R Radhakrishna has taken charge as the new Chief General Manager of State Bank of India, Chennai circle.
Before his elevation as CGM, Radhakrishna served as GM, CCGRO (Commercial Clients Group Regional Office), in Bengaluru. The Chennai circle of the SBI has 1,248 bank branches under its jurisdiction across Tamil Nadu and Puducherry.
He joined the bank as Probationary Officer in 1987, and held various assignments in retail operations, HR and corporate credit. He has more than 33 years of experience in banking with more than 10 years of experience in high value credit, according to a statement.
The earlier FSR released in January 2021 had projected that the gross non-performing assets (GNPAs) of banks may rise to 13.5% by September 2021 in the baseline scenario.
By Nitin Jain
In Feb 2021, RBI announced a structure for a proposed bad bank, “What you call a bad bank is not really that; an ARC-type entity will be set up to take over bad loans from the books of public sector banks and it will try to resolve just like any other ARC,” RBI Governor Shatikanta Das had said.
Proposed Structure of Bad Bank
Though no formal structure has been announced yet, we understand basis news reports, that a National Asset Reconstruction Company Limited (NARCL) is going to be set up to take over NPAs from banks. The Promoters are likely to be power finance companies while the PSU banks will hold the remaining equity stake in the ARC. As per recent news reports, state-owned banks have shortlisted 28 loan accounts to be transferred to the NARCL with a total of Rs 82,500 crore of loans due, and further loans could also be transferred such that the AUM is over Rs 2 lakh crore. The list of borrowers includes big names such as Videocon Oil Ventures Limited (VOVL), Amtek Auto, Reliance Naval, Jaypee Infratech, Castex Technologies, GTL, Visa Steel, Wind World, Lavasa Corporation, Ruchi Worldwide, Consolidated Construction.
Normally the NPA loans at the time of takeover by an ARC are valued around 30-40% of the principal amount. However, as we understand from news sources, in the case of NARCL the loans may be acquired at the current book value. The NARCL would pay 15% in cash and the balance 85% in security receipts or any other proportion as they may decide. Further, the government would provide a guarantee to the security receipts issued by the bad bank. Let’s assume that a bank sells a loan of Rs 100 to NARCL. Now, if the Bank has already made 75% provisions for the loan, then the book value of this loan is Rs 25, and 15% of Rs 25 i.e. Rs 3.75 is cash to be paid to banks. Thus, using these assumptions, for taking over say Rs 2 lakh crore of bad loans, a cash outflow of Rs 7,500 crores and issuance of SRs worth Rs 42,500 crore may be required. (Please note that these assumptions have been taken for the purpose of explaining this concept only and are not indicative or confirmatory in any nature).
Pros and Cons of the Proposed Bad Bank Structure
Pros -Cleans the balance sheet of the banks. -Will provide immediate relief to the banking system which will now be facing fresh NPA on account of disruption due to Covid. -Banks will become capitalized and ready for fresh lending. -Faster decision making by one body (NARCL) v/s Consortium of banks. -A secondary market can be created for the SRs which have a sovereign backing, that would provide further liquidity to the banks.
Con The actual recovery of these loans may be lower than the book value of the loans transferred, thereby could lead to erosion of capital at NARCL over the medium and long term. -If NARCL will need to take decisive, focused steps to recover these loans, otherwise the process may not be successful. -The process entails transferring the bad loans at current date, and recovery or resolution to happen in future. -May lead to aggressive fresh lending by Banks.
Taking control of management of these companies from the Promoters. The RBI had demonstrated effective management of DHFL, by taking over the board and appointing an administrator to manage the company and find a resolution.However, a Bad Bank, or even a network of bad banks, will not make the losses disappear. The losses, or non-performing loans, transferred to a bad bank will still exist. The process may allow better recovery of these loans in future. It will be important for the banks to review their lending policies and put in place a robust risk management system. Further, it would be crucial to see how NARCL will manage these bad assets. I believe that one will require specialized expertise for recovery of these bad assets such as:
-Interim Crisis Management in these Companies – restructuring, reducing costs, identifying surplus assets and to sell these assets to generate liquidity, and providing transparent and clear communications to all stakeholders. -Classification of bad loans by sector. The Government already has significant expertise in the Road/ Highways and Power Sector via its Undertakings. However, expertise may need to be built in other sectors via sector experts to facilitate day-to-day management of the operations of the company and to find a viable resolution to preserve value. -Provisioning policies of NARCL will need to be reviewed such that they are in accordance with the tenor/ maturity of the SRs issued. -NARCL will need to take a decision as to the route to be taken for recovery from the bad loan. Some potential routes could be:
Initiating corporate insolvency process on the Company
Engaging an investment banker to pursue mergers and acquisitions transaction for the said asset.
Undertake a compromise or settlement u/s 230 of Companies Act.
Though the ‘Bad Bank’ appears to be a sweet pill for the banking sector to get rid of their immediate problems, it would be a tough task ahead for the proposed NARCL to preserve the tax- payers’ monies over the medium and longer term.
(Nitin Jain is a veteran corporate and investment banker having worked in banks like Standard Chartered Bank and Bank of America. He is a Restructuring Expert and is also an Insolvency Professional registered with IBBI. The views expressed in the above article are the author’s personal views.)
Country’s largest lender State Bank of India (SBI) has sanctioned a loan of ₹3725 crore for the development of Noida International Airport (NIA) which is being developed by Yamuna International Airport (YIAPL) and will be the second airport in National Capital Region (NCR).
A statement issued by YIAPL said that the funding is a crucial milestone for the project as it validates the financial viability of the project while also outlining the next steps for the establishment of NIA.
“The entire loan of ₹3725 crore has been underwritten by SBI on a door-to-door loan tenor of 20 years,” Christoph Schnellmann, Chief Executive Officer of YIAPL said. Further he mentioned that the project will not only boost the Indian economy but will also help in employment generation in Uttar Pradesh and Delhi NCR region.
The airport is being developed in close partnership with the government of Uttar Pradesh and the Central government. The State government’s continued support towards the project has been vital in the process so far. YIAPL now looks forward to the conclusion of the UP government’s resettlement and rehabilitation process and the start of the construction of the airport, the statement mentioned.
Zurich Airport International AG (ZAIA), a fully owned subsidiary of Flughafen Zurich AG, is the main shareholder of YIAPL and is injecting ₹2005 crore into the development of NIA.
Indian banks have to delicately balance between the renewable energy commitments and funding coal-fired power projects that are required for growth. On the other hand, global banks’ green financing is outpacing fossil fuel activity.
India may build new coal-fired power plants as they generate the cheapest power, according to a draft electricity policy in February, despite growing calls from environmentalists to deter the use of coal.
“While India is committed to add more capacity through non-fossil sources of generation, coal-based generation capacity may still be required to be added in the country as it continues to be the cheapest source of generation,” the NEP draft read.
This may put more pressure on local banks to fund such ventures, after having suffered a bout of bad loans on power plants in the last decade.
SBI faces pressure
State Bank of India faces pressure from its global investors like BlackRock but also needs to finance coal projects to electrify more homes
International investors are increasingly restricting support to companies involved in extracting or consuming coal, yet nearly 70% of India’s electricity comes from coal plants and demand for power is set to rise as the economy recovers from the blows of the pandemic.
BlackRock and Norway’s Storebrand ASA, both of which hold less than 1% in the bank, raised their objections over the past year. Amundi SA divested its holdings of the lender’s green bonds because of the bank’s ties to a controversial coal project in northern Australia. State Bank of India hasn’t decided whether to help finance the Carmichael mine for Adani Ports Ltd, whose main shareholder is Indian billionaire Gautam Adani, following mounting pressure from climate activists and investors, Bloomberg reported in April.
SBI has been boosting the share of loans to the clean energy sector and it approved three times more loans to solar projects in the nancial year that ended in March than to the overall thermal sector.
That’s because there was hardly any demand for new loans from fossil-fuel producers last year.
The lender’s loans to the power sector stood at Rs 1.86 lakh crore or 7.3% of the total at the end of March with Rs 31,920 crore of loans to renewable energy.
In India, the shift away from coal will take time. Millions of citizens remained without power months after Modi’s planned deadline to electrify every home passed two years ago. The environment ministry earlier this year further delayed anti-pollution guidelines for power plants that use the fuel.
Global banks surge
Funding for global energy is at a tipping point. Green bonds and loans from the global banking sector so far this year exceeded the value of fossil financing for the first time since the clinching of the Paris Agreement at the very end of 2015.
Since the clinching of the Paris Agreement, the global banking sector has underwritten more than $3.6 trillion of bonds and loans for the fossil-fuel industry. No bank has done more–or taken more in fees–than JPMorgan Chase in the past five-plus years.
The same constellation of banks has originated more than $1.3 trillion of green bonds and loans to support climate-friendly projects over the same period. No bank has done less than Wells Fargo, which has arranged the lowest proportion of green financing relative to fossil fuel among the world’s largest lenders.
But the biggest surprise of all is that high finance may have just shifted into a new era. Led by underwriting from firms including JPMorgan and Citigroup, green bond sales and loans this year are outpacing new fossil finance activity for the first time since the Paris Agreement was announced at the very end of 2015.
The transformation in the capital markets–if it lasts–indicates that the world’s largest banks may finally be getting behind the movement towards a low-carbon future. It also may be a sign that financial giants are seeing an advantage to green projects from a profit-and-loss standpoint.
IBA chairman Rajkiran Rai G said the products have been standardised with approvals from all public sector banks’ boards last week.
The largest lender State Bank of India’s (SBI) chairman Dinesh Kumar Khara on Sunday said that as per preliminary assessment, the bank should be able to build a book of Rs 2,000 crore through expanded emergency credit line guarantee scheme (ECLGS). Khara made this comment at a joint press conference of SBI and Indian Bank’s Association (IBA) to launch standardised Covid loan products by public sector banks.
Earlier in the day, Finance Ministry had enlarged the scope of the Rs 3 lakh crore ECLGS to cover loans up to Rs 2 crore for setting up on-site oxygen generation plants at healthcare facilities and brought in the ailing civil aviation sector under its ambit.
Khara said that public sector banks have come up with three sets of products to build a ‘Covid book’ under Reserve Bank of India’s (RBI) liquidity scheme and the ECLGS. The relief measures include a healthcare business loan for setting up oxygen plants, healthcare facilities and unsecured personal loans for Covid-19 treatment.
The rate of interest for business loans given for setting up oxygen plant under ECLGS will be capped at 7.5%, and the repayment can be done in five years. The banks have not specified rates for other healthcare facility loans. However, the rate of interest will stand at 8.5% at SBI, Khara said. Apart from it, borrowers can avail loans of Rs 25,000 to Rs 5 lakh for Covid-19 treatment with a tenure of five years.
IBA chairman Rajkiran Rai G said the products have been standardised with approvals from all public sector banks’ boards last week.
He also said that customers opting for restructuring will have to apply for recast on the website or manually at a bank branch. RBI on May 5 had allowed lenders to carry out a fresh round of restructuring of retail and MSME accounts. The resolution process will be invoked in 30 days and the last day for invocation is September 30, 2021. Thereafter, the resolution plan will be implemented within 90 days, or latest by December 31, 2021. The moratorium period on loans will be a maximum of two years, starting soon after invocation.
State Bank of India’s (SBI) Chairman Dinesh Khara talked about loans for SMEs, Covid-19 resurgence, and RBI’s relief measures of 5 May 2021 in a press conference on May 30, 2021.
SBI Press Conference HIGHLIGHTS:State Bank of India’s (SBI) Chairman Dinesh Khara talked about loans for SMEs, Covid-19 resurgence, and RBI’s relief measures of 5 May 2021 in a press conference on May 30, 2021. Chairman Khara explained how RBI’s SME loan relief measures, which were announced on May 5, 2021, will be rolled out. He informed that PSBs have formulated templated approach for restructuring loans to individuals, small businesses and MSMEs up to Rs 25 crore. In order to approach bank for resolution, customers can file an application on the portal at the bank website, they can make manual submission of applications at the branch. Khara also informed that government will provide 100 per cent guarantee cover to loans up to Rs 2 crore to hospitals/nursing homes etc for setting up on-site oxygen generation plants, interest rate capped at 7.5%. The validity of ECLGS has also been extended to September 30, 2021, or till guarantees for an amount of Rs 3 lakh crore is issued. The disbursement under the scheme has been permitted up to December 31, 2021.
NEW DELHI: The two largest banks in the country — State Bank of India and HDFC Bank — moved the Supreme Court on Friday and sought a stay on the Reserve Bank of India’s directive to banks to provide financially sensitive data under the RTI Act, saying they feared that it could be detrimental to their business operations and compromise confidentiality of customer information
Though the direction was sought against RBI, it was aimed at the SC’s order that allowed divulging of such data.
Court earlier restrained RBI from disclosure under RTI Act
The SBI, through advocate Sanjay Kapur, said, “In view of the judgment in Jayantilal N Mistry case, the RBI is seeking disclosure of confidential and sensitive information of the applicant bank, including information of its employees and its customers, purportedly under the Right to Information Act, 2005, which are otherwise exempt under the provisions of Section 8 of said Act.”
Appearing for the SBI and HDFC, solicitor general Tushar Mehta and senior advocate Mukul Rohatgi told a bench of Justices L N Rao and Aniruddha Bose that divulging sensitive information like inspection reports/risk assessment reports/annual financial inspection reports of banks would render them vulnerable in the competitive banking sector to rivals, who could exploit the RTI Act to know the trade secrets and internal strengths of successful banks.
The court had earlier restrained the RBI from disclosing such reports under the RTI Act.
However, that interim order got washed away because of the SC’s April 28 order refusing the review the Jayantilal N Mistry judgment.
The stock market has turned bullish on public sector banks amid growing expectations that their asset quality woes have hit the trough.
The State Bank of India results announcing a reduction in bad loan pile has fuelled the euphoria. But experts say public sector banks are still wobbly despite the outlook as Covid stress has brought renewed challenges for them.
What’s up?
Traders have mounted derivative bets on state-owned banks encouraged by the recent run-up in share prices. The outstanding positions in futures contracts of public sector lenders such as SBI,
The open interest in Bank of Baroda futures by number of shares is at a lifetime high and in SBI it is at the highest since September 2020. SBI shares touched a lifetime high of Rs 427.70 on February 18 this year are near that mark.
Nifty PSU Bank index gained 2% to close at 2,398.15 on Monday, with Punjab National Bank, Central Bank and Union Bank and SBI gaining 2-5%.
In the ongoing May series, SBI’s shares are up 14.6% while Bank of Baroda’s shares have risen nearly 22%. Punjab National Bank’s shares are up 13.5% during the same period.
The red flags
While the banks have cleaned up their books, mostly on the basis of write-offs, and posting robust numbers they may be staring at a renewed stress.
Banks are facing greater stress in smaller towns, more so the public sector banks as they have a bigger presence there.
The special mention accounts of public sector lenders are increasing, showing a rise in new stress as Covid buffets smaller businesses.
SBI’s SMA accounts where repayments are overdue more than a month totalled Rs 11,500 crore, while Bank of Baroda and Punjab National Bank had also reported build-up of these accounts for the December quarter during in QIP documents.
Credit growth has been falling for the last few years and totalled 5.58% for FY21 as against 6.02% for FY20. This credit growth is mostly cornered by the private banks, with PSBs seeing a sharper fall in credit growth
While PSU banks have reduced their bad loan pile mostly through write-offs, the recovery from such accounts is abysmal at less than 30%. In FY20, about 25% bad loans were written off. SBI wrote off Rs 32,000 crore in FY21, which is 23% of its total bad loans.
Comparison with private lenders
PSU bank shares have mostly been underperformers vis-à-vis their private-sector peers in the past decade because of high nonperforming loans (NPLs) and loss of market share. The superior performance by private sector banks pushed their valuations to record levels.
The Nifty PSU Bank index is down 11.6% in the past three years, while the Nifty Private Bank Index is up 23%. The Nifty index is up 43.1% in the same period.
PSU banks including Bank of India, Punjab National Bank, Bank of Baroda and UCO Bank among others are trading at a Price to Book (P/B) of around 0.55-0.7 times. SBI is trading at P/B ratio of 1.6 times.
State Bank of India (SBI) has temporarily upped the ceiling for non-home cash withdrawal for self and also enabled non-home cash withdrawal by third-parties at its branches so that customers don’t have to travel far to meet their urgent cash requirements amid the raging Covid-19 pandemic.
India’s largest bank has doubled cash withdrawal for self (using cheque) to Rs 1 lakh per day.
Cash withdrawal for self (using withdrawal form) accompanied by Savings Bank Passbook has been upped five times to Rs 25,000 per day.
Cash withdrawal by a third party, which was not allowed earlier, has been pegged at Rs 50,000 per day (using cheque only).
Home branch is a branch where the customer’s account is maintained. Branches other than their home branch are called non-home branches.
The above mentioned revision in ceilings for non-home transactions for ‘Personal’ segment customers is available up to September-end 2021. The move could prompt other banks to follow suit, to help customers transact at the nearest branch in case of an emergency.
SBI has disallowed cash payment to third parties via withdrawal forms. Branches would verify Know-Your-Customer (KYC) document(s) of the third party and preserve them along with the instruments.
State Bank of India has reported an 80 per cent year-on-year rise in net profit to Rs 6,450.75 crore for the March ending quarter.
The bank’s provisions and contingencies fell to Rs 11,051 crore fro the final quarter of the last financial year as against Rs 13,495.1 crore it reported in Q4FY20.
The bank also declared a dividend of Rs 4 per share for the financial year ending March. The bank also saw it’s net interest income soar with a healthy growth of 19 per cent to Rs 27, 067 crore.
Asset quality improvement was also seen as GNPAs stood at 4.98% from 5.44 per cent in December’20 ending quarter. The bank’s net NPA ratio improved to 1.5 per cent in the March quarter as compared to 1.81 per cent in three months to December 31.
The bank’s provision coverage ratio has improved to 87.75% up 413 bps year-on-year and the slippages ratio for FY21 has declined to 1.18% from 2.16% as at the end of FY20.
The credit cost at the end of FY21 has declined by 75 bps year-on-year to 1.12% and the cost-to-income ratio has marginally increased from 52.46% in FY20 to 53.60% in FY21.
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State Bank of India’s (SBI) Chairman Dinesh Khara talked about loans for SMEs, Covid-19 resurgence, and RBI’s relief measures of 5 May 2021 in a press conference on May 30, 2021.