Tag: punjab national bank

Forcing minimum claim period of 1 year on bank guarantees wrong, says Delhi HC, BFSI News, ET BFSI

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In a ruling that will help infrastructure and construction companies, the Delhi High Court said forcing a minimum claim period of 12 months for bank guarantees is wrongful, rejecting interpretations that existing laws rendered shorter claim periods void.

Ruling on a petition filed by engineering conglomerate Larsen & Toubro Ltd against Punjab National Bank, a single-judge bench of the High Court observed, “It is clear that respondent No 1 (PNB) is erroneously of the view that they are in law mandated to stipulate a claim period of 12 months in the bank guarantee, failing which the clause shall be void under Section 28 of the Contract Act.”

The court directed the lender to take a relook at such agreements.

“It (Section 28) deals with the right of the creditor to enforce his rights under the bank guarantee, in case of refusal by the guarantor to pay, before an appropriate court or tribunal,” Justice Jayant Nath observed in a 43-page order issued on Wednesday. It does not deal with the claim period – a time within which the beneficiary is entitled to claim the guarantee.

Experts said the ruling will particularly benefit infrastructure and construction companies that need to issue bank guarantees while fulfilling contracts for government bodies and public sector undertakings.

“This decision will have far-reaching consequences because it will give both banks and companies the much-needed flexibility in entering into contracts related to bank guarantees,” said Ashish K Singh, managing partner of law firm Capstone Legal.

Anil Goel, founder and chairman of insolvency professional company AAA Insolvency Professionals, said, “Construction companies bidding for projects should have the flexibility to bank guarantee from banks. Multiple options to get it should help them bid for more projects and save costs substantially.”

L&T, in its petition, argued that PNB’s insistence on a bank guarantee (BG) for 12 months, due to misinterpretation of Section 28, has unnecessarily made the company liable to pay commission charges for such extended BG when the principal contract would be for a much shorter period.

Also, companies have to maintain collateral security – or margin money against which a bank guarantee is issued – for supporting an extended claim period, which affects their capability to do business by entering new contracts, L&T said.

Hemant Kumar, group general counsel of L&T, confirmed the passing of an order by the Delhi High Court but refused to divulge any details.

An email query to PNB remained unanswered as of press time Friday.

L&T had made the Indian Banks’ Association (IBA) and the Reserve Bank of India (RBI) parties in the case.

As per the court order, PNB’s stand is due to letters issued by IBA on December 12, 2018, to its member banks, stating that if a bank issues a claim period of less than one year on top of the guarantee period then such a bank guarantee would not have the benefit of Exception 3 to Section 28 of the Contract Act.

Exception 3, inserted as an amendment to the Act in 2013, allowed lenders to limit the period to make a claim up to one year, down from the minimum of three years provided under the Limitation Act.

BGs are provided on a case to case basis depending on banks and individual clients. The margin money varies, but normally it is about 10-20% of the bank guarantee amount, industry insiders said.



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Number of unique wilful defaulters rose by 286 in pandemic, BFSI News, ET BFSI

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The number of wilful defaulters has increased from 2,208 to 2,494 at the end of March 31, 2021, Finance Minister Nirmala Sitharaman informed Parliament on Tuesday.

As per RBI data on global operations, during the last three financial years, public sector banks (PSBs) have effected recovery of Rs 3,12,987 crore in non-performing assets (NPAs) and written-off loans.

“RBI has further apprised that the total number of unique wilful defaulters reported by PSBs was 2,017 as on March 31, 2019, 2,208 as on March 31, 2020 and 2,494 as on March 31, 2021,” she said.

Bank NPAs

Sitharaman said that the RBI has apprised that as per data reported by banks to the Central Repository of Information on Large Credits (CRILC), the total funded amount outstanding of borrowers whose sector code is private and whose loans are classified as NPAs in the PSBs as on March 31, 2019, March 31, 2020, and March 31, 2021, is Rs 5,73,202 crore, Rs 4,92,632 crore and Rs 4,02,015 crore respectively.

Banks are required to take steps to initiate the legal process, wherever warranted, against the borrowers or guarantors for recovery dues, she said. They may also initiate criminal proceedings against wilful defaulters, wherever necessary, she added. In reply to another question, the Finance Minister said public sector banks have done a write-off of Rs 1,31,894 crore during 2020-21 as compared to Rs 1,75,876 crore in the previous year. As a result of the government’s strategy of recognition, resolution, recapitalisation and reforms have led to decline in gross NPAs as a percentage of total advances to 9.11 per cent as of March 31, 2021, from 11.97 per cent on March 31, 2015.

Top 100 wilful defaulters

The total size of the top 100 wilful defaults rose 5.34% in FY20 from Rs 80,344 crore as of March 2019.
Mehul Choksi-owned Gitanjali Gems topped the wilful defaulters’ list with Rs 5,693 crore dues, followed by Jhunjhunwala brothers’ REI Agro with Rs 4,403 crore and Jatin Mehta’s Winsome Diamonds & Jewellery with Rs 3,375 crore.

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

Write-offs

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

Write-offs are accounting entries for shifting NPAs from the active balance sheet to off-balance sheet accounts. These are backed by 100% provision and therefore any recovery from these accounts adds to net profit.
RBI collects credit data from banks monthly, with data on defaults being collected on a weekly basis. The regulator has mandated banks to provide fully against NPAs older than four years and allowed to write these old NPAs.

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



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Banks feel the regulatory heat as RBI imposes penalties amid pandemic shadow, BFSI News, ET BFSI

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As it moves to risk-based supervision, the Reserve Bank of India has stepped up the heat on banks.

In the first half of this year, the central bank has imposed fines of over Rs 43 crore on 23 banks for various regulatory non-compliances and lapses. The RBI had imposed a fine of Rs 20 crore on eight banks in 2020.

After the Nirav Modi scam, RBI had stepped up its surveillance and imposed a hefty Rs 143 crore fine on 49 banks in 2019. While the amount of fine was small individually in 2019, the RBI has increased it multifold as it has fined HDFC BankRs 10 crore, Bank of India Rs 4 core, Punjab National Bank Rs 2 crore and SBI Rs 50 lakh.

In January this year, the central bank had imposed Rs 2 crore penalties on Deutsche Bank and Standard Chartered Bank. It has imposed penalties on various cooperative banks during the year.

Risk based supervison

In May this year the Reserve Bank has decided to review and strengthen the Risk Based Supervision (RBS) of the banking sector with a view to enable financial sector players to address the emerging challenges.

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

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

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

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

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

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

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

In the case of Urban Cooperative Banks (UCBs) and NBFCs, it conducts the supervision through a mix offsite monitoring and on-site inspection, where applicable.

A technical advisory group consisting of senior officers of the RBI would examine the documents submitted by the applicants in connection with EOI.



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Govt set to extend tenures of MDs of PNB, UCO, Bank of Maha, BFSI News, ET BFSI

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The finance ministry has moved a file for extension of tenure of three public sector banks’ managing directors, including Punjab National Bank (PNB), according to sources.

Besides, the ministry has also recommended the Department of Personnel and Training (DoPT) for extension of 10 executive directors (EDs) of various public sector banks.

Tenure extension

The three-year term of S S Mallikarjuna Rao, MD and CEO of PNB, is coming to an end on September 18 but the finance ministry has recommended for extension for four months till January 31, 2022, when Rao attains his superannuation age of 60 years.

Atul Kumar Goel’s term as MD and CEO of UCO Bank has been recommended for a two-year extension beyond November 1 this year. A S Rajeev, MD and CEO of Bank of Maharashtra, has been suggested for an extension of two years beyond December 1.

The finance ministry has simultaneously forwarded the name of S L Jain for the appointment of MD and CEO of Indian Bank. The BBB, the headhunter for state-owned banks and financial institutions, had recommended the name of Jain in May after the interview, according to reports.

With regard to EDs, the ministry has recommended names of 10 for extension of their term till their superannuation age or two years, whichever is earlier.

The MD and CEO of a public sector undertaking is given a maximum tenure of five years as a government guidelines.

The ministry sought extension of the executives from the Appointments Committee of Cabinet (ACC). The proposal has been sent to the Dof Personnel and Training for the same after consultation with BBB. The final call for extension will be taken by the ACC.

Board seats vacant

Ten of the 12 public-sector banks, except State Bank of India (SBI) and Bank of Baroda do not have a chairman.

Also, most non-official director posts, which are occupied by professionals from other fields, remain vacant. There are no employee representatives on PSB boards at present.

A large bank can have four executive directors, six non-official directors (of whom up to three could be shareholder directors), a workman director, and an employee director, in addition to a nominee each of government and the RBI, the non-executive chairman and MD & CEO.

With posts vacant, banks are finding it difficult to fill the quorum of their board sub-committee meetings such as risk management, capital raising, audit and even management committee meetings.



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FinMin moves file for extension of 3 MDs, 10 EDs of govt-owned banks, BFSI News, ET BFSI

Banking & Finance

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New Delhi, Jul 25 () The finance ministry has moved a file for extension of tenure of three public sector banks’ managing directors, including Punjab National Bank (PNB), according to sources. Besides, the sources said the ministry has also recommended the Department of Personnel and Training (DoPT) for extension of 10 executive directors (EDs) of various public sector banks.

The three-year term of S S Mallikarjuna Rao, MD and CEO of PNB, is coming to an end on September 18 but the finance ministry has recommended for extension for four months till January 31, 2022, when Rao attains his superannuation age of 60 years.

Atul Kumar Goel’s term as MD and CEO of UCO Bank has been recommended for a two-year extension beyond November 1 this year. A S Rajeev, MD and CEO of Bank of Maharashtra, has been suggested for an extension of two years beyond December 1.

The finance ministry has simultaneously forwarded the name of S L Jain for the appointment of MD and CEO of Indian Bank. The BBB, the headhunter for state-owned banks and financial institutions, had recommended the name of Jain in May after the interview.

With regard to EDs, the ministry has recommended names of 10 for extension of their term till their superannuation age or two years, whichever is earlier.

The MD and CEO of a public sector undertaking is given a maximum tenure of five years as a government guidelines.

According to sources, the ministry sought extension of the executives from the Appointments Committee of Cabinet (ACC). The proposal has been sent to the Dof Personnel and Training for the same after consultation with BBB. The final call for extension will be taken by the ACC.

Interestingly, the Banks Board Bureau (BBB) has also invited applications for appointment of new MDs of PNB.

For PNB, the BBB on June 16, had sought public application for the MD and CEO post. The eligibility criteria as announced in public notice is that the applicant should be in the age group of 45 to 57 years in mainstream banking, of which, at least one year has to be at the board level.

The compensation offered is in line with the MD and CEO of a large public sector bank, it said. DP ANZ HRS hrs



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SBI, ICICI, Axis are UBS’ top banking picks, BFSI News, ET BFSI

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Mumbai: UBS expects banks to report muted loan growth and a 25-50 basis point increase in non-performing loans in the first quarter.

Ahead of the start of the earnings season, the brokerage said unsecured loans and loans against property are the most important segments for the private sector players.

The brokerage prefers banks with greater provision buffers and has a buy rating on SBI, ICICI Bank, and Axis Bank.

Kotak Mahindra Bank and Punjab National Bank are the least preferred names. UBS has a sell rating on both the banks and has a neutral stance on Federal Bank, IndusInd , HDFC Bank and Bank of Baroda.

“While we expect a gradual recovery in economic growth, a sustained economic slowdown could impact the banking and finance sector on several fronts – this may lead to a slowdown in credit, increase NPL risk, impact fee income and exert pressure on NIM,” said UBS.

The brokerage said competition from other financial savings products such as mutual funds, insurance, could slow deposit accretion for banks, leading to intense competition for deposits, which, in turn, could put pressure on margins of banks growing loans faster than the industry.

“Provisions could be higher than expected if the economic slowdown due to Covid-19 is extended further or the NPL resolution process is extended and haircuts are higher than our current estimates,” said the UBS report.



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SC seeks response of Centre, RBI on plea of PNB against disclosure of info under RTI, BFSI News, ET BFSI

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NEW DELHI: The Supreme Court has refused to grant interim stay on the RBI‘s notice asking Punjab National Bank to disclose information such as defaulters list and its inspection reports under the RTI Act, and sought responses from the Centre, federal bank and its central public information officer.

The apex court tagged the plea of the Punjab National Bank (PNB), which is a public sector unit bank, with a similar pending case filed by HDFC Bank against the RBI’s direction.

“Issue notice. Tag with writ petition (Civil) No.1159 of 2019 (HDFC plea),” a bench comprising justices S Abdul Nazeer and Krishna Murari said, and fixed the plea for hearing on July 19.

Banks are aggrieved by the notices issued by the RBI to them under Section 11(1) of the Right to Information (RTI) Act asking them to part with information pertaining to their inspection reports and risk assessment.

The RTI Act empowers the RBI’s central public information officer (CPIO) to seek information from banks for information seekers.

Earlier on April 28, the top court, on legal grounds, had refused to recall its famous 2015 judgment in the Jayantilal N Mistry case, which had held that the RBI will have to provide information about banks and financial institutions (FIs) regulated by it under the transparency law.

Several FIs and banks, including Canara Bank, Bank of Baroda, UCO Bank and Kotak Mahindra Bank had filed applications in the top court seeking a recall of the 2015 judgment in the Jayantilal N Mistry case, saying the verdict had far-reaching consequences and moreover, they were directly and substantially affected by it.

The banks had contended that the pleas for a recall of the judgment, instead of a review, is “maintainable” as there was a violation of the principles of natural justice in view of the fact that they were neither parties to the matter nor heard.

“A close scrutiny of the applications for a recall makes it clear that in substance, the applicants are seeking a review of the judgment in Jayantilal N Mistry. Therefore, we are of the considered opinion that these applications are not maintainable,” the apex court had held.

While dismissing the pleas, the bench, however, had made it clear that it was not dealing with any of the submissions made by the banks on the correctness of the 2015 judgment.

Now, the apex court is seized of several pleas of banks like HDFC and Punjab National Bank against the RBI’s direction to disclose information under RTI.



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Jet Airways lenders face 95% haircut, but get 9.5% stake, BFSI News, ET BFSI

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Financial creditors to Jet Airways will take around 95 per cent haircut with the bidder Jalan-Kalrock consortium pay Rs 385 crore against the total claim of Rs 7,807.74 crore.

The new owner will pay Rs 185 crore within 180 days after the start of operations of the company and the rest Rs 195 crore through issuance of zero-coupon bonds of Rs 1,000 face value after two years, according to a report.

The consortium would also give 9.5 per cent stake to the lenders in Jet Airways and 7.5 per cent in the loyalty program Jet Privilege Private Limited.

The claims

The total creditor claims of Jet Airways in NCLT are Rs 40,259.12 crore.

The total admitted claims are Rs 22,167.23 crore including Rs 7,807 crore from financial creditors. The domestic lenders owe Rs 5,776.71 crore to the airline. State Bank of India has claims of Rs 1,636.22 crore, YES Bank with Rs 1,084.44 crore, Punjab National Bank Rs 754.11 crore, IDBI Bank Rs 594.42 crore, Canara Bank Rs 543.61 crore, ICICI Bank Rs 519.08 crore, Bank of India Rs 263.57 crore, Indian Overseas Bank Rs 158.24 crore, Syndicate Bank Rs 169.73 crore, PNB Hong Kong Rs 42.98 crore, ICICI Bank ECB Loan Rs 9.86 crore.

Foreign lenders including UAE based Mashreq bank, France’s Natixis SA owe Rs 563 crore.

Operational creditors will get a maximum of Rs 15,000 each irrespective of the claim amount.

The company’s plans

The new promoters will infuse Rs 1,375 crore over the next two years into the company, of which around Rs 975 crore will be used for capital expenditure and working capital expenses.

However, National Company Law Tribunal has denied the earlier Jet Airways slots at airports saying the airline cannot claim historicity to obtain airport slots belonging to the airline as it didn’t have any operating slots on the day of the commencement of the insolvency process.

The insolvency

Jet Airways was admitted for insolvency on June 20, 2019, after all the attempts by the lenders to sell the defunct airline failed. The National Company Law Tribunal last month allowed the resolution professional for Jet Airways, to extend the corporate insolvency resolution process of the grounded airline by 90 days.

After Jet Airways went bust, the government temporarily allotted the hundreds of airport slots owned by it to other carriers to contain soaring airfares in the peak holiday season.



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

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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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BBB invites applications for PNB MD & CEO post

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The process of selection of the next Managing Director and CEO of Punjab National Bank (PNB), the country’s second largest public sector bank, has begun with the Banks Board Bureau (BBB) inviting applications for this post.

The incumbent MD & CEO Ch S.S. Mallikarjuna Rao’s term at the helm of PNB is due to end on September 18 this year. Prior to joining PNB as MD & CEO in September 2019, Rao was the MD & CEO of Allahabad Bank since September 2018.

The BBB has now stipulated that any applicant who wants to be considered for this top post at PNB should be in the age group of 45 to 57 years as on September 19, 2021.

Also, the BBB has, among other things, specified that the applicant should have a minimum experience of 15 years in mainstream banking, of which at least one year should be at the board level as on September 19, 2021.

The selected person would hold the office for a period of three years, subject to the age of superannuation as 60 years, according to BBB. The last date for submitting the online application for this post is July 17, 2020, the BBB has said.

The new person who will take over from Rao later this year will have to manage a much larger banking institution as PNB had from April 1 last year gone in for a three way amalgamation with Oriental Bank of Commerce and United Bank of India from April 1, 2020, paving way for the creation of India’s second largest public sector bank with business of over ₹18 lakh crore.

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