PSBs may seek more tangible collateral from promoters seeking credit
From Economic Times
NEW DELHI: With rising concerns over bad loans, promoters seeking credit from state-run banks may now have to provide for more tangible collateral than personal guarantee or share conversion clause. The initiative is part of a mechanism to strengthen credit sanctioning that the public sector banks are adopting in consultation with the finance ministry, a senior official familiar with the development told ET.
"There are no directives. All these steps are to be taken by the banks themselves," said a finance ministry official, adding that some of these checks and balances will be put in place as envisaged under a joint lending mechanism involving a consortium of banks.
These steps will be followed mostly in cases of large accounts or consortium-led lending, said a state-run bank's chairman, who did not wish to be named. "Individually banks will have the discretion to take personal guarantee or share conversion clause in the event of default," the chairman said.
In case of a large exposure, the banks will also monitor the performance of the company bi-annually to strengthen financial discipline in operations and management of the group. Besides, the banks will ask the promoters to include eminent personalities in their board of directors to instil confidence among the investors.
"Some of these steps will ensure that there is greater accountability. In fact, the central bankBSE -2.04 % has also made a case for more stringent measures," said the finance ministry official quoted earlier.
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According to RBI, the net NPA (non-performing assets) ratio of PSBs stood at 1.53% in 2011-12 against 1.09% in 2010-11, an increase of 44 basis points.
The net NPA ratio of private banks, however, decreased by 10 basis points over the same period to 0.46% from 0.56%.
In September, a RBI working group on restructuring of advances had noted in its report that banks are being burdened with shares or preference shares of non-viable companies as a result of restructuring of their debt. The group had observed that in a few cases of restructuring unreasonable losses were allocated to the lenders as a result of conversion of debt into equity shares at a very high premium over the prevailing market price.
It had suggested that RBI may prescribe conversion of debt into equity shares on restructuring cannot take place at off-market rates or at a price higher than the latest available market price. It also recommended a ceiling or restriction on conversion of debt into zero or very low interest preference shares.
http://economictimes.indiatimes.com/news/economy/policy/psbs-may-seek-more-tangible-collateral-from-promoters-seeking-credit/articleshow/17187818.cms
| Monitor end-use of subsidised crop loans, banks told | |||
| BusinessStandard Reporter / Mumbai Nov 10, 2012, 00:03 IST The Reserve Bank of India (RBI) said banks have failed to ensure the end-use of funds disbursed as crop loans and some borrowers were diverting such loans for other purposes. RBI has asked banks to strictly monitor end-use of short-term crop loans under the interest subvention scheme and make sure these are not used for any other purpose. RBI cautioned banks that crop loans not meeting this criteria will not be considered as agricultural loans. The central bank also asked banks to ensure that the borrower is a farmer and the rate of interest charged did not exceed seven per cent. The interest rate is stipulated by the government and it gives the subvention of three per cent on timely payment by farmers, thereby effectively making the interest rate at four per cent. The banking regulator further said that there have been reports of borrowers of cheap crop loans diverting the funds for other purposes such as investing in fixed deposits and other investment avenues that accrue higher interest rates. According to banking sources, the interest rate arbitrage is prevalent particularly in Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. http://www.business-standard.com/india/news/monitor-end-usesubsidised-crop-loans-banks-told/492241/
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Despite sluggish credit growth, most banks are cautious about growing their unsecured loan portfolio.
With memories of the bitter experience faced by the banking industry in 2008, most Indian banks prefer going for the safest bet — the Home loans market — to grow the unsecured loan portfolio.
For unsecured loans, they prefer catering to the needs of existing customers, which is comparatively less risky.
“The home loans market is the largest market and the safest business,” said Jairam Sridharan, senior vice-president and head — consumer lending and payments, Axis Bank. Sridharan said, “At Axis Bank, we are interested in unsecured business and doing it. But we are focused almost exclusively on our internal base of customers.”
| THE CAUTIOUS WAY TO RETAIL CREDIT GROWTH |
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Sridharan added it is easy for banks to do due diligence on their existing clients.
“Banks like Axis have a large customer base and we know a lot about our customers who have accounts with us. We know their cash inflows and outflows. If I can get business growth by satisfying the needs of these customers, there is no reason for us to go out and look for (new) business,” said Sridharan.
Another bank, Dena Bank, is equally cautious in putting emphasis on retail growth in order to make up for sluggish corporate credit demand. According to Nupur Mitra, chairman and managing director, home loans are secure assets.
At the same time, the bank is wary of pushing hard consumer loans, as there may be defaults due to job losses, especially at a time when the economy is showing signs of stress. As on September 30, Dena Bank’s retail advances are Rs 7,485 crore in the total loan book of Rs 59,406 crore.
Similarly, IDBI Bank does not want to have much exposure in unsecured loans.
“Even if we give unsecured loans, we would prefer giving it to our bank customers. Just because credit growth is not picking up does not mean we will give money to anyone,” said R K Bansal, executive director (retail), IDBI Bank.
However, foreign banks are a lot more aggressive in growing the unsecured loan book, and they are also targeting customers who do not have an existing banking relationship with them.
“The unsecured loans product works best when you know the customers well. It is not about a crisis, this product will remain a risky product even in normal economic cycles. Foreign banks are targeting outsiders because they know how to price these products and they also have that risk appetite,” said Vaibhav Agrawal, vice-president (research), Angel Broking.
(Reuters) - Indian banks need to strengthen monitoring of bad loans and also raise capital for the implementation of Basel III guidelines, the RBI said in a report released on Thursday.
Indian banks' net bad loans as a percentage of their advances rose to 1.4 percent in the year ended March 2012, from 1.1 percent in the year-earlier period, with state-run banks posting higher defaults as compared to their private peers, the report said.
"The slippage ratio of the banking system, which showed a declining trend during 2005-08, increased during 2008-12," the Reserve Bank of India said in its annual report on 'Trend and Progress of Banking in India in 2011-12'.
The RBI, in its quarterly review of the monetary policy last month, expressed concern over the significant rise in bad loans and cited lack of transparency in information sharing as a major reason for the defaults.
Further, in the trend and progress report, the central bank said banks will need to raise more capital for meeting higher capital standards, stricter liquidity and leverage ratios and adopt a more cautious approach to risk under Basel III rules.
The RBI estimates that banks will need 1.4-1.5 trillion rupees of common equity to comply with Basel III norms.
http://in.reuters.com/article/2012/11/08/india-economy-badloans-rbi-idINDEE8A709220121108
State-run, foreign banks hit by bad loans: RBI
Press Trust of India | Updated On: November 11, 2012 19:36 (IST)
State-run banks and foreign banks were hit by bad loans as their non-performing assets rose, says the Reserve Bank.
Led by state-run banks and foreign lenders, "the asset quality of the banking system deteriorated significantly in FY12 after a period of sustained improvement," says RBI report on 'Trend and Progress of Banking in 2011-12' released over the weekend. Non-performing assets of public sector banks rose to Rs. 1,11,664 crore in 2012 from Rs. 52,807 crore in 2003, data from the Reserve Bank of India showed. The non-performing assets (NPAs) of country's bank SBI and its associates in 2012 (as of March 31) were at Rs. 45,695 crore from Rs.16,958 crore in 2003, while that of nationalized banks' were at Rs.65,969 crore versus Rs. 35,849 crore. Though the report states that there is no systemic risk to the banking system as the fundamentals are robust, the Reserve Bank says the banking system is weaker because of rising bad loans as growth has fallen below potential and companies are reeling under obstacles to project clearances. "Inadequate credit appraisal during the boom period of 2003-07, coupled with the adverse economic situation in the domestic as well as the external fronts, have resulted in the current increase in NPAs," says the report. The fall in asset quality was more visible among public sector banks, which saw their bad loans rise on both priority and non-priority loans. In FY12, gross NPAs of state-run banks rose to 3.3 per cent, higher than the 3.1 per cent at the system-level. Foreign banks also saw a rise in NPAs, but the report did not specify how much was their NPA level. According to the report, state-run and foreign lenders' recovery performance was better than their private sector counterparts which relied more on write-offs than recovery. The report said among banks, new private sector lenders relied more on writing off NPAs as a measure to contain their NPA levels. Loans worth Rs. 1,800 crore were written off by new private sector banks in FY12, it added. To strengthen the NPA management framework of the banks, the RBI its in 2012-13 Monetary Policy has advised the banks to put in place a robust mechanism for early detection of signs of distress, and implement measures to preserve the economic value of assets. To arrest the steep rise in bad loans, the RBI in the report has directed banks to share information on credit exposure among themselves on real-time basis, and warned of punitive measures in case of failures, including penalties. The directive comes at a time when banks are seeing a surge in corporate debt restructuring cases and bad loans. The RBI on October 30 had asked banks to set aside more money for every standard restructured loan - from 2 per cent in the past to 2.75 per cent. So far in 2012, the number of loan recasts rose to 101 cases, according to information available with the CDR cell. The CDR cases include the Rs. 31,000 crore of Air India and Rs. 1.9 lakh crore of state-run discoms. Till September, banks restructured loans worth Rs. 2.5 lakh crore, out of which as much Rs. 1.6 lakh crore worth loans were restructured under the corporate debt restructuring (CDR) scheme. The number of CDR cases since the beginning of this year crossed the century-mark as on September 30, involving a collective debt amount of close to Rs. 64,000 crore, as per the data available with the CDR cell of bankers. Besides, 51 more cases, worth Rs. 45,000 crore, have been approved for recast at the end of September quarter. The CDR cell was set in 2001 to help corporates facing financial difficulties due to "factors beyond their control and due to certain internal reasons." As per the latest data available with the CDR cell, a total of 466 cases, involving total debt of Rs. 2.46 lakh crore, have been referred to it since its inception. During the first half of the fiscal, as many as 74 cases worth about Rs.40,000 crore were referred to the CDR cell-the highest ever so far. In the entire last fiscal, there were 87 CDR cases with an aggregate debt of about Rs. 68,000 crore referred for CDR. | ||||||||||||
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