Tag: recovery

IBC needs a stronger push: Crisil

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The Insolvency and Bankruptcy Code (IBC) needs a stronger push after recovery of about ₹2.5 lakh crore over five years since it took effect, according to Crisil Ratings.

From here, reforms must stress quicker resolution and maximise recovery, the credit rating agency said in a study.

Per the agency: “A closer look at the data shows, however, the recovery rate and resolution timelines have a lot more room for improvement.

“This makes a continuous strengthening of the Code and stabilisation of the overall ecosystem imperative.”

Lesser traction

As of June 30, 2021, IBC had enabled recovery of about ₹2.5 lakh crore, against admitted financial claims of about ₹7 lakh crore, translating to a recovery rate of 36 per cent for the 396 cases resolved out of the total 4,541 admitted.

Of the remaining cases, 1,349 were under liquidation; 1,114 were closed under appeal/ review/ settled or withdrawn, and 1,682 were outstanding.

The agency emphasised that the recovery marks a significant shift in the insolvency resolution process and credit culture in India.

Gurpreet Chhatwal, Managing Director, Crisil Ratings, said: “The recent resolution of a large financial services firm with a recovery of about ₹37,000 crore against admitted financial claim of about ₹87,000 crore, translating to a recovery rate of about 43 per cent, underscores the efficacy of IBC. The resolution value was about 1.4 times the liquidation value.”

The agency underscored that while the IBC has tilted the power equation in favour of creditors from debtors and helped strengthen India’s insolvency resolution ecosystem, its performance against its twin objectives – maximisation of recovery and timebound resolution – has been a mixed bag.

“One, only a few large cases have seen higher recovery. Excluding the top 15 cases (by resolution value) from the 396 resolved cases, the recovery rate halves to 18 per cent.

“Two, average resolution time for the aforementioned resolved cases is 419 days compared with the stipulated maximum of 330 days. About 75 per cen of outstanding cases have already been pending for more than 270 days,” the study said.

Liquidation: a challenge

Nitesh Jain, Director, Crisil Ratings, noted that besides low recovery rate and longer timeframe, a key challenge is the high number of cases going to liquidation.

“As of June 30, 2021, nearly one-third of the 4,541 admitted cases had gone into liquidation, with a recovery rate estimated at merely 5 per cent.

“That said, around three-fourths of these cases were either sick or defunct. With closure of these vintage cases, recovery rate as well as timelines are expected to improve,”he said.

Notwithstanding these challenges, the IBC has played a key role in resolution of stressed assets so far, according to the study.

“Its effectiveness will continue to be tested given the elevated level of stressed assets in the Indian financial system,” it added.

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BoI, Union Bank, PNB may gain most from bad bank, BFSI News, ET BFSI

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The National Asset Reconstruction Company (NARCL) will have maximum impact on loan books of Bank of India (BoI), Union Bank and Punjab National Bank (PNB), which will sell over 1% of their loans to the bad bank. According to rating agency Crisil, the bad bank, or NARCL, will lower the NPA level of banks by 20-25% over time.

However, the immediate impact on the bottom line will be limited as lenders who sell loans in the first phase will receive just around Rs 2,700 crore upfront cash payment as against the Rs 90,000 crore of bad loans they sell to the corporation. Also, investing in the security receipts issued by NARCL will not increase the capital requirement of banks due to the government guarantee.

Of the Rs 2 lakh crore of bad loans to be transferred to NARCL, around Rs 30,600 crore will be guaranteed for five years. NARCL will pay 15% of whatever amount the loans are valued at, in cash. The remaining 85% will be paid using security receipts. According to a Jefferies report, the government guarantee will keep the security capital neutral as without the guarantee banks will have to set aside funds towards provisions. A sovereign guarantee being risk-free does not attract similar capital requirements.

“For the guaranteed part, banks will recognise the value as an investment but that will not require any capital for 5 years as there is government guarantee. For non-guaranteed part, banks might not recognise value until actual recovery is made,” the Jefferies report said.

According to the report, of the first lot, SBI will be transferring the biggest chunk of loans at Rs 20,000 crore. However, given the size, the sale will be only 0.8% of its loan book. While BoI, Union Bank and PNB will be selling much less at Rs 5,500 crore, Rs 7,800 crore and Rs 8,000 crore, their loans will be a much bigger chunk of their balance sheet. For BoI, the loans sold will be 1.5% of its book, 1.3% for Union Bank and 1.2% for PNB, Jefferies said.

“The sovereign guarantee will cushion security receipt investors against potential lower recoveries. This could, in turn, potentially enable the development of a secondary market in security receipts, which has proved elusive so far,” said Crisil senior director and deputy chief ratings officer Krishnan Sitaraman.

The loans sold to the bad bank include Rs 22,500-crore exposure to Videocon Oil Ventures, where SBI is the lead bank. Another large account is Union Bank-led account of Amtek Auto, which has Rs 9,014 crore of bank loans. IDBI is the lead banker in three large accounts — Reliance Naval, Jaypee Infra and GTL.



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Mallya/Nirav Modi fraud cases: Latest recovery of ₹1,850 cr redeems 58% of banks’ losses

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Banks have now recovered 58 per cent of the amount they were defrauded by Vijay Mallya, Nirav Modi and Mehul Choksi. While the SBI-led consortium got another ₹792.11 crore from sale of shares held in Mallya’s Kingfisher airline, other banks have got ₹1,060-crore assets from the Fugitive Economic Offences Court in the PNB-Nirav Modi Case

Total amount

The Enforcement Directorate on Friday said while the public sector banks were defrauded of ₹22,585.83 crore, recovery and transfer of assets as of date total ₹12,762.25 crore. The ED has attached assets worth ₹18,217.27 crore under the provision of the Prevention of Money Laundering Act from the three fugitives.

“Today, the SBI-led consortium has realised ₹792.11 crore by sale of shares in Kingfisher Airlines/Vijay Mallya case. These shares were handed over by the ED to the consortium. Earlier, SBI led consortium had realised ₹7,181.50 crore by liquidating assets handed over to it,” said an ED statement.

Earlier recovery

A few days back, the ED had handed over ₹3,728.64-crore assets to the SBI-led consortium including shares of ₹3,644.74 crore, Demand Draft of ₹54.33 crore and immovable properties worth ₹29.57 crore.

Nirav Modi and his uncle Mehul Choksi are wanted by India for defrauding Punjab National Bank (PNB) of over ₹14,000 crore. They fled the country in January 2018 before their scam of using fake Letters of Undertakings (LoUs) to cheat the bank came to light.

Vijay Mallya had fled to the UK in 2016 after his Kingfisher Airlines collapsed. Mallya had borrowed to keep the consistently loss-making airline in air. By 2012, Kingfisher was declared an NPA by SBI. Accused of fraud and money laundering, Mallya owes 17 Indian banks about ₹9,000 crore.

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Gold loan defaults within permissible limits, says Thomas John Muthoot

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Gold auction notices by private lenders in regional dailies spread across more than one full page are becoming regular which, to the uninitiated, may point to the pandemic-induced financial stress among not just the economically weak sections but also the salaried class.

Leading NBFC Muthoot Fincorp recently ran a multi-page auction notice listing about 24,000 mortgage items for auctioning this July across its various branches since customers failed to pay up in time.

Statutory advertisements

But the lender would not attach significance to the advertisement and maintained that the “default cases continue to remain within acceptable limits”.

This is a statutory advertisement, he told BusinessLine. The actual auctions amount to just less than one per cent and is not a matter of concern since 99 per cent of customers redeem or renew their loans.

“We have to take these steps; otherwise, we would be breaching the NPA norms of the Reserve Bank which will not be seen good in the eyes of rating agencies, banks and the RBI as well.”

Extra time to pay up

On special request, the NBFC grants customers extra time to redeem their gold. “We would in fact want customers to save their gold. This is important for us, too. Because of Covid, we have a special scheme for customers to renew their loan at 11.99 per cent. Lot of these steps are being taken thoughtfully.”

In fact, John Muthoot noted that the gold loans portfolio witnessed healthy growth during FY 2020-21. Coupled with rescheduling of earlier auctions due to lockdowns, this had resulted in a higher number of loans going into auction.

Overall, this is a small percentage compared to the total disbursements of ₹39,500 crore during the period, he said. But John Muthoot did agree that the Covid-19 second wave and resultant lockdown did disrupt economic activities and compromised the financial position of customers.

Element of uncertainty

“But if we compare it with the first wave in March 2020, the element of uncertainty is evident. The community demonstrated resilience and preparedness to face the situation. The lockdown has been relaxed in most states. Normalcy will enable the common man to return to work and resume activities”.

According to him, gold loans continue to witness a healthy demand. “The common man is our customer and his financial needs continue to be our focal point. We are in constant touch with customers and our product research capabilities enable us to understand their needs. The demand for fresh loans is picking up post-relaxations in lockdown,” he added.

On business outlook for the next few quarters, Muthoot said: “We remain bullish on the growth story of Indian economy. The Centre as well as the Central bank has reiterated the commitment by announcing packages or capital investments to propel the growth. As businesses reopen and activities restart, we are sure that the economy will rebound. We expect to grow by 12-15 per cent as higher demand unfolds”.

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SBI Chairman, BFSI News, ET BFSI

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MUMBAI: Although the second wave of the Covid-19 pandemic again brought businesses and economic activities to a standstill, Chairman of the State Bank of India (SBI), Dinesh Kumar Khara has expressed hope that the country’s economy would recover in the ongoing financial year.

The Chairman noted that the global economy contracted by 3.3 per cent in 2020 with the pandemic causing significant loss of lives and livelihood.

The GDP in India contracted by 7.3 per cent in FY2021 and the country experienced a second wave of infections with cases rising rapidly since March 2021, he said while addressing the 66th Annual General Meeting of the bank.

He, however, said that policy measures and the coordinated efforts of the Reserve Bank of India (RBI) and the Centre were directed towards enabling growth on a more durable basis during these difficult times.

“Notwithstanding the second wave of Covid-19, Indian economy, through its resilience, is poised for a recovery in FY2022,” the SBI chief told the shareholders of the bank.

Speaking on the performance of the bank in FY21, he said that although the last fiscal was an exceptionally challenging year for the entire world, the state-run bank was able to function against all odds with minimal disruption for the customers.

“The business continuity plans that were chalked out have worked well for the Bank and this is reflected in various parameters of the Bank’s performance in FY 2021.”

Notably the bank has achieved high level of digitization with share of Alternate Channels in total transactions increasing to 93 per cent in FY2021, thereby converting a challenging situation into an opportunity, the Chairman said.

He said that in the current financial year, SBI will continue to accelerate its digital agenda, adding that the scope and reach of YONO will be expanded further.

“With the rollout of pre-package insolvency for resolution, resumption of courts and formation of National Asset Reconstruction Company, efforts will be in full force to keep the momentum in stressed asset recovery in the current financial year.”

The bank is comfortably placed in terms of growth capital. Opportunities for lending in promising sectors will be explored to diversify the portfolio and contain risk.

“In conclusion, the bank adjusted to the challenges posed by the Covid-19 pandemic and is better positioned to tackle any subsequent wave. I am cautiously optimistic that the performance trajectory of FY2021 will continue in FY2022 as well.”



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RBI sees Rs 2 lakh crore hit from Covid; medical spends depleting deposits, cash fast, BFSI News, ET BFSI

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The Reserve Bank of India has estimated that the second wave may result in a Rs 2-lakh-crore loss in output during the current fiscal even as it said speed and scale of vaccinations will determine economic recovery.

The RBI’s output loss is factored into its revised GDP forecast in the latest monetary policy estimates, where it slashed growth projections from 10.5% to 9.5%.

The projection was on the assumption that real GDP will grow by 18.5% in the first quarter, which is on a much lower base given the contraction last year.

“By current assessment, the second wave’s toll is mainly in terms of the hit to domestic demand. On the brighter side, several aspects of aggregate supply conditions – agriculture and contactless services are holding up, while industrial production and exports have surged amidst pandemic protocols,” the central bank said.

A loss of economic output may not have a direct corelation with the GDP, but points to some loss in the value-addition across the economy, it said.

Deposits, cash depleting

The RBI said the rate of decline in deposits has been higher, indicating that household savings have dropped in sharp contrast to the first wave. “Additionally, currency holding with the public has also decelerated significantly to 1.7% during April 2021 in comparison to the growth of 3.5% a year ago, implying heavy outgo towards Covid-induced medical expenditure.”

The move ahead

The report highlights the advantages of repurposing and reprioritising revenue and expenditures to extract “bang for the buck”. The report said that the public sector can lead the private sector in unlocking growth opportunities. In addition, it can partner the private sector, and step back to allow the private sector to take the lead in sunrise areas.

“While has tested the limits of flexibility in fiscal policy frameworks in India as in the rest of the world, it has offered a unique opportunity to redefine fiscal policy in a manner that emphasises ‘how’ over ‘how much,” the report said.

The report, authored by RBI deputy governor M D Patra highlights the finance ministry estimates that to achieve herd immunity and regain recovery momentum, the target population to be vaccinated is 70 crore by September 2021 and around 113 crore more doses are needed. Accordingly, around 93 lakh vaccinations are required per day to achieve the herd immunity.

Covid wave weakening

RBI observed that the second wave is rolling back almost as fast as it rolled in. On June 14, the daily cases fell to a seventh of their peak of 4,14,188 a month ago (May 6). The seven-day average, which smooths out daily fluctuations, also declined by a fifth from its peak of close to 4 lakh. This is also reflected in the doubling rate, which increased to 247 days from its trough of 34 days at the end of April.

Supply bottlenecks

While the surge in inflation may have a lot to do with pandemic base effects, it is also fuelled by years of underinvestment having made the supply response less dynamic, exacerbated by supply chain bottlenecks, the RBI said. “In this situation, monetary policy is hostage to its own stance and loose financial conditions that it creates will cause excessive risk taking in markets even as inflation migrates upwards,” it said.



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SBI to keep up the momentum of stressed assets recovery: Dinesh Kumar Khara

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State Bank of India (SBI) will put in all efforts in FY22 to keep up the momentum of recovery made in stressed assets in FY21, according to Chairman Dinesh Kumar Khara.

This will be aided by the roll-out of pre-packaged insolvency for resolution, resumption of courts and formation of National Asset Reconstruction Company Ltd (NARCL).

India’s largest bank will make judicious use of all recovery options at its disposal, he said.

 

However, Khara underscored that it is too early to call a possible deterioration of asset quality in banks due to the second wave.

“The Bank over the last two financial years was dealing with a steep rise in stressed assets. All-round effort in managing stressed accounts initiated in FY2019 was carried through in FY2020 as well.

 

“However, the outbreak of the pandemic and subsequent lockdown in FY2021 altered the dynamics of stressed asset recovery. Bank had to grapple with disruption in normal proceeding at NCLT due to Covid-19 infections,” the SBI Chief said in the latest annual report.

Furthermore, the Reserve Bank of India (RBI) mandated a standstill clause for some portfolios.

Reduction in NPAs

“Despite all this, the bank was able to achieve a reduction in the level of Gross NPAs (non-performing assets) by ₹22,703 crore by March 2021.

“The corporate segment saw the largest reduction in NPA at ₹18,530 crore, while other segments remained more or less stable,” Khara said.

The gross NPA ratio of the Bank accordingly declined to 4.98 per cent from 6.15 per cent last year.

Khara said SBI is comfortably placed in terms of growth capital.

“Opportunities for lending in promising sectors will be explored to diversify the portfolio and contain risk,” he added.

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IL&FS: Aggregate debt recovery target hiked to ₹61,000 crore

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About ₹43,000 crore of debt of bankrupt Infrastructure Leasing and Financial Services (IL&FS) has been addressed and the new board and management expects that this would increase to ₹50,000 crore by end of September this year.

“The group has also enhanced its estimates of aggregate debt recovery to ₹61,000 crore – an increase of ₹5,000 crore over its earlier estimate of ₹56,000 crore,” said Uday Kotak, Chairman of the board of IL&FS on Thursday.

The increased estimate represents resolution of nearly 62 per cent of overall fund based and non-fund based Group debt of about ₹99,000 crore, as of October 2018.

“The aggregate debt of ₹43,000 crore addressed till date represents nearly 71 per cent of the overall revised targeted recovery value of ₹61,000 crore and 44 per cent of the overall debt of over ₹99,000 crore (as of October 2018),” said a statement by IL&FS, adding that the recovery target is higher than the average recovery observed under IBC since its inception.

“The upgrade in potentially addressable debt by ₹5,000 crore (to ₹61,000 crore) has been largely on account of improved valuations, better operating performance and enhanced recoveries from non-group exposures,” it further said.

Of the total 347 entities under IL&FS Group (as of October 2018), a total of 186 entities stand resolved till date, while the remaining 161 entities are under various stages of resolution.

CS Rajan, MD, IL&FS, said that by September end, the number of entities would come down to double digits. This would be done by a combination of liquidation, closure of some entities and sale of some entities.

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Bitcoin jumps above $50,000 in recovery from latest rout

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Bitcoin held gains above $50,000 in Asia trading on Thursday, putting the largest cryptocurrency back on track after steep losses last week with bullish momentum returning once again on more mainstream interest.

The digital token rose as much as 1.7 per cent and was trading at about $50,976 as of 11:14 am in Hong Kong on Thursday, according to data compiled by Bloomberg. The coin had surged as much as 11 per cent during the US trading Wednesday.

The cryptocurrency has been volatile with prices plunging 21 per cent last week before recovering with the earlier broad bounce back in global equities. On a technical basis, the GTI Global Strength Indicator, which detects trend fluctuations, has begun to curl upward, suggesting a bullish move for Bitcoin. The coin is up 13 per cent this week.

“With the return of the stimulus fueling activities in the US and elsewhere – this is very good for scarce assets such as Bitcoin,” said Antoni Trenchev, managing partner and co-founder of Nexo in London, a crypto lender.

Meanwhile, more big-name investors are backing crypto. Bloomberg reported late Tuesday that billionaire hedge-fund manager Marc Lasry and former US Commodity Futures Trading Commission Chairman Christopher Giancarlo have invested in crypto-asset and blockchain investment firm BlockTower Capital.

Bitcoin and other cryptocurrencies are also driving growing interest from mainstream investors in Canada, as the introduction of Bitcoin exchange-traded funds helped drive $5.2 billion in inflows in February, the second-highest month of such flows on record.

“Bitcoin is now, for the most part, steadily getting constant endorsements,” said Ed Moya, senior market analyst for OANDA. “You’re still in the early stages of this institutional interest and that’s why I think you’re probably going to have people become a lot more open minded to cryptos.”

The investments underscore a growing trend of institutional money flowing into the digital space, which is simultaneously gaining attention from regulators as the nascent industry seeks to carve out a place in mainstream finance. The outlook for the cryptocurrency industry is still under fierce debate. Proponents point to growing institutional adoption while critics say Bitcoin is a giant bubble destined to burst like its 2017 boom and bust cycle.

Regulators

On Tuesday, Gary Gensler, nominee for chairman of the US Securities and Exchange Commission, said that making sure crypto markets are free of fraud and manipulation is a challenge for the agency.

Gensler, who served as a CFTC chairman during the Obama administration, has been viewed as a strong advocate for digital assets. He serves as a senior adviser to the MIT Media Lab Digital Currency Initiative and teaches about blockchain technology and digital currencies.

“While the Bitcoin market reacted quickly to his comments, Gensler was largely positive about Bitcoin and cryptocurrencies,” said John Wu, president of blockchain technology firm Ava Labs. “I’m hopeful the new administration will help foster innovation in blockchains, cryptocurrencies and digital assets, instead of stifling it.”

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RBI helps India’s financial condition rebound to better than pre-pandemic level at full speed

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Buying term insurance plan and multi-cap mutual fund schemes will become much simpler than before.

India’s financial condition has staged a full-throttle recovery after the coronavirus disruptions and has rebounded to better than the pre-pandemic level. The Financial Condition Index by Crisil Research showed that India’s financial condition has improved significantly and is at a better position than the pre-pandemic level. The Reserve Bank of India is believed to be the major driver of financial condition;s improvement. In lockstep with central banks elsewhere, measures by the RBI have helped mitigate the large and broad-based economic damage caused by the pandemic, said a report by Crisil. While easy global monetary policies have helped, the RBI’s accommodative stance has helped contain short-run pressures no less, the report added. 

Policy rate, liquidity conditions, markets, foreign exchange, and global conditions were the major drivers of the financial conditions this year. Earlier in October 2020, RBI Governor Shaktikanta Das had said that the RBI stands ready to undertake further measures as necessary to assure market participants of access to liquidity and easy financing conditions. 

Since March, the RBI has cut the repo rate by 115 basis points and the reverse repo rate by 155 basis points. It has also purchased ₨ 1.9 lakh crore of G-secs (on a net basis) until September, compared with Rs 0.9 lakh crore in the corresponding period last year. These measures have helped in slashing the interest rates in money and debt markets, and has even got transmitted to bank lending rates to some extent, Crisil added. 

Stress on financial sector 

However, the country’s financial sector still has some major roadblocks. Bank credit growth, which was already weakening before Covid-19, has fallen even further in recent months. Crisil estimated bank credit growth to slow down to a multi-decadal low of 0-1 per cent this fiscal year. Further, high government borrowing and the stress in the corporate bond market are other majors casting shadows of stress on the financial sectors.

Meanwhile, the financial condition in India had been tightening since the IL&FS default in 2018, which triggered a liquidity crisis for non-banking financial companies (NBFCs). The Covid-19 pandemic only magnified this. Consequently, India’s financial condition was the tightest in a decade in April this year, once the lockdown began. 

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