As bad loans rise, banks seek first right over defaulting borrowers’ assets
Currently, tax authorities get priority; banks want Govt to amend recovery laws
MUMBAI, APRIL 4:
Rising bad loans have prompted banks to seek amendments to recovery laws. They want priority over Central and State tax authorities in pressing their claims on defaulting borrowers’ collateral.
In this regard, banks have moved the Government seeking amendments to the two recovery laws — the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), 2002, and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act).
In 2011-12, the provisions of the Customs Act, the Central Excise Act and the Finance Act, 1994 (relating to service tax) were amended to provide statutory first charge on the assets of any person for recovery of tax arrears, subject to the provisions of the two recovery laws.
Although the provisions of the abovementioned Acts recognise the rights of the lenders to recover defaulted loans, there are no specific statutory provisions in them giving priority to their claims over taxation dues.
As a result, claims of the Central and State tax authorities have been getting priority over the claims of banks and financial institutions.
Bankers say there are many instances when the revenue authorities have shown up to press their claims for recovery of tax arrears immediately after the recovery process through sale of assets has been completed.
According to M. R. Umarji, Chief Legal Advisor, Indian Banks’ Association, promoters’ of business create assets — plant and machinery, land and building — from loans given by banks and financial institutions. So, the lenders are justified in getting priority when it comes to recovery of dues from defaulting borrowers.
Amendments to the two recovery laws will solve the problem of risk aversion that has set in among lenders due to rising bad loans, said Umarji.
Priority for the claims of the Central and State tax authorities results in uncertainty as to recoverable debt of the secured loans granted by lenders.
ASSET QUALITY
The asset or loan quality of banks has seen considerable deterioration during the half year ended September 2012.
According to Reserve Bank of India’s financial stability report, the gross non-performing advances (GNPA) ratio for all banks rose sharply to 3.6 per cent as at end-September 2012 from 2.9 per cent as at end-March 2012.
Among the bank groups, public sector banks witnessed a high degree of deterioration in asset quality.
The report said macro stress-test of sectoral credit risk revealed that among the selected seven sectors, agriculture is expected to register highest NPA at 5.8 per cent by March 2013, followed by engineering, iron and steel and construction.
Bankers press for 50-bp CRR cut in May 3 policy review--Business Standard
Tell Reserve Bank of India brass this will help them reduce lending rates
Heads of banks requested the Reserve Bank of India (RBI) on Thursday to lower their cash reserve ratio (CRR) by 50 basis points (bps) in its annual policy review scheduled on May 3.
This, they argued, would help them reduce lending rates. CRR is the proportion of deposits a bank needs to park with RBI as cash; it is presently four per cent. Banks do not earn any interest for their CRR balance with RBI.
RBI has reduced CRR by 200 bps since January 2012, to ease liquidity. This was tight in March but has now eased to a level the central bank finds comfortable.
“We have been seeking for some relief in CRR,” S S Mundra, chairman and managing director, Bank of Baroda, told reporters after the meeting. Some bankers have also made a case for further reduction in the repo rate (at which RBI lends to banks), now 7.5 per cent. RBI had reduced this by 25 bps each in January and March. Apart from Mundra, chief executives of State Bank of India, Bank of India, ICICI Bank and IndusInd Bank were present. RBI Governor D Subbarao attended, with the four deputy governors.
According to bankers, the sluggish growth in deposits were also discussed. “Deposit growth is slightly lower than the RBI expectation, probably because of tight liquidity conditions. The expectation is with liquidity becoming easier, it (deposit growth) should improve,” said Mundra.
Deposit growth has been lagging credit growth for two years, raising concern on widening of the asset-liability gap of banks.
However, in the fortnight ended March 22, banks garnered Rs 91,000 crore, which helped deposits to grow by 14.25 per cent over a year.
According to RBI data, credit disbursement was Rs 82,000 crore during the fortnight, growth of 14.1 per cent year-on-year. The central bank had projected 16 per cent growth in credit and 15 per cent growth in deposits for the financial year 2012-13.
According to a Bank of America Merrill Lynch report, loan growth in the current financial year (2013-13, which began on Monday) is set to fall below 13 per cent, though home loan growth will help to grow banks’ retail portfolio by 16 per cent.
Bankers at the meet said RBI reviewed 2012-13 in terms of growth of deposits and credit. RBI also got feedback related to other issues such as asset quality and stalled projects. Bankers pointed to the lack of a pipeline in new projects and of stalled projects due to various issues.
This, they argued, would help them reduce lending rates. CRR is the proportion of deposits a bank needs to park with RBI as cash; it is presently four per cent. Banks do not earn any interest for their CRR balance with RBI.
RBI has reduced CRR by 200 bps since January 2012, to ease liquidity. This was tight in March but has now eased to a level the central bank finds comfortable.
“We have been seeking for some relief in CRR,” S S Mundra, chairman and managing director, Bank of Baroda, told reporters after the meeting. Some bankers have also made a case for further reduction in the repo rate (at which RBI lends to banks), now 7.5 per cent. RBI had reduced this by 25 bps each in January and March. Apart from Mundra, chief executives of State Bank of India, Bank of India, ICICI Bank and IndusInd Bank were present. RBI Governor D Subbarao attended, with the four deputy governors.
According to bankers, the sluggish growth in deposits were also discussed. “Deposit growth is slightly lower than the RBI expectation, probably because of tight liquidity conditions. The expectation is with liquidity becoming easier, it (deposit growth) should improve,” said Mundra.
Deposit growth has been lagging credit growth for two years, raising concern on widening of the asset-liability gap of banks.
However, in the fortnight ended March 22, banks garnered Rs 91,000 crore, which helped deposits to grow by 14.25 per cent over a year.
According to RBI data, credit disbursement was Rs 82,000 crore during the fortnight, growth of 14.1 per cent year-on-year. The central bank had projected 16 per cent growth in credit and 15 per cent growth in deposits for the financial year 2012-13.
According to a Bank of America Merrill Lynch report, loan growth in the current financial year (2013-13, which began on Monday) is set to fall below 13 per cent, though home loan growth will help to grow banks’ retail portfolio by 16 per cent.
Bankers at the meet said RBI reviewed 2012-13 in terms of growth of deposits and credit. RBI also got feedback related to other issues such as asset quality and stalled projects. Bankers pointed to the lack of a pipeline in new projects and of stalled projects due to various issues.
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