insurance company, during the current financial year. The amount is lower than the record budgeted Rs 2.10 lakh crore to be raised from CPSE disinvestment in the last fiscal.



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Govt unlikely to continue with zero-coupon bond route to recap PSU banks, BFSI News, ET BFSI

Banking & Finance

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The government is unlikely to take zero-coupon bond route to further recapitalise public sector banks after the Reserve Bank expressed some concerns in this regard, sources said. The government, they said, would resort back to recapitalisation bonds bearing a coupon rate for capital infusion in these banks.

To save the interest burden and ease the fiscal pressure, the government last year decided to issue zero-coupon bonds for meeting the capital needs of the banks.

The first test case of the new mechanism was a capital infusion of Rs 5,500 crore into Punjab and Sind Bank by issuing zero-coupon bonds of six different maturities last year. These special securities with tenure of 10-15 years are non-interest bearing and valued at par.

However, the RBI raised some concerns with regard to calculation of an effective capital infusion made in any bank through this instrument issued at par, sources said.

Since such bonds usually are non-interest bearing but issued at a deep discount to the face value, it is difficult to ascertain net present value, they added.

As a result, sources said, it has been concluded to do away with zero-coupon bond for recapitalisation.

These special bonds are non-interest bearing and issued at par to a bank, they said adding that it would be an investment that would not earn any return and rather depreciate with each passing year.

This innovative mechanism was adopted to ease the financial burden as the government has already spent Rs 22,086.54 crore as interest payment towards the recapitalisation bonds for PSBs in the last two financial years.

During FY 2018-19, the government paid Rs 5,800.55 crore as interest on such bonds issued to public sector banks for pumping in the capital so that they could meet the regulatory norms under the Basel-III guidelines.

In the subsequent year, according to the official document, the interest payment by the government surged three times to Rs 16,285.99 crore to PSBs as they have been holding these papers.

For the current financial year, interest payment for recap bonds have been reduced to Rs 19,292.77 crore from Rs 25,239.4 crore pegged in the Budget estimate.

Under this mechanism, the government issues recapitalisation bonds to a public sector bank which needs capital. The said bank subscribes to the paper against which the government receives the money. Now, the money received goes as equity capital of the bank.

So the government doesn’t have to pay anything from its pocket. However, the money invested by banks in recapitalisation bonds is classified as an investment which earns them an interest.

In all, the government has issued about Rs 2.5 lakh crore recapitalisation in the last three financial years. In the first year, the government issued Rs 80,000 crore recapitalisation bonds, followed by Rs 1.06 lakh crore in 2018-19. During the last financial year, the capital infusion through bonds was Rs 65,443 crore.



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