Amend laws to speed up recovery of bad bank loans: Association
According to RBI, bad loans worth Rs 1,41,295 crore were written off between 2007 and 2013
MUMBAI, NOV 21:
In the wake of deteriorating asset quality in the banking system, which is hovering at record highs, the Reserve Bank today asked banks to strengthen their due diligence and improve the loan recovery process.
“Banks need to not only follow the various measures put in place by the RBI and the government effectively for resolution and recovery of bad loans but also to strengthen their due diligence, credit appraisal and post sanction loan monitoring systems to minimise and mitigate the problems of increasing non-performing assets (NPAs),” the RBI said in its ‘Trends and progress of banking report 2012—13.’
Gross NPAs as per cent of gross advances for scheduled commercial banks stood at 3.6 per cent as at March 2013 as against 3.1 per cent previous fiscal, the RBI said.
Net NPAs as per cent of net advances for banks stood at 1.7 per cent in FY13 as against 1.3 per cent previous year.
The asset quality of the banking system deteriorated significantly during 2012—13 and there was an increase in the total stressed assets in the banking system, that is NPAs plus restructured assets, the RBI said.
As the end of March 2013, the gross NPAs stood Rs 1,94,000 crore, according to the RBI. Public sector banks had highest amount of bad loans at Rs 1,65,000 crore followed by private sector banks at Rs 21,000 crore and foreign bank at Rs 7,900 crore.
The apex bank also called for better legal system in place to help bank recover public funds from defaulters.
“There is an urgent need for accelerating the working of debt recovery tribunals and asset reconstruction companies,” RBI said.
The deterioration in asset quality was most perceptible for the SBI group with its NPA ratio reaching a high of 5 per cent at end March 2013.
“Deterioration in asset quality in 2012—13 was primarily on account of the non—priority sector,” RBI said.
It further said the banks need to improve the effectiveness of the recovery system.
Recovery should be focused on efficiency and fairness— preserving the value of the underlying assets and jobs where possible, even while redeploying unviable assets to new uses and compensating employees fairly, the central bank report said.
This should be done while ensuring that contractual priorities are met.
It is also necessary to collect credit data and examine large common exposures across banks. This will enable the creation of a central repository on large credits, which can be shared with the banks, the RBI said.
http://www.thehindubusinessline.com/industry-and-economy/banking/rbi-asks-banks-to-strengthen-due-diligence-for-loan-recovery/article5375859.ece
NPA crisis shows signs of deepening: RBI
Spurt in doubtful loans a matter of concern
The elongated economic slowdown has taken its toll on asset quality of banks. More worrisome part is about 50% rise in doubtful assets, the loans which unpaid for 18 months, at Rs 90,000 crore at end of March 2013 from Rs 61,700 crore a year ago.
Reserve Bank of India in its report on trend and progress of banking (2012-13) said there were signs of a deepening deterioration within NPAs with an increase in the proportion of “doubtful” loan assets.
The increased shift of loan assets towards the “doubtful” category was most prominent for the SBI Group and nationalised banks, RBIsaid.
Loans which remain unpaid for 90-days (three quarters) are treated as sub-standard loans. Later if the dues remain for 18 months, such accounts are termed as “doubtful”.
This category of NPAs work as drag on banks in two ways. One, they have to make much higher provisions (around 50% of exposure) and second, the prospects of recovery are low.
Vibha Batra, senior vice president, at rating agency ICRA said given the sharp economic slowdown and liquidity strains, the shift is next category (doubtful) category is obvious.
The gross NPA ratio at the aggregate level stood at 3.6% at end-March 2013 up from 3.1% at end-March 2012. The deterioration in asset quality was most perceptible for the SBI Group with its NPA ratio reaching a high of 5% at end-March 2013.
With the gross NPA ratio reaching about 3.6% by end-March 2013, the nationalised banks were positioned next to the SBI Group.
The asset quality of banks is an important indicator of their financial health; it also reflects the efficacy of their credit risk management and recovery environment, RBI said.
The asset quality of the banking system deteriorated significantly during the year and there was an increase in the total stressed assets in the banking system (that is, NPAs plus restructured assets).
Banks need to follow the steps put in place by the Reserve Bank and the Government of India for resolution and recovery of bad loans. They also must strengthen their due diligence, credit appraisal and post sanction loan monitoring systems to minimise and mitigate the problems of increasing NPAs, RBI added.
Reserve Bank of India in its report on trend and progress of banking (2012-13) said there were signs of a deepening deterioration within NPAs with an increase in the proportion of “doubtful” loan assets.
The increased shift of loan assets towards the “doubtful” category was most prominent for the SBI Group and nationalised banks, RBIsaid.
Loans which remain unpaid for 90-days (three quarters) are treated as sub-standard loans. Later if the dues remain for 18 months, such accounts are termed as “doubtful”.
This category of NPAs work as drag on banks in two ways. One, they have to make much higher provisions (around 50% of exposure) and second, the prospects of recovery are low.
Vibha Batra, senior vice president, at rating agency ICRA said given the sharp economic slowdown and liquidity strains, the shift is next category (doubtful) category is obvious.
The gross NPA ratio at the aggregate level stood at 3.6% at end-March 2013 up from 3.1% at end-March 2012. The deterioration in asset quality was most perceptible for the SBI Group with its NPA ratio reaching a high of 5% at end-March 2013.
With the gross NPA ratio reaching about 3.6% by end-March 2013, the nationalised banks were positioned next to the SBI Group.
The asset quality of banks is an important indicator of their financial health; it also reflects the efficacy of their credit risk management and recovery environment, RBI said.
The asset quality of the banking system deteriorated significantly during the year and there was an increase in the total stressed assets in the banking system (that is, NPAs plus restructured assets).
Banks need to follow the steps put in place by the Reserve Bank and the Government of India for resolution and recovery of bad loans. They also must strengthen their due diligence, credit appraisal and post sanction loan monitoring systems to minimise and mitigate the problems of increasing NPAs, RBI added.
Nafed turns NPA: Banks to take a haircut if govt allows onetime settlement=Business Standard
Since SBI's loans are for price support operations, those were having govt's guarantee and lender yet to classified it as NPA
Loans to National Agricultural Cooperative marketing Federation of India (Nafed) by several state-run banks have turned bad as banks have classified the loans as non-performing. Banks have an exposure of about Rs 2000 crore to Nafed, including State Bank of India’s Rs 800 crore.
Since SBI’s loans are for price support operations, those were having government’s guarantee and the lender is yet to classified it as NPA.
Even if the loan turns bad for SBI, it will not attract higher provision, as required for NPA, since it has a government guarantee.
However, loans by other lenders, which were toward commercial operation did not have sovereign guarantee and most lenders that have an exposure have classified the loan as NPA. Nafed – a cooperative– was set up in 1958 with the objective of develop marketing, processing and storage of agricultural, horticultural and forest produce, distribution of agricultural machinery
In the second quarter, Central Bank of India’s Rs 200 crore exposure turned bad while Punjab National Bank’s had earlier declared the loan as NPA.
Following the classification as NPA, Nafed had now requested for one time settlement, by paying 60% of the outstanding amount.
“We have written to the government for its approval for one time settlement. The goverment will pay 60 %, according to the proposal ,” said an executive of a public sector bank that has an exposure to Nafed.
Though the cooperative earned gross profit of Rs. 45.68 crore but due to huge interest liability on outstanding loans in, there is a net loss of Rs. 188.42 crore during the year 2011-12. It had reported turnover of Rs 1063.28 crore during 2011-12.
Nafed is the government’s procurement agency for non-cereal crops such as cotton, oilseeds and pulses. It procures such crops from farmers when market rates fall below minimum support prices and sell them when prices recover. Nafed had planned to sell bad loans worth Rs 1,800 crore to asset reconstruction companies but the plan is yet to materialise.
Its annual interest liability has exceeded its operating profit over the last few years, and as a result, federation is unable to service its debt.
Since SBI’s loans are for price support operations, those were having government’s guarantee and the lender is yet to classified it as NPA.
Even if the loan turns bad for SBI, it will not attract higher provision, as required for NPA, since it has a government guarantee.
However, loans by other lenders, which were toward commercial operation did not have sovereign guarantee and most lenders that have an exposure have classified the loan as NPA. Nafed – a cooperative– was set up in 1958 with the objective of develop marketing, processing and storage of agricultural, horticultural and forest produce, distribution of agricultural machinery
In the second quarter, Central Bank of India’s Rs 200 crore exposure turned bad while Punjab National Bank’s had earlier declared the loan as NPA.
Following the classification as NPA, Nafed had now requested for one time settlement, by paying 60% of the outstanding amount.
“We have written to the government for its approval for one time settlement. The goverment will pay 60 %, according to the proposal ,” said an executive of a public sector bank that has an exposure to Nafed.
Though the cooperative earned gross profit of Rs. 45.68 crore but due to huge interest liability on outstanding loans in, there is a net loss of Rs. 188.42 crore during the year 2011-12. It had reported turnover of Rs 1063.28 crore during 2011-12.
Nafed is the government’s procurement agency for non-cereal crops such as cotton, oilseeds and pulses. It procures such crops from farmers when market rates fall below minimum support prices and sell them when prices recover. Nafed had planned to sell bad loans worth Rs 1,800 crore to asset reconstruction companies but the plan is yet to materialise.
Its annual interest liability has exceeded its operating profit over the last few years, and as a result, federation is unable to service its debt.
Now AIBEA has started to play its drama called "NPA CRISIS IS SERIOUS" instead of "BANKs WAGE REVISION" drama. i feel that they are diverting our attention by doing so.
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