AIBEA Seeks Action Against Defaulters

AIBEA demands mechanism to deal with

 banking defaulters-Financial Express

The  All India Bank Employees Association (AIBEA) today urged the Centre to come out with an effective mechanism to deal with high volume defaulters, by making wilful default a criminal offence.
"The wilful default of bank loans should be made a criminal offence", AIBEA general secretary, C H Venkatachalam, told reporters here.
"Such defaulters should not be allowed to hold office of public interest or contest in elections", he said, adding that the banking regulator should publish the list of such defaulters, since over Rs 5.65 lakh crore of public funds were locked up as NPAs.

In the name of recovery the banks sold the assets of wilful defaulters and cover up, he said. Instead they can be penalised and put behind bars and highlighted the need for an effecrive mechanism to deal with such defaulters.
Venkatachalam, here to attend the 8th State Conference of Canara Bank Employees Union, stressed the need for an early settlement of the wage talks and said that it remained inconclusive for over two years and the new government in place at the Centre, should resolve it soon.

Highlighting the demands, he said "we will press for early settlement of wages, stress the need to make wilful default of bank loans a criminal offence, publish the list of such corporate defaulters, emphasise the need to lend more to priority sectors like agriculture, education, small and medium businesses and rural development, open branches in unbanked areas, desist privatisation of public sector banks and bring all private banks into public sector fold, oppose bank merger".
"If the RBI or Government fail to pay heed to the demands, the AIBEA will give a call to its members to strike at a short notice", Venkatachalam said.
Link Financial Express


My Opinion And Observation on trend of Loan waiver, compromise, restructure to conceal Non Performing assets----
Since there is no full proof and time bound legal machinery which can ensure recovery of loan from defaulters and since there is pressure for lending, banker think it better to lend and let it become NPA and then go for either evergreening or writing off of loan or sacrificing some amount and then relending . In this way they achieve the target of lending as well as that of recovery and get earl elevation in career. 


But the trend gives alarming signals for existence and future of public sector banks. Some banks have given i.e. delegated huge volume of powers to Branch manager , majority of whom are neither well versed in principles and processing of loan sanction nor they do know how to monitor and safeguard the interest of the bank and nor they know the processes applicable for recovery of dues from defaulters. They think it better to adopt evergreening process to survive and to remain in good book s of their bosses . This is why volume of frauds and stressed assets in banks is going out of control day by day. None can stop until and unless the culture of banking is entirely changed and rejuvenated.


 Banks are taking suicidal steps to reduce load of stressed assets. They are offering heavy discounts to persons who repay the loan. They are ready to write off and sacrifice huge volume of loan to reduce volume of stressed and bad assets . They have given huge power to head of branches to sanction the loan and when loan goes bad , they can compromise with defaulters giving huge discounts. Obviously , banks are first distributing bank's fund as charity in  form of loan and then sacrifice bank loan either by write off or by giving huge discount. Their such steps will prove to be disaster in long run. They are digging grave for them. Culture of repayment will end and people will learn not to repay the dues and wait for loan waiver scheme. 

For last three decades politicians of the country used banks for their political advantage. They advocated loan waiver culture and built pressure on banks to grant loan waiver or came out with loan write off scheme in nexus with RBI and now management of banks are themselves indulged in such suicidal practice. 

Now only God can save these Public Sector banks.Top officials of PS banks are taking such suicidal steps to brighten their own career . But Who has given them right to sacrifice bank's money which is public property. Is there anyone who can stop it?

If you are a banker or an official to regulate and monitor banks  or an auditing or inspecting official or an investor in bank shares ,you should  read the article which appeared recently in Reuters,

There is an established practice in almost all coooperative banks to keep the loan account EVERGREEN. To Illustrate and to make it more clear :   say a bank  disburse a loan of  Rs10000 to a farmer and the account become overdue after a year or two , the same bank sanction a loan of Rs20000 or Rs.30000 which enable farmer to repay first loan and avail only extra loan . In the same way bank use to sanction inflated loan year after year which keeps the account always standard.

During the course  of time , public sector banks have also learnt the art of keeping  the loan account evergreen. They have many tools in their clever brain to keep assets of bank always standard .

First and foremost is the  restructuring or rephasing of loan on flimsy ground and second to give additional loan to repay overdue loan.

If even after such self deceptive acts ,banks fail to keep the account in standard category they feed wrong information in CBS system so that such accounts may not be identified as NON performing asset in the exercise of identification of the system driven NPA.

Then they try to prevail upon team of auditors to help them in hiding bad assets from the balance sheet.

Next better  option is to sell the bad loan to ASSET RECONSTRUCTION COMPANY known as ARCs at discounted rate without caring for loss bank has to suffer and ultimately investor has to suffer by such unhealthy actions.

Lastly they have option to write off the loan or sacrifice major portion of overdue loan which again adversely affects the bottomline of the bank and is indirectly a cheating treatment with investors and employees whose earnings depend on health of bank.

Bankers seldom make efforts to strike at the root cause of rising volume of bad assets.And neither owners of banks have got time to nip in the bud.

Prudent bankers who are apt in art of keeping assets evergreen and standard , who know the art of managing auditors and concerned officials at various offices may only become ED or CMD of a bank .One who preach sermons to others but do not follow, one who can deliver good speech , who can manage boss and keep him happy by hook or by crook may only get the chance in promotion.

In our country none is bothered of real health of the system, real health of the organisation and real welfare of common men ,but everyone is busy is dressing and decorating the outer appearance attractive .And this is the root cause that an institution or a country all of a sudden lands in unmanageable crisis.

 Link reuter

Banks Book Profit By Selling Bad Debts

It is really a mystery that  public sector banks are earning profit by selling their bad assets.A few banks have shown increased profit during last quarters just by selling their bad assets and that too at highly discounted rate.

 

Can anyone enlighten the hidden fact behind such story?

Second pertinent question is _______Is it morally religious to sell the asset at highly discounted rate? 

After all it is public money-------how bank is exonerated for lending to bad borrower, then for not recovering from bad borrowers and finally for selling the public property at half or lesser rate?

First corrupt officers earn in sanction of loan, then in exempting bad borrowers from punitive action and finally earning in sell such bad loan to ARCs called as Asset Reconstruction Companies.

Is there any mechanism to justify the value of selling such bad assets to ARCs?  

Is there any transparent auction process to stop corruption and finally loss to bank staff, investors,and public money.?

There are hardly two or three ARC functional in the country and hence there is all possibility of fixing the price while buying bad loan of any bank.Who will take care of such fraudulent game?

Given below is how bank and ARC play foul game with public money

Suppose a loan of Rs.500 crore given by a Bank ‘ B’ to a Company ‘C’ is treated as Non Performing Assets as on 31.03.2009. Bank stops charging interest on such NPA account as per RBI norms for income recognition. Let us suppose that bank has a prime security of say Rs.500 crores in form of goods, books debts  and plant and machinery and collateral security of say Rs.200 crores in form of landed property or some shares or LIC policies or some other plant and machinery.

Bank makes effort for recovery of loan but fail even after lapse of four years.

As on 31.03.2013 Books of bank accounts shows a debit balance of Rs.500 crore and interest accrued on this for four years is roughly Rs.250 crore. Altogether there bank has to recover Rs.750 crore from the company besides other expenses incurred in legal course of action and manpower lost in this process.

Bank decides to sell this loan to ARC at a discounted price of say  Rs.250 crore in lieu of bad loan and it is mutually agreed upon that the ARC will pay fifty percent of settled amount ( Rs.125 crore ) immediately and rest 50 percent (Rs.125 crore ) in next six years. If we take the net present value of entire recovery it will come to Rs.200 crores.

In books of account bank had to make provision of Rs.500 crores as on 31.03.2013 as because the account is treated as Bad and hence hundred percent provisions are needed. Here it is assumed that bad account is older than 3 years and hence 100% provision is done by the bank. Now in September 2013 the account is sold to ARC and hence bank decides to write off the said loan account from books of account.

In this way bank gets following benefits--

• Volume of NPA is reduced by Rs.500 crore and hence Gross NPA ratio comes down
• Bank get Rs.125 crore by ARC instantly which is treated as Non interest income by the bank and which helps bank in inflating profit.
• Share value of the bank in the market goes up
• But if we look at the above picture bank incurs a net loss of Rs.550 crore (Rs.750 -Rs.200 crores = Rs.550 crore) which is indirectly loss of public money which is bank’s nomenclature called as deposit received from public.

In this way bank claims that it has earned profit whereas it actually scarified Rs.550 crore to make it balance sheet attractive. Though bank gets success in manipulating and fraudulently presenting a rosy picture of the bank’s profitability, bank inculcate a wrong culture of making bad advances and then writing off the same or sacrificing a major portion of the same and thus causing huge loss to public and loss to staff who are unjustifiably denied respectful wage revision.

Here the million dollar question is “When ARC can recover the dues from such bad borrower, why not a state run bank can recover the same?”. After all ARC does not buy any bad loan for incurring a loss but to earn profit only. It is painful and astonishing that ARC gets success in getting favour from same state government and central government and same legal system which in turn help ARC in recovery of dues from recalcitrant and willful defaulter of the bank and which bank failed to recover.

It is worthwhile to mention here that due to casual, ill-motivated, biased and indifferent attitude of top officials of the bank, administrative officials of state machinery and biased and ill-motivated advices of politicians bank has to book loss on each high value bad loans whereas under the same environment is ARC which earn a profit of Rs.550 crore by selling the prime and collateral security of the borrower.

Lastly if taxpayers fail to or willfully avoid payment of Income tax or Service tax, will the government sell their dues to similarly branded ARCs?

Is it not shameful that government will all power invested in it find it impossible to recover the dues form big defaulters but get success in recovering the dues from person like Arvind Kejriwal or Ramdeo or any opponent of Congress Party?

Had the government run banks could entire dues from defaulters, profit of each bank could have been much more than what they booked in the past and they could have enhanced capacity to give higher wage hike to their staff and higher amount of bonus to staff to rejuvenate and to further boost up the morale of bank staff to work more vigorously for their bank

Selling Bad Debts Is Not Cure For Bank's Sickness

Sale of bad debt to ARCs boost bank results, but worries remain-LiveMint-

By Anup Roy & Ashwin Ramarathinam

Taking out problematic accounts help banks post healthy numbers, but analysts caution on fresh slippages ahead

Mumbai: On the face of it, the fiscal fourth-quarter earnings of Indian banks have indicated that the lenders have stopped deterioration in asset quality, as bad loans at most banks fell from the preceding three months, but analysts say the improvement has more to do with banks selling bad debt to asset reconstruction companies (ARCs).

The practice of selling bad debt to asset reconstruction companies and, thus, taking out the problematic accounts from lenders’ books, may have resulted in banks reporting healthier numbers, analysts said.

While they agree asset quality may not deteriorate dramatically from the present levels, they caution that fresh slippages, or good loans turning bad, and restructuring in banks are still high.

Bad debt in the 34 banks that reported their March-quarter earnings so far was at Rs.2.2 trillion, higher than the year-ago level of Rs.1.66 trillion but almost at the same level as it was in the three months ended 31 December. Between December and March, the banking system’s advances grew 5.75%, which means the share of bad debt in total advances fell. Gross bad debt ratio of the 34 banks that reported earnings was 4.32%, compared with 3.27% in the year ago, a Mint analysis of banks showed.

However, the sequential comparison could not be done for all these banks as barring a few, most don’t provide their December-quarter number for advances. For the analysis, the Reserve Bank of India’s (RBI’s) industry number could not be considered as those include foreign banks as well, segregated numbers for which are not readily available.

However, December-quarter numbers for the top 10 banks in terms of loan book, which include public lenders such as State Bank of India (SBI), Bank of Baroda, Punjab National Bank, Bank of India, and private lenders such as ICICI Bank Ltd, HDFC Bank Ltd and Axis Bank Ltd, are available. An analysis of their numbers shows gross bad debt as a percentage of total advances has indeed fallen.

In the March quarter, the gross bad debt ratio of these 10 banks was 3.77% against 3.43% in the year-ago period. However, in the December quarter, the gross bad debt ratio of these banks was at 4.03%.

For seven public sector banks in this list, aggregate gross non-performing assets (NPA) ratio was at 4.3% in the March quarter, compared with 3.84% in the year-ago period and 4.64% in the December quarter.

For the three private banks, which traditionally have much better control over their asset quality, the gross NPA ratios for the fiscal fourth quarter was 1.91%, compared with 1.97% in the year-ago quarter and 1.95% in the third quarter of 2013-14.

At a glance, the numbers may indicate that Indian banks’ March-quarter bad debt situation is better than the December quarter. But that would be a wrong conjecture, warn analysts.

One critical factor missing in these numbers is sale of assets to ARCs. While it is true that banks have always been selling assets to ARCs, the central bank especially nudged banks in the March quarter to sell bad assets to ARCs for better recovery of loans.

When a bank sells assets to ARCs, the bad assets are removed from the bank’s book and the security receipts issued by ARC are booked as investment.

When the ARC recovers the loan and pays the bank, the bank’s profitability increases.

“Unlike the bad debt numbers, write-offs are not that well tracked and even a large write-off from the books evades the eyes of the investors,” pointed out an analyst, adding that this is the first such year where banks have done such aggressive write-offs—finding an escape route in the Reserve Bank’s asset sale rules.

The analyst declined to be named.

In 2013-14, the sale of bad loans to asset restructuring companies jumped to Rs.27,000 crore in 2013-14 against Rs.8,000 crore in 2012-13, a recent Credit Suisse report estimated.

The reason for this aggressive sale of assets was because of the central bank’s provisioning rules, effective 1 April, that made provisions on restructured loans jump to 5% from the 2% earlier.

In a report dated 17 March, news agency Press Trust of India cited a senior SBI official as saying that in the March quarter, the bank planned to sellRs.5,000 crore of its bad assets to ARCs.

PTI cited SBI chairperson Arundhati Bhattacharya as saying that this would be for the “first time” that the bank would be selling NPAs to ARCs.

She did not specify how much the bank was planning to sell.

On Friday, SBI said it wrote off Rs.5,698 crore of bad debt. The bank did not specify how much of these were sold to ARCs, but analysts say most of the write-off must have gone as sales to ARCs.

The write-off was above the Rs.5,077 crore written off in the December quarter and almost equals what it had written off in the whole of 2012-13.

In addition, SBI also reported fresh slippages of Rs.7,947 crore during the quarter, while it restructured Rs.8,090 crore of loans, more than double of its earlier guidance of Rs.3,700 crore.

The situation was the same in almost all public-sector banks in the fiscal fourth quarter. Except for a handful of public banks, including Bank of Baroda, most banks had high slippages on a sequential basis.

Slippages in Bank of Baroda was Rs.1,300 crore, compared with Rs.15,500 crore in the December quarter.

Slippages for Bank of India was at Rs.3,610 crore, more than double its December quarter level of Rs.1,747 crore.

For Punjab National Bank, the slippages in the quarter increased sharply toRs.2,385 crore against Rs.450 crore in the third quarter.

“If you see the slippages number, there is no way to say that PSU (public sector unit) banks are seeing an improvement in their asset quality. The opposite is not far from the truth,” said an analyst with a foreign brokerage house who also did not want to be named.

The heads of banks are not confident that the worst is behind.

The heads of SBI, Bank of Baroda, Bank of India, Punjab National Bank and some private banks have said as long as the economy doesn’t recover, there is no way the bad debt problem could be sorted out

Link LiveMint