RBI relaxes bad-loan provisioning rules for banks-Livemint
The central bank relaxed rules against bad loans by allowing banks to set aside up to 50% of floating provisions from 33%
The Reserve Bank of India (RBI) on Monday allowed banks to use up to 50% of their counter-cyclical buffer to provide for non-performing assets (NPAs), up from the 33% that they were allowed to use so far.
A counter-cyclical buffer is the mandatory capital that banks are required to keep aside beyond their minimum capital requirements to deal with extraordinary situations. Counter-cyclical buffers were introduced globally after the financial crisis of 2008 to ensure that banks are not short of capital whenever systemic risks increase.
In India, bank provisions above the compulsory 70% provision coverage ratio are considered as counter-cyclical. “This buffer will be allowed to be used by banks for making specific provisions for NPAs during periods of system-wide downturn, with the prior approval of RBI,” the central bank had said in a notification while announcing counter-cyclical buffers in April 2011.
Stressed assets across the Indian banking sector have risen following the economic slowdown, and in part due to poor credit evaluation procedures across some parts of the sector.
According to the latest RBI data, overall stressed assets, including restructured assets and bad loans, rose to 10.7% by the end of September 2014, compared to 10% in March 2014.
The reported level of bad loans is also set to go up starting fiscal 2016, as a forbearance given to restructured loans will be withdrawn starting 1 April. After that, fresh restructured loans will be counted as NPAs.
RBI said banks can now use up to 50% of counter-cyclical provisioning held by them as at the end of 31 December 2014, for making specific provisions on NPAs according to their board-approved policy.
Suruchi Jain, equity research analyst at Morningstar Investment Adviser India Pvt. Ltd, said the central bank’s move is most likely to push banks to provide more for NPAs.
“Most banks end up underproviding. This is another incentive for banks to provide more because, typically, it has been seen that the earnings of banks that set aside more counter-cyclical provisions are more solid,” Jain said.
The higher headroom to provide for NPAs is a welcome move, said N.S. Venkatesh, executive director, treasury, and chief financial officer at IDBI Bank Ltd. “It will give banks a small relief in NPA provisions before the end of the financial year because they can use the counter-cyclical funds they have by 17% more. But how each bank can use it will depend on how much extra provisions they have and how much more they can keep aside for NPAs,” he said.
RBI tightens takeover norms for shadow banking -Hindu Business Line
The Reserve Bank of India (RBI) plans tougher rules for takeovers involving non-banking financial companies (NBFCs), according to draft guidelines published on Monday, outlining a demand that all substantial deals seek its prior approval.
Public sector players and the government have held preliminary talks on the issue of moving to a new system under which each bank will work out its own salary structure and simultaneously move to cost-to-company system that is the norm across the corporate sector.
Bankers believe that the industry-level wage settlement is a relic from the past and puts undue pressure on some of the smaller and less efficient players. Besides, it inhibits the ability of the better-managed lenders to attract good talent.
Banks and unions just agreed to a 15% hike in wages, which will result in an annual burden of around Rs 5,000 crore, along with holidays on second and fourth Saturdays. As a result, even the loss-making entities will have to bear the burden although their financial health may not permit them to do so immediately.
While the next settlement is due only in November 2017, the road map worked out by bankers has suggested that sometime next year, banks should start the process of moving out of the industry-level initiative and negotiate for productivity-linked settlement. "It should be on a cost-to-company (CTC) basis, based on the paying capacity of each bank," said a senior executive at a top public sector lender.
Although IDBI Bank had moved to a productivity-linked system a few years ago, while opting for a higher increase in salary, it had to junk the first part of the new strategy due to internal opposition. Executives had pointed out that the bank had worked out a new mechanism without putting in place a system to measure productivity.
For other banks too, the transition is not going to be easy and is expected to face stiff resistance from the unions, which have, for years, settled for an industry-wide package.
Sources said that human resources committee of the Indian Banks' Association is expected to discuss the issue of introduction of performance management in the banks shortly.
The talks are also in line with the government's strategy of each bank charting its own path with focus on niche businesses, instead of following a 'one size fits all' approach.
My Views On Cost To Company dated Saturday, July 13, 2013 is Reproduced below
In its latest effort to boost transparency and strengthen its grip on the alternative lenders that account for a large part of the domestic shadow-banking sector, the RBI said any purchase of a stake of 26 per cent or more in a company, or a change in more than 30 per cent of its directors, would need the central bank’s permission.
“The RBI has been continuously trying to strengthen this sector so that this should not be a back yard for people we don’t know,’’ said Sanjay Agarwal, Managing Director of Au Financiers (India), an NBFC from Rajasthan.
There are some 12,000 NBFCs registered with the RBI, and they largely offer loans. Some, like traditional banks, also take deposits
Surplus liquidity, low credit demand may force State Bank of India, Axis bank, others to cut rates -Economic Times 31st March 2014
KOLKATA | MUMBAI: A two-year wait for cheaper credit may end in the next few weeks as banks across the board are poised to lower lending rates as their hands are being forced by surplus liquidity and low credit demand.
The country's top banks, be it the largest lender State Bank of India, or IDBI Bank, or Axis Bank. in the private banking space, seem to be on the same page now on the direction of interest rates and the need to lower rates to push credit demand Companies have turned their backs on banks which were reluctant to lower rates.
"With increased government spending, liquidity is likely to be abundant at the beginning of the new fiscal. This would lead to bank base rate cuts in April-June quarter," said NS Venkatesh, IDBI Bank's executive director & chief financial officer.
Govt banks may move to CTC structure-Times of India 30th March 2015
NEW DELHI: If the state-run banks have their way, the just concluded wage settlement for close to one million employees may be the last such exercise.Public sector players and the government have held preliminary talks on the issue of moving to a new system under which each bank will work out its own salary structure and simultaneously move to cost-to-company system that is the norm across the corporate sector.
Bankers believe that the industry-level wage settlement is a relic from the past and puts undue pressure on some of the smaller and less efficient players. Besides, it inhibits the ability of the better-managed lenders to attract good talent.
Banks and unions just agreed to a 15% hike in wages, which will result in an annual burden of around Rs 5,000 crore, along with holidays on second and fourth Saturdays. As a result, even the loss-making entities will have to bear the burden although their financial health may not permit them to do so immediately.
While the next settlement is due only in November 2017, the road map worked out by bankers has suggested that sometime next year, banks should start the process of moving out of the industry-level initiative and negotiate for productivity-linked settlement. "It should be on a cost-to-company (CTC) basis, based on the paying capacity of each bank," said a senior executive at a top public sector lender.
Although IDBI Bank had moved to a productivity-linked system a few years ago, while opting for a higher increase in salary, it had to junk the first part of the new strategy due to internal opposition. Executives had pointed out that the bank had worked out a new mechanism without putting in place a system to measure productivity.
For other banks too, the transition is not going to be easy and is expected to face stiff resistance from the unions, which have, for years, settled for an industry-wide package.
Sources said that human resources committee of the Indian Banks' Association is expected to discuss the issue of introduction of performance management in the banks shortly.
The talks are also in line with the government's strategy of each bank charting its own path with focus on niche businesses, instead of following a 'one size fits all' approach.
My Views On Cost To Company dated Saturday, July 13, 2013 is Reproduced below
Concept of COST to COMPANY For Bank Staff Is To Cheat Bankers
Clever Finance Minister and his sycophants Chairman and Managing Directors of banks (CMDs of public sector banks who are part of IBA )) are suggesting cost to Company concept for bank staff in line with what private companies in IT sector are using to tap talented person from Educational campus or to attract employees of other companies .
It may be noted that promoters of private companies think for the betterment of their company and while picking up freshers from educational Institutes they keep in mind only the utility and gain to company from a particular person. They target to earn fifty lac from a person by offering a package of ten lac.
Most of IT companies hire an engineer or an MBA to outsource him or her for a foreign company and in such cases if the foreign company pays ten lacs of rupees to Indian IT company like Infosys or TCS, the employer offers a package of hardly two or three lac to the employment seekers.
On the contrary top officials of public sector companies think only for personal gain sacrificing all interests of the bank or company they represent. While picking up freshers from educational institutes top officers of a bank consider the personal benefits, monetary gain for their family, relation with person who recommend for selecting a particular youth for employment etc and they totally neglect the future of the bank they represent.
Even an inefficient officer from other bank in scale I is selected for scale III post by PS ban employer if his name is recommended by some imp person or some offer of bribe comes from some corner. Top officials of bank for gaining a lac or two in recruitment and promotional process can violate all ethics and moral recruit ineligibles and promote ineligibles.
Same position is in the case of promotion in public sector banks. Top officials seldom keep in view the utility of officer they select for promotion. Rather one who is number one flatterer of big bosses, who is of same caste and community , who is recommended by some VIP officer, who is corrupt and who has earned huge illegal money in credit sanction and shared with the bosses is picked up for promotion neglecting serious, efficient , honest and devoted officers.In the same fashion ED and CMD s are selected by MOF and the same culture flows from top to bottom in all promotion processes and in all cases of recruitment.
This is why private banks are progressing by leaps and bounds , their profit is increasing month by month , their NPA is lowest in banking sector, their CASA is highest, they employ greater number of youth , they create more employment , their customer service is better , their deposit and credit growth is higher , their NIM is more and everything is better compared to their counterpart in public sector under same domestic condition and same global situation. RBI gives all help and infuse capital from time to time , still PS banks are showing sickness and their health is moving from bad to worse whereas private banks are growing without any help from GOI .
CMD of every bank, RBI officials and MOF use to say all the time that banks are healthy and growing and from next quarter position is likely to improve. Politicians use to set committee after committee, suggest several ways for improvement, change rules from time to time and so on but never cares to ensure honest execution of rules and policies.
Top to bottom corrupt officers are in power and they leave no stone unturned to loot the bank from both hands for their personal gain and to help those who are ready to offer costly and costly gifts. Flattery and bribery is given full weight in all cases right from employment to promotion , credit sanction, write off bad loan , supply of goods and service and what not.
As such the concept of cost to company suggested by IBA and MOF is nothing but a tool to postpone wage settlement for indefinite period. It is pity that union leaders are also unable to understand the malicious intention of IBA members and the hidden agenda of MOF and UPA government.
If ‘cost to company’ concept is so much effective and productive, why the government does not apply to other public sector companies like ONGC, NTPC, SAIL , BSNL. Airlines, Government schools and Government colleges, Ministries, Central Services, state government services etc which are directly under control of the government and which are also supposed to produce more and more and which are also supposed to earn profits in addition to serving common men and serve social agenda of the country.
It is well known to all that all central services are governed by a set of scales and there is no stagnation and in most of the cases there is time bound promotion and at least there is value to seniority of staff. Scale of pay has got stagnation of increment as it happens in banks. An officer for the post of Secretary comes from senior IAS officers and not from educational campuses.
It is only in bank that an officer is directly recruited in higher scale .If cost of company concept is made a success in bank , there will be total chaos in banking and no power can stop further deterioration in health of banks. Bank staff who used to serve the bank for decades will have to leave the bank in a year or two if the concept of COST to COMPANY is accepted by Bank unions in Xth Bipartite Settlement.
Bank staff will be kicked out in few months if they do not flatter to their bosses and do not become ready to do even personal and family work of the top officials .It may be noted that in IT sector or in private companies , average length of service of an employee is not more than ten years . Bank staff will similarly change bank from bank and loose the stability as also lose their health in ten years of service as happens with those who are employed in private companies of modern era.
Bank staff will be kicked out in few months if they do not flatter to their bosses and do not become ready to do even personal and family work of the top officials .It may be noted that in IT sector or in private companies , average length of service of an employee is not more than ten years . Bank staff will similarly change bank from bank and loose the stability as also lose their health in ten years of service as happens with those who are employed in private companies of modern era.
I therefore of strong view that brainless and greedy politicians are determined to spoil banks in the same way as they did BSNL and Airlines and other PS undertakings. I hope union leaders will take seriously the dirty game plan of IBA officials and MOF
It is nearly five months after the due date for revision of salaries and allowances, and now IBA is in the process of presentation of basics. This is a clear case of delaying tactics by presenting extraneous matters before the negotiating table
.
Regarding the expenditure of 56,292 crs, IBA should note that the PSBS have generated a net profit of nearly 50, 000 Crs for the same year after providing for the Establishment Expenditure including pension, Even assuming the same level of profit for the next five years the surplus in terms of net profit available would be in the order of 2.5 lacs crores,of which 60% could be earmarked for revision of salary and pension with updation. Assuming an increase of 20% in profits on a year to year basiis the net profit projections for the next five years ending 31.3.2016 would be in the order of 4.464 lacs crores. and 60% the net profit amounting to Rs 2.4784 lacs crores would be more than adequate to cover the salary and pension revision expenditure including updation for the next five years.
Since the Officers and employees as a team have performed in generating this level of profit they deserve substantial pay hike as an incentive.
While going through the reports on 10th BPS meet held at Mumbai on 22nd April 2013, between UFBU and IBA it can be seen that there may have a change in concept of compensation package of Bank Employees in forthcoming wage negotiations in tune with MOF's directions.
Hitherto bank employees wages were arrived during bipartite settlements on the basis of percentage of cost of establishment expenses of past year( Now it may be 31st March 2012 ).Where as this time ,there may be a change in concept to Cost -to- Company (CTC)basis as per IBA.
Let us look at what is the concept of CTC?
In nutshell, the amount that employee cost to company is called CTC. Entire amount spent by company directly or indirectly will be included and shown under CTC. At present Basic Pay, DA and other allowances are included under salary and after deductions one will get his take home pay. But under CTC all other components such as Medical allowance, Leave Travel Allowance or Concession (LTA / LTC),Vehicle Allowance, Telephone / Mobile Phone Allowance,Special Allowance, reimbursements to medical bills, news papers etc are also become part of ones salary.By including all these components in salary in fact the compensation in paper seems to be high whereas monthly in-hand salary may be less. Most of the Private and IT companies are following CTC concept where money given to employee as well as spent on employee is shown together.
In nutshell, the amount that employee cost to company is called CTC. Entire amount spent by company directly or indirectly will be included and shown under CTC. At present Basic Pay, DA and other allowances are included under salary and after deductions one will get his take home pay. But under CTC all other components such as Medical allowance, Leave Travel Allowance or Concession (LTA / LTC),Vehicle Allowance, Telephone / Mobile Phone Allowance,Special Allowance, reimbursements to medical bills, news papers etc are also become part of ones salary.By including all these components in salary in fact the compensation in paper seems to be high whereas monthly in-hand salary may be less. Most of the Private and IT companies are following CTC concept where money given to employee as well as spent on employee is shown together.
General Secretary of AIBOA has stated that bank managements will bring up financial constraints being faced by them due to implementation of Basel-III regulations, which require banks to hold more and higher quality capital for making loans; and provisioning for bad loans and pension during the wage revision talks. Given the pressure on raising capital and provisioning, bank managements will try to minimise the outgo on account of wages in the garb of transforming human resource processes and implementing new age concepts like CTC.
Trade unions, already expressed their fear that employees may actually be worse off as bank managements could push variable pay through the backdoor, thereby undermining the cardinal principle of labour rights – equal pay for equal work.
As per reports, it is also learnt that a management consulting firm is believed to have been given the mandate by the Indian Banks’ Association, the self-regulatory organisation of all banks in the country, for working out the modalities of the CTC concept.
IBAs new proposal will have impact on resolving issues of Pensioners also, for which we have to wait for further discussions taking place in coming days.
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Mr. L S Raman Submit his opinion as under
The real colour of IBA as a negotiating organisation is visible.
It is nearly five months after the due date for revision of salaries and allowances, and now IBA is in the process of presentation of basics. This is a clear case of delaying tactics by presenting extraneous matters before the negotiating table
.
Since the Officers and employees as a team have performed in generating this level of profit they deserve substantial pay hike as an incentive.
Commented by Mr. L. S. Raman
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