Name & shame: Banks can publish photos of wilful defaulters, says SC-Financial Express 18th July 2014
In a move that may discourage firms from defaulting on bank loans, the Supreme Court has allowed lenders to publish names and photographs of wilful defaulters in newspapers in the larger public interest. The apex court said that the decision to resort to this measure would be taken by officers of the rank of general managers and above.
By giving the ruling on the matter, a bench headed by justice Fakkir Mohamed Ibrahim Kalifulla upheld the Bombay High Court’s November 2013 order that allowed State Bank of India (SBI) to publish names and photographs of directors and guarantors of Mumbai-based defaulter firm DJ Exim (India) in newspapers on the grounds that Rule 8 framed under the Securitisation Act specifically authorised the banks to publish the names and addresses of wilful defaulters and there is also no legal bar that prohibits them from publishing such information. The SC accepted the bank’s stand that the move does not violate the defaulter’s right to privacy as the same is not absolute. From the bank’s point of view, the duty to maintain secrecy is superseded by a larger public interest as well as by the bank’s own interest under certain circumstances, it held.
In the past, while the Bombay, Madras and Madhya Pradesh HCs had allowed banks to publish the names and photographs of defaulters, the Calcutta and Kerala HCs held such moves as unconstitutional and impermissible in law while ruling on some cases.
In the matter under review, DJ Exim had failed to pay SBI more than Rs 53.18 crore with interest despite repeated requests. The bank in October last year warned the company that if it failed to pay, names and photographs of its directors and guarantors would be published in national newspapers and action would be taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
The company moved the high court stating that the SBI letter was highly coercive in nature and no rule permitted banks to publish photos to embarrass the defaulters.
United Bank to 'name and shame' wilful defaulters: Deepak Narang
State-owned United Bank of India will soon embark upon process to 'name and shame' its wilful defaulters as part of its effort to recover dues.
"Since the Supreme court has recently permitted banks to name and shame wilful defaulters. Now the bank would initiate process," United Bank of India executive director Deepak Narang told PTI.
As part of this, the bank will publish photographs of defaulters and other details in newspapers and at notice boards of bank branches.
Kolkata-based lender was the first PSU lender to initiate the process of declaring Vijay Mallya and three other directors on the grounded Kingfisher Airlines as wilful defaulter.
However, Kingfisher Airlines approached the Kolkata High Court seeking permission of being represented by a lawyer in the proceedings of the Grievance Redressal Commission of the bank.
Hearing on the matter before the division bench of the Kolkata High Court is scheduled on July 21.
Earlier on July 10, Justice Dipankar Dutta of the High Court rejected Kingfisher Airlines' plea to send an external legal practitioner to appear before the grievance redressal committee.
The bank had served a notice, asking Mallya and three other directors of Kingfisher Airlines to appear before its grievance panel on July 9.
If declared a wilful defaulter, the person would not be able to borrow in future and lose director-level positions in companies.
The bank's exposure to Kingfisher Airlines was around Rs 350 crore as part of consortium lead by State Bank of India. Outside consortium, the bank gave about Rs 60 crore loan for Pre-Delivery Payment.
The consortium of 17 banks, led by SBI, has an outstanding debt of about Rs 4,022 crore from the now-grounded carrier.
As part of the recovery process, banks in February last year decided to sell a portion of the collateral with them, including shares of group companies United Spirits Ltd and Mangalore Chemicals & Fertilizers Ltd, Mallya's Goa villa, Kingfisher House in Mumbai and the Kingfisher brand, which was valued at over Rs 4,000 crore at the time it was pledged.
NEW DELHI: CBI has unearthed a Rs 250 crore scam in public sector Dena BankBSE -1.45 % wherein the branch manager and a private person allegedly took loan using forged documents on behalf of seven private companies which had deposits in the bank.
CBI alleged that Vimal Barot of Showman Group in Mumbai in connivance with then Branch Manager Pritam Vidyadhar Nagarkar and unknown private persons of seven corporate groups committed fraud of Rs 220 crore with the bank.
Sources said it Barot allegedly presented himself as a representative of the bank before the corporate group targetted by him while before the bank he would switch role to be financial advisor of the group.
Using the tactics, Barot in collusion with Nagarkar, who was posted at Malabar Hills branch, facilitated the Dena Bank to mobilise term deposits to the tune of Rs 256.49 crore from these corporate groups.
"On the basis of these term deposits, various loan applications purportedly issued by these these organisations and corporates, he, in crimrinal conspiracy wih the Branch Manager availed loan of Rs 220 crore from the Bank," CBI spokesperson said here today.
She said the accused was allegedly instrumental in raising loan against term deposits from Dena Bank and diverted the proceeds for his own purpose.
"The above facts disclosed the commission of cognisance offences of criminal conspiracy, impersonation, cheating, forgery and abuse of official position by the above said accused persons," she said.
The agency carried out searches at three places in Mumbai at the residential and official premises of the accused.
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Business Line / Mumbai / July 15:
State Bank of India has cut the interest rate on bulk and retail term deposits by up to 50 basis points on short-term deposits of less than one-year duration.
In the case of retail deposits, India’s largest bank has cut the interest rate by 50 basis points to 7 per cent (from 7.5 per cent) on term deposit in the 7 to 179 days maturity bucket. It has kept interest rates on all other maturity buckets unchanged.
In the case of bulk deposits, SBI has cut the interest rate by 25 basis points each on term deposits in two maturity buckets — 7 to 60 days (to 6.25 per cent) and 61 days to less than 1 year (to 6.75 per cent). Interest rate on bulk term deposits all other maturity buckets remain unchanged.
The new deposit rates are with effect from July 18.
2. Tata Comm hopes new services will boost White Label ATM business
Business Line / Mumbai / July 15:
ATM outsourcing service provider, Tata Communications Payment Solutions, plans to provide value-added services to make White Label ATMs (WLAs) more viable.
The company has set up over 1,500 WLAs since June last year. WLAs are ATMs set up and operated by non-banking entities.
“We are witnessing better transactions than estimated. In some instances, they are similar to bank ATMs. Our strong focus on the right locations and innovative ways of deployment, such as neighbourhood formats, kirana stores and Porta Cabins ensures that the ATM rollout, especially in deeper geographies, is viable to operate,” said Sanjeev Patel, CEO, Tata Communications Payment Solutions Ltd (TCPSL).
A wholly owned subsidiary of Tata Communications, TCPSL plans to set up 15,000 WLAs by 2016 as mandated by the RBI.
The card-issuing bank pays a WLA provider an average industry interchange rate of ₹15 per cash transaction and ₹5 for balance inquiry for extending ATM service to its customers.
However, with lower volumes and the number of transactions in Tier-III to Tier VI cities, the economic viability of WLAs is under threat.
According to Patel, it takes anywhere between ₹20,000 to ₹50,000 to set up a WLA in such cities and they break-even under a year.
“We operate at a low cost with cheap rentals, open at kirana shops, and rely on advertisements to run a low-cost ATM. The average number of transactions depends on the location,” he said.
“There needs to be more interchange making it viable for both public and private sector banks. It has to be ensured there is sufficient money in the system to make it sustainable…Hence, we need more card holders, provide value-added services such as account to account transfers and pre-paid card top-ups….Acceptance of larger range of cards is also being discussed by the RBI,” Patel said.
Cardless transactions
Pilots are on to offer Cardless transactions, bill payments and statement requests. Companies are also increasing their revenues by selling advertisements to brands to make the business economically viable.
The company installed its first set of WLAs in partnership with Federal Bank and Axis Bank, and is in the process of adding one more sponsor bank soon, Patel said.
A sponsor bank manages cash for the operators assuring quality of cash.
Apart from Tata Communications Payments Solutions, six other companies authorised by the RBI to operate WLAs are: Muthoot Finance, Prizm Payments, Vakrangee, BTI Payments, SREI Infrastructure Finance and Ridhhi Siddhi Bullion Ltd which were authorised in May this year.
3. Opening of new DRTs alone will not speed up bad loan recovery’
Business Line / Chennai / July 15:
The banking sector was expecting a huge relief on the bad loans front from the Budget. But all it got was an earnest acknowledgement of the growing bad loan menace and the setting up of six new Debt Recovery Tribunals (DRTs).
But the opening of new DRTs alone cannot help speed up the recovery of bad loans, given the existing issues and delays in the functioning of the DRTs.
Judicial interventions that cause delays in the recovery process of Asset Reconstruction Companies (ARCs) must be addressed first.
“At present, there are 33 DRTs in the country. While the opening of an additional six is a welcome move, this alone will not help,” says P Rudran, Managing Director and CEO, Asset Reconstruction Company of India (ARCIL), the first ARC set up to buy distressed assets from banks.
ARCs were set up under the SARFAESI Act to enable faster recovery without the intervention of the court, as the Debt Tribunal or civil courts present earlier were not very effective and fast. But in reality, judicial interventions and the inefficacy of DRTs have prevented a speedy recovery.
60-day notice
ARCs, when set up, had the right to send a 60-day notice to the borrower asking him to pay the dues, failing which ARCs could take possession of the mortgaged assets. If the borrower had an objection he could go to the DRT or the High Court. The DRT was then supposed to adjudicate the matter within 180 days.
“But currently these cases take a long time and sometimes even years to decide, says Rudran. The court decisions too are unpredictable which causes the delay in the recovery process.”
Most of the times instead of adjudicating the matter, courts issue a stay order which delays the process further.
“Many of the smaller courts are also issuing stay orders against SARFAESI action. If they must issue a stay order, the least they can do is to ask borrowers to pay minimum 75 per cent of the dues as deposit. At present, some DRTs ask for a deposit of a modest 10-15 per cent and in some cases even ex parte stay is granted without any deposit being insisted upon,” Rudran adds.
The opening of new DRTs is secondary. First, the existing ones need to be adequately staffed. Many of the DRTs do not have a presiding officer or recovery officer. “In Mumbai’s Debt Recovery Appellate Tribunal (DRAT), for instance, there was no presiding officer. The officer who presides over the Calcutta DRAT was looking after the Mumbai DRAT. Only recently a presiding officer was appointed in Mumbai DRAT,” he adds.
4. RBI tweaks definition of affordable housing
Business Line / Mumbai / July 15:
In a bid to boost the housing sector, the Reserve Bank of India on Tuesday said home loans up to ₹50 lakh in metros and ₹40 lakh in non-metros, given by banks from the proceeds of long-term bonds (of minimum seven years maturity) will qualify as affordable housing loans.
Under the current regulatory regime, loans given by banks to individuals — up to ₹25 lakh in metros and ₹15 lakh in non-metros — for purchase/construction of a dwelling unit, per family, are considered as affordable housing loans. These loans fall under the priority sector lending category for banks.
The treasury head of a public sector bank said that “interest rates could come down on affordable loans given out of the proceeds of long-term bonds”.
While tweaking the affordable housing definition, the RBI said the cost of a house cannot exceed ₹65 lakh and ₹50 lakh in the metros and non-metros, respectively. There are six metros in the country: Mumbai, Chennai, Kolkata, Delhi, Hyderabad and Bangalore.
Periodic review
The RBI said that it will periodically review the definition of affordable housing, on account of inflation.
To give a further boost to lending for affordable housing, the RBI also exempted the money raised through these long-term bonds from Cash Reserve Ratio and Statutory Liquidity Ratio requirements.
This means that banks will be able to commit the entire corpus of funds raised through the issue of such bonds for the purpose of affordable housing.
Long-term bonds can be issued with a fixed or floating rate of interest. The floating rate of interest will be linked to market determined benchmark rates.
RBI tweaks definition of affordable housing
Business Line / Mumbai / July 15:
In a bid to boost the housing sector, the Reserve Bank of India on Tuesday said home loans up to ₹50 lakh in metros and ₹40 lakh in non-metros, given by banks from the proceeds of long-term bonds (of minimum seven years maturity) will qualify as affordable housing loans.
Under the current regulatory regime, loans given by banks to individuals — up to ₹25 lakh in metros and ₹15 lakh in non-metros — for purchase/construction of a dwelling unit, per family, are considered as affordable housing loans. These loans fall under the priority sector lending category for banks.
The treasury head of a public sector bank said that “interest rates could come down on affordable loans given out of the proceeds of long-term bonds”.
While tweaking the affordable housing definition, the RBI said the cost of a house cannot exceed ₹65 lakh and ₹50 lakh in the metros and non-metros, respectively. There are six metros in the country: Mumbai, Chennai, Kolkata, Delhi, Hyderabad and Bangalore.
Periodic review
The RBI said that it will periodically review the definition of affordable housing, on account of inflation.
To give a further boost to lending for affordable housing, the RBI also exempted the money raised through these long-term bonds from Cash Reserve Ratio and Statutory Liquidity Ratio requirements.
This means that banks will be able to commit the entire corpus of funds raised through the issue of such bonds for the purpose of affordable housing.
Long-term bonds can be issued with a fixed or floating rate of interest. The floating rate of interest will be linked to market determined benchmark rates.
5. Canara Bank offers one time settlement to DCHL
Business Line / Hyderabad / July 15:
Canara Bank is in pursuit of recovery its Rs 350 crore in dues from Deccan Chronicle Holdings (DCHL), including the possibility of one-time settlement (OTS) with the promoters.
Speaking on the sidelines of the FICCI Finsec 2014, a financial sector conclave organised by FICCI, RK Dubey, Chairman and Managing Director of Canara Bank, said, “We had filed civil and criminal cases against DCHL as they have committed a fraud. The case was referred to CBI which has started the investigation process. Cannot comment on the status now as the investigation is yet to be completed,'' he said.
“The promoters had approached us to restructure the loans through a CDR package as they have become defaulters. We told them it was not possible and asked them to opt for OTS (one time settlement or to Arcil. But selling assets to Arcil will require RBI approval. But we are keeping all options open to recover our dues,'' he said.
“The promoters of DCHL are yet to come back to the bank on these issues. Of the Rs 350 crore loan, part of it is covered, and the rest not covered,” he said.
There are several cases against the DCHL in various locations, including winding up petition and CBI is probing from other angles.
Answering queries, he said, “The loan is partially secured because there are securities that have multiple charges to various institutions. Hence, there is a fraud committed by them on the banks. Since we cannot identify a particular security for attachment, it is for the courts to take a call on these securities,” he said.
6. Jayarama Bhat completes 5 years as Karnataka Bank MD
Business Line / Mangalore / July 15:
P Jayarama Bhat has completed five years of as Managing Director of Karnataka Bank Ltd, according a press statement here.
It said that Bhat, who assumed office on July 14, 2009, completed five years as Managing Director of the bank on Tuesday.
It said that the bank has shown an all round growth during last five years under his leadership. The business turnover of the bank increased to ₹70,300 crore from ₹32,000 crore as on July 2009.
It said that the net worth of the bank increased to ₹3,052 crore from ₹1,567 crore. The bank added 746 outlets – that includes161 branches, 544 ATMs, 41 ultra-small branches -- during last five years. The bank has planned to achieve business turnover of ₹83,000 crore and to expand total outlets to 1,741 by the end of March.
The bank is also planning to establish e-lobby 24X7 banking services shortly, the statement added.
7. FinMin might split CMD post in govt-run banks
Business Standard / New Delhi / July 16
Sandhu says proposal likely to be cleared quickly
The finance ministry is considering splitting the post of chairman and managing director at public sector banks (PSBs), as well as fixed five-year tenures for these posts. These are part of the government’s measures towards providing greater autonomy to PSBs.
“There is a proposal under consideration — we could have separate persons as chairman and managing director, as we have in the case of State Bank of India (SBI). This will help improve governance at PSBs,” said Financial Services Secretary G S Sandhu. He added he was hopeful the proposal would be cleared quickly, as the Financial Stability Development Council, headed by the finance minister, had also recommended this.
At private banks, the posts of chairmen and managing directors are separate. Among government banks, only SBI has one chairman and four managing directors.
“Going by the Companies Act, chairmen and managing directors have different functions. A managing director has powers on the board, as well as executive powers. He is recognised as a person in control. Usually, the post of chairman is a ceremonial one, where a director presides as the head of the board. The government is probably realising there is a lot of pressure on managing directors. This may be an administrative streamlining to get managing directors to concentrate on executive activities,” said Jeet Sengupta, partner, Economic Laws Practice.
In his Budget speech, Finance Minister Arun Jaitley had said the government would examine a proposal to provide greater autonomy to PSBs, while making them accountable. The ministry will also review the criteria for appointing directors and non-official directors to the boards of PSBs.
“We are looking at a five-year timeframe for chairmen and managing directors so that they can be more accountable. When you have a longer timeframe, you can do better, understand the system and the bank better, play a better role, and, at the same time, be accountable. We will also look at other management issues,” Sandhu told Business Standard.
As the retirement age for all public sector executives is 60 years, the term of a chairman and managing director typically varies between a year and five years. A concern in offering five-year terms to bank chiefs is heads of public sector undertakings in other sectors would also seek fixed tenures.
The P J Nayak committee, set up by the Reserve Bank of India to review governance of bank boards, had also given these suggestions. RBI had proposed to the finance ministry to bifurcate the post of chairman and managing director at PSBs, arguing as of now, those appointed to such posts enjoyed absolute powers.
The ministry is also considering the panel’s recommendation of bank consolidation. However, it hasn’t agreed to the committee’s suggestion of diluting government equity in PSBs to less than 51 per cent.
8. RBI eases reserve norms for banks issuing infra bonds
The Hindu / July 16, 2014
The Reserve Bank of India, in order to encourage infrastructure development and affordable housing, on Tuesday, exempted long-term bonds from the mandatory regulatory norms such as the Cash Reserve Ratio (CRR), the Statutory Liquidity Ratio (SLR) and Priority Sector Lending (PSL) if the money raised is used for funding of such projects.
“Banks can issue long-term bonds with a minimum maturity of seven years to raise resources for lending to (i) long-term projects in infrastructure sub-sectors, and (ii) affordable housing,” the RBI said.
The RBI said that apart from what is technically defined as infrastructure, affordable housing is another segment of the economy which requires long-term funding.
The central bank said it intends to “ease the way for banks to raise long term resources to finance their long term loans to infrastructure as well as affordable housing.’’
The instructions are in pursuance of Finance Minister Arun Jaitley’s budget speech in which he had said “banks will be encouraged to extend long term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies, sometimes known as the 5/25 structure.’’
5/25 structure
Under the 5/25 structure, bank may fix longer amortization period for loans to projects in infrastructure and core industries sectors, say 25 years, with periodic refinancing, say every five years.
The RBI issued instructions to banks specifying operational guidelines and incentives in the form of flexibility in loan structuring and refinancing.
It granted exemptions from regulatory pre-emptions, such as, the CRR, the SLR and Priority Sector Lending (PSL).
As per RBI regulations, banks are required to keep a portion of deposits as CRR with the central bank and park certain portion in government securities known as SLR.
Mitigating ALM problems
“The objective of these instructions is to mitigate the Asset-Liability Management (ALM) problems faced by banks in extending project loans to infrastructure and core industries sectors, and also to ease the raising of long term resources for project loans to infrastructure and affordable housing sectors” it said.
Banks have been seeking permission for longer tenor amortization of the loan, say 25 years, with periodic refinancing of balance debt, the RBI said.
It further said rupee denominated bonds should be issued in ‘plain vanilla form’ without call or put option with a fixed or floating rate of interest.
Lending for affordable housing means loans eligible under the priority sector and loans up to Rs.50 lakh to individuals for houses costing up to Rs.65 lakh located in the six metropolitan centres. For other areas, it covers loans of Rs.40 lakh for houses with values up to Rs.50 lakh.
Long gestation period
The RBI said that while banks have been raising resources in a significant way, issuance of long-term bonds for funding loans to infrastructure sector has not picked up at all. Infrastructure and core industries projects are characterised by long gestation periods and large capital investments. The long maturities of such project loans consist of the initial construction period and the economic life of the asset/underlying concession period (usually 25-30 years). India is looking at investing $1 trillion in infrastructure development by 2017, half of which is expected to come from the private sector.
PTI reports from Delhi:
Realtors hail move
Realtors’ body CREDAI, on Tuesday, hailed the RBI’s move to ease norms for banks to raise long-term funds for financing affordable housing, saying this would lead to cheaper credit for such projects.
“It is a welcome step. This will lead to lower interest rates for affordable housing projects,” CREDAI Chairman Lalit Jain said. Another realtors’ body NAREDCO Chairman Navin Rajeja said this would help developers to mobilise cheaper finance for development of affordable housing and will result into cutting in prices of housing in long term.
“It is expected that the home loan rates may also come down because of this move,” Mr. Raheja said. Mr. Jain of Credai demanded that the housing sector should be given the infrastructure status and felt that Pune, Ahmedabad and Lucknow should have figured in the list of metropolitan cities.
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