(Read my opinion given below)
Click Here To Download Flipkart App For Comfortable Online Purchasing
Bank employees, especially from the public sector, are likely to see service conditions improve substantially.
A host of service condition improvements are being considered by managements, including a “Leave Bank” system, privilege leave four times a year (against three times now), six months maternity leave for adoption of child (two months now), and paternity leave. This is in addition to getting a 15 per cent hike in salary under the industry-wide wage settlement agreement signed recently.
Under the ‘Leave Bank’ system, employees can voluntarily donate a part of their entitled leave to a common pool. The “Leave Bank” will sanction leave with salary to employees who are compelled to be on prolonged leave due to treatment of major diseases or accidents and other contingencies beyond their control and where such employees have exhausted all their leave.
Management approval
If the proposed improvement in service conditions are approved by bank managements under the aegis of the Indian Banks’ Association, then to avail privilege leave (PL), 15 days notice would be sufficient (against 30 days now). PL could be accumulated up to 270 days against the existing ceiling of 240 days.
If the proposed improvement in service conditions are approved by bank managements under the aegis of the Indian Banks’ Association, then to avail privilege leave (PL), 15 days notice would be sufficient (against 30 days now). PL could be accumulated up to 270 days against the existing ceiling of 240 days.
Extraordinary leave for male employees (without pay) could be sanctioned up to a maximum of 720 days during the entire service as against the existing ceiling of 12 months. Employees could be granted special sick leave with salary for a maximum period of 30 days while on hospitalisation for donation of kidney or any other organ.
Maternity leave facility will be available to a biological mother in cases where the child is born through surrogacy. Employees can also get special leave for sports activities, trekking and mountaineering, among others.
According to Vishwas Utagi, General Secretary, Maharashtra State Bank Employees Federation, the bank unions and the Indian Banks’ Association want to ensure that employees have a proper work-life balance and can comfortably attend to personal exigencies.
Additional holidays
Under a deal cobbled together by bank trade unions and bank managements on February 23, employees, mostly from the public sector, will get a 15 per cent wage hike and two additional holidays a month as part of an industry-wide wage settlement.
Under a deal cobbled together by bank trade unions and bank managements on February 23, employees, mostly from the public sector, will get a 15 per cent wage hike and two additional holidays a month as part of an industry-wide wage settlement.
The proposed hike will amount to a collective outgo of ₹4,725 crore a year for the 45 banks that are part of the 10th industry-wide bipartite five-year wage (2012-17) settlement exercise. Almost 8.50 lakh employees – all in public sector banks, some old generation private sector banks and a few foreign banks – are expected to benefit from the wage settlement. The revised salary will be implemented with retrospective effect from November 1, 2012.
Bankers to hold protests at offices of loan defaulters-Money Life
Come April - the dawn of the new fiscal - and bankers would hit the streets to hold silent demonstrations outside the headquarters of corporate loan defaulters pressurising them to pay up their dues, said a top union official.
The bank union has decided to take on a national scale the recent silent protests by employees of Andhra Bank outside the offices of loan defaulters in Tamil Nadu.
"We are redrawing our list of corporate loan defaulters and the process is expected to be over soon. From mid-April onwards, our members will hold protests outside the offices of corporates whose loan accounts have been categorised as non-performing assets (NPA) to make them pay up their dues," C.H. Venkatachalam, general secretary, All India Bank Employees' Association (AIBEA) told IANS.
According to him, such a protest would spread awareness among the people of this country -- the ultimate owners of the government-owned banks -- about the huge loan dues built up by the corporates.
Last year, AIBEA released a list of 406 bank loan accounts amounting to Rs.70,300 crore that have been declared bad and had demanded declaration of wilful default a criminal offence and investigation of the nexus between the borrowers and bank officials.
Employees of Andhra Bank, cutting across cadre-lines, recently held protests outside corporate loan defaulters in Tamil Nadu.
"The moment such protests began, there were threats issued to bank staff from loan defaulters to desist from holding protests," an official of Andhra Bank told IANS preferring anonymity.
The All India Andhra Bank Award Employees Union (AIABAEU), affiliated to AIBEA, decided to hold silent protests outside the headquarters of loan defaulters.
"Ours is a silent protest outside the offices of loan defaulters. In some places, police complaints were lodged against the employees. The police, after hearing our cause and witnessing the silent protest, even encouraged us to continue," K. Thamaraiselvan, deputy general secretary, AIABAEU told IANS.
According to him, the protesting employees do not hold any placards naming the defaulting corporate or their loan dues. The employees would stand outside a corporate office, holding a placard that simply says 'Pay up your dues' -- and the people can infer.
He said following the silent protests, some borrowers have started paying back their loans.
"In some cases, the debtors have paid back even Rs.18-20 lakh," he said.
The Andhra Bank employees would hold their novel campaign till March 31.
According to him, the bank earns sizeable gross profit only to provide huge sums towards NPA provisions.
In the case of Andhra Bank, the gross NPA is around Rs.7,000 crore.
It is only now that the bankers have started to hit the streets against loan defaulting corporates.
All these years, the bankers acted against individual/agriculture/student borrowers with alacrity in recovering their loan or auctioning their properties leaving the big sharks free.
"In India, farmers commit suicide for not being able to pay back their dues. In the case of corporate loan accounts, it is the bankers who are forced to 'commit suicide' for their inability to recover the loans," Thamaraiselvan said.
"The irony is that the bank deducts our loan dues from our salaries whereas they are not able to do anything with the corporate," he added.
Union officials in banks are unanimous in their view that restructuring of loans is an organised industry and needs to be probed.
A review should be made to identify the beneficiaries whose debts/loans availed in the banks with interest were written off, AIBEA had earlier demanded.
The AIBEA has also demanded that the bank loan defaulters should not be permitted to contest assembly or parliamentary elections.
According to AIBEA, floating of asset reconstruction companies (ARC) as a tool to reduce non-performing assets (NPA) should be discouraged and the NPAs should be actually recovered.
Venkatachalam is on the same page with the government's decision to revise the system of statement of intent or memorandum of understanding it signs with the bank management.
The current system is like a pyramid scheme/multi-level marketing (MLM) scheme where the large number of employees do not get performance incentives while those at the top - chairman and managing directors, executive directors - get hefty incentives. This despite banks racking up huge non-performing assets, Venkatachalam said.
Bankers also are of the view that the time has come to tabulate the incentives earned by their top officials and the total NPA generated during their tenure to bring in moral accountability.
Investors, Depositors ,shareholders and all stake holders in public sector banks: If banks book all assets or major portion of assets as standard, and show lesser volume of bad assets, banks will earn more and more profit, pay more and more dividend and price of shares of PS banks will go up and up. For this, they always need to restructure bad assets because it is not easy in India to recover loan from bad borrowers either directly or by legal course of action. As such process of restructure is a winning proposition for banks as well as for investors, shareholders, and all stake holders.
MY Observations:
I have been writing on pathetic position of Bank's Asset for last five years and more . Assets of bank are not good but it is shown as good by using tools of restructuring of loans, rephasing of loan or by writing off of loans or by sacrificing huge amount in compromise settlement with bad borrowers .But such unethical ways are boon for all.
Latest position on this front is that banks are moving from bad to worse. Now there is immense pressure from Ministry of Finance on Chiefs of each public sector bank to reduce Non Performing Assets and stressed assets , to increase profitability of bank and to arrange for required capital at their own.
Unfortunately banks due to many avoidable or unavoidable reasons cannot recover the money from bad borrowers or from ill-motivated wilful defaulters . I do not want to discuss the same every now and then . The reasons are well known to all regulating agencies as well as to bank officials.
It is the need of bankers to restructure stressed loan so that none from MOF or from RBI or from media can point out accusing fingers towards Bank's quality of performance and investors continue to invest in bank's share.
It is not important for bankers or for clever, selfish and corrupt politicians ruling the country that money is to be recovered from bad borrowers, the important for bankers as well as politicians is to save skin from MOF and investors who trusted banks. And the most important and key reason behind large scale restructure and writing off of loans is that bank officers want safe exit from bank and early promotion to higher position by hook or by crook.
And the automatic benefit which is likely to accrue to top officials by way of such manipulation is large incentive top officials will get in cash from the government for charming balance sheet and for attractive dividend they give to government. There is proverb in Marwari group"hing lage na phitkari, rang choukho aye"
This is why companies like Bhusan Steel has not to do much exercise for rephrasing and restructure of their bad accounts, it is bankers who want not to consider advance to the tune of Rs.40000 crore as NPA and not to damage their future.
There are thousands of accounts like that of Bhusan Steel which are likely to be restructured in the current quarter to artificially improve the health of sick banks. It is more needed for bad bankers and less needed for bad borrowers. It is a win -win position for all concerned , if by hook or by crook, by legal or illegal methods , bad loans are considered as good assets.
Top Officials of bank: If they declare all bad accounts as bad , there will be multiple rise in volume of bad assets, they will need to make higher provisions for bad loans, there will be lesser profit , they will need more capital and so on. As a consequence , MOF will fire them and as a result their mental peace will be disturbed, their retirement will become unpleasant and they will not get post retirement job from GOI. They will face disciplinary action or punishment for irregularities and malicious work they committed during their working in bank. As such it is good for Chiefs of Banks to opt for free restructuring of all bad loans or write them off .
Junior Officers, Credit Officers , Branch Head, Regional Head And Zonal Head: All will get quick promotion,higher cash incentive and cream posting if they artificially , rightly or wrongly treat all assets as standard. On the contrary , if they become rigid on telling spade a spade, their survival , their family life, their career , their income, their prospect of earning bribe in cash or in kind, their image among bad customers and higher officials,their annual appraisal reports all will be adversely affected.
RBI Officials, Auditors and Vigilance Officers.:-- If auditors become rigid on treating all bad assets of banks as bad asset, they will not get job of auditing in banks in future. Auditors who do not obey orders of bank officials are blacklisted by banks as well as by business men. In this way it is direct loss to their income and attack on their family comfort and mental peace. Therefore they think it wise to give certificate of good health to even bad accounts. RBI officials and vigilance officers spend luxurious life if all accounts are good and they need not visit branch after branch and bank after bank to carry out inquiry and find out culprit or make exercise for rehabilitation of sick industry.
Ministry of Finance and Government of India. :- They will say with proud that banks in India are safer than other countries. Media will not ask humiliating questions. Rating agencies will not create headache for them by downgrading the rating. They will not need to arrange for infusion of capital in banks if they go sick due to burden of bad loans. Politicians who looted banks for their families and friends and for vote bank will not face any action . And the most important is that GOI will more from banks by way of tax and dividend.
Industrialists and business men:-They will get more and more loans if their existing loans are not considered bad. They will lead a luxurious life taking more and more loans, they will accumulate more and more properties in the name of their relatives. And if their loot crosses the limit , they will pray for compromise or write off of loans and thus save themselves from pain of advocates and court cases.
Businessmen like Satyam Computers know how to book artificial profit and how to present attractive balance sheet and for this purpose they are always ready to pay attractive fees to Chartered Accountants. In this way, not only they will get more loans but even auditors will earn more and more money. It is beneficial for auditors to prepare good Balance sheet for borrowers which not only earns more fees from business men but from banks also. It is just like killing two birds from one stone.
There are thousands of accounts like that of Bhusan Steel which are likely to be restructured in the current quarter to artificially improve the health of sick banks. It is more needed for bad bankers and less needed for bad borrowers. It is a win -win position for all concerned , if by hook or by crook, by legal or illegal methods , bad loans are considered as good assets.
Top Officials of bank: If they declare all bad accounts as bad , there will be multiple rise in volume of bad assets, they will need to make higher provisions for bad loans, there will be lesser profit , they will need more capital and so on. As a consequence , MOF will fire them and as a result their mental peace will be disturbed, their retirement will become unpleasant and they will not get post retirement job from GOI. They will face disciplinary action or punishment for irregularities and malicious work they committed during their working in bank. As such it is good for Chiefs of Banks to opt for free restructuring of all bad loans or write them off .
Junior Officers, Credit Officers , Branch Head, Regional Head And Zonal Head: All will get quick promotion,higher cash incentive and cream posting if they artificially , rightly or wrongly treat all assets as standard. On the contrary , if they become rigid on telling spade a spade, their survival , their family life, their career , their income, their prospect of earning bribe in cash or in kind, their image among bad customers and higher officials,their annual appraisal reports all will be adversely affected.
RBI Officials, Auditors and Vigilance Officers.:-- If auditors become rigid on treating all bad assets of banks as bad asset, they will not get job of auditing in banks in future. Auditors who do not obey orders of bank officials are blacklisted by banks as well as by business men. In this way it is direct loss to their income and attack on their family comfort and mental peace. Therefore they think it wise to give certificate of good health to even bad accounts. RBI officials and vigilance officers spend luxurious life if all accounts are good and they need not visit branch after branch and bank after bank to carry out inquiry and find out culprit or make exercise for rehabilitation of sick industry.
Ministry of Finance and Government of India. :- They will say with proud that banks in India are safer than other countries. Media will not ask humiliating questions. Rating agencies will not create headache for them by downgrading the rating. They will not need to arrange for infusion of capital in banks if they go sick due to burden of bad loans. Politicians who looted banks for their families and friends and for vote bank will not face any action . And the most important is that GOI will more from banks by way of tax and dividend.
Industrialists and business men:-They will get more and more loans if their existing loans are not considered bad. They will lead a luxurious life taking more and more loans, they will accumulate more and more properties in the name of their relatives. And if their loot crosses the limit , they will pray for compromise or write off of loans and thus save themselves from pain of advocates and court cases.
Businessmen like Satyam Computers know how to book artificial profit and how to present attractive balance sheet and for this purpose they are always ready to pay attractive fees to Chartered Accountants. In this way, not only they will get more loans but even auditors will earn more and more money. It is beneficial for auditors to prepare good Balance sheet for borrowers which not only earns more fees from business men but from banks also. It is just like killing two birds from one stone.
Architects, Advertisers, valuers of property who give valuation certificates for mortgageable properties to avail loans from banks of loan seekers , Advocates who legal opinion of good or bad property all get handsome fees for preparation of reports as per whims and fancies of bank officials and borrowers. If banks earn good profit rightly or wrongly, banks spend lavishly on advertising and hoardings. IN this way not only advertises earn more , even newspapers and vendors who prepare banners and hoarding get more business.
ATM , Contractors, Land Owners: When bank earn higher profit , they will open more and more branches and more and more ATMs. Land owners and ATM manufacturers will get more and more opportunity to earn money and higher profit. Again they will give more and more costly gifts to bank officials to get higher volume of business share.
Although it is bad and equivalent to corrupt practice if bank officials sanction restructuring of loan or write off of loan or compromise settlement without valid reasons, such activities are considered as boon for all and hence there is none to question the process or doubt the integrity of any individual involved in such unhealthy acts.
Corruption does not mean only accepting or giving bribe in cash or in kind. It also means giving undue and illegal advantage to any individual by a person holding powerful post , thus misusing power investing in him or her. But the million dollar question is who will bell the cat?
When all effective persons are getting benefit due to such corrupt practices, it is in common interest for all to keep mum on such corruption And in long run such corruption become an acceptable culture in the system and the person who goes against the culture is taken to task.
Top 30 defaulters' NPAs amount to Rs 95,122 crore in PSU banks-19.03.2015 ( Read my comments below)
NEW DELHI: The top 30 defaulters are sitting on bad loans of Rs 95,122 crore, which is more than one-third of the entire non-performing assets of public sector banks as on December 2014.
"As per data made available by RBI, the top 30 non- performing assets (NPAs) of public sector banks amount to Rs 95,122 crore as on December 2014," Minister of state for finance Jayant Sinha said in a written reply to the Rajya Sabha.
In a separate reply, Sinha said that as per the data made available by the Reserve Bank the Gross NPAs of the PSU banks are Rs 2,60,531 crore as on December, 2014.
Thus, the top 30 defaulters account for more than one- third of the total gross non-performing assets. In terms of percentage it amounts to 36.5 per cent.
As per the data made available by the RBI, he said, the total number of NPA borrowers having Rs 10 crore and above at the end of September 2014 stood at 2,897 with outstanding amount of Rs 1,60,164 crore.
Replying to another question, he said, 7,443 cases of credit cards have been detected with financial consideration of Rs 29 crore while ATM or debit card related cases were 1,743 involving sum of Rs 11 crore during April-December period of 2014.
He further said, a working group on 'Information Security, Electronic Banking Technology Risk Management and Tracking Cyber Frauds' had been set up by RBI in April 2010, he said.
The group examined various issues arising out of the use of IT in banks and made its recommendations, he said.
Banks with extensive leverage of technology to support business processes were advised to implement all the stipulations outlined in the circular, he said.
The guidelines are fundamentally expected to enhance safety, security, efficiency in the banking processes leading to benefits for the banks and their customers, he said.
Top management of the banks was advised to monitor the progress in the implementation of the recommendations on an ongoing basis and a review of the implementation status was advised to be placed before the board at quarterly intervals, he added.
My Observation :If even 50 percent of top 30 borrowers who have defaulted in repayment is lost by public sector bank , it comes to Rs.45000 crore. This loss is ten times of what the government has agreed to give bank staff by way of wage hike. If means if entire amount of top 30 defaulters is recovered by banks, they may serve cost of wage revision only by way of annual interest.
GOI should now introspect why it failed to stop rise in bad debts and what volume of loss banks are to incur due to such lapses on part of previous government or current government.
Who are the persons, bankers and politicians responsible for such unprecedented loss banks are to incur in near future. It is not only Rs.3.00 lac crores as bad debts as on 31st March 2015 which FM has accepted in Parliament, but it is as much as Rs.10.00 crore which is fraudulently concealed by clever top officials of banks .
Will government punish responsible politicians, bank officials and administrative officials who caused sickness in banks? or GOI will blame ten lac bank staff and cut their wage hike?
Not to speak of NPA accounts which are already available in books of accounts of public sector banks, there is continuous risk to bank assets which are created even now. It is true that outcome and bad effects of bad loans sanctioned during current year will appear after two to three years.
I have no doubt in saying that GOI has failed completely to stop bad lending by corrupt bankers and by corrupt politicians. They have not only failed to recover bank's good money from bad borrowers but also failed to change dirty culture prevailing in all banks so far as loan processing , recruitment, promotion ,posting etc are concerned.
Banking revival in India still a way off, says Standard & Poor’s-Hindu Business LIne-19.03.2015
Standard & Poor’s on Wednesday said revival in private sector investments and credit growth, coupled with a reversal of non-performing loan ratios for India’s banks is likely to take time.
This is despite improving operating conditions because of a reform-minded government and increased elbow room for the central bank to lower interest rates, the global rating agency added.
“We expect the pace of growth of stressed assets to fall because a substantial part of the stress has already been recognised,” said Standard & Poor's credit analyst Amit Pandey.
He said that any material recovery in corporate loan quality will require improvement in demand in India, deleveraging of corporate balance sheets, and resolution of problems in the infrastructure, metal and mining sectors, all of which will take time.
The rating agency said standalone credit profiles and ratings of some public sector Indian banks are sensitive to deterioration in their asset quality and erosion in capital and earnings.
In a report titled “Despite India’s Brighter Economic Prospects, A Banking Revival Is Still A Way Off,” Pandey said capitalisation is a key constraint for some public sector banks in India.
The report noted that rated private sector banks are better placed than their public sector peers to meet Basel III capital requirements. The recent Budget allocated only ₹7,940 crore for infusion into banks in the fiscal year ending March 31, 2016.
Public sector banks will therefore, have to raise additional capital through additional Tier 1 hybrid instruments, accessing the equity markets, and tapping state-owned Life Insurance Corp.
Standard & Poor’s has estimated that credit growth in India's banking sector will improve to 12-13 per cent in fiscal 2016 from less than 10 per cent in the second half of calendar year 2014.
The report noted that the current government has promised development and good governance, and a lot will depend on its ability to deliver on its promises and improve the economy.
“We expect the profitability of Indian public sector banks to remain weak, and banks’ credit costs to remain elevated.
“That’s because of underprovisioning for non-performing loans, slippages from standard restructured loans, and a higher provisioning requirement for fresh restructured loans effective April 2015,” said Pandey.
Prolonged weakness in the asset quality of Indian banks could lead S&P to assess that economic risk, a key factor in its Banking Industry Country Risk Assessment and ratings on banks, has increased.
14 PSBs in govt’s hot list for high level of stressed assets-Financial Express
As many as 14 public sector banks have reported stressed assets — non-performing assets (NPAs) and restructured loans — of over 13.03 per cent of their advances, the average of weak assets of PSU banks during the period ended December 2014.
According to a report prepared by the Department of Financial Services in the Finance Ministry, Central Bank of India tops the list of 14 banks with 21.15 per cent of its advances stuck in NPAs and restructured loans.
It was followed by United Bank of India with 19.04 per cent of stressed assets, Punjab & Sind Bank 18.25 per cent, Punjab National Bank 17.85 per cent, Indian Overseas Bank 17.70 per cent.
“PSBs continue to be under stress on account of their past lending. Taking gross NPAs and restructured advances together the stress on PSBs is 13.03 per cent to total advances as of December 2014,” the report said. Gross NPAs of PSBs have risen to 5.64 per cent (Rs 262,402 crore) as on December 31, 2014 due to sluggishness in the domestic growth during the recent past, slowdown in global recovery and continuing uncertainty in the global markets leading to lower exports of various products like textiles, engineering goods, leather and gems, the DFS review said.
The ministry report said nine PSU banks have not formed Joint Lenders Forum (JLF) to tackle stressed accounts. They are: Canara Bank, Dena Bank, P&S Bank, PNB, Syndicate Bank, United Bank, Vijaya Bank, State Bank of Bikaner & Jaipur.
However, other banks have formed 254 JLFs as on February 26, 2015, out of which 107 JLFs were formed by State Bank of India. The DFS had sent two letters to PSU banks on the JLF issue. The Reserve Bank of India (RBI) had last year directed banks to mandatorily form a JLF if loans worth Rs.100 crore or more becomes due for more than 61 days. The RBI said lenders will be encouraged to form such joint forums even if the amount due is less than Rs 100 crore or principal or interest is due for more than 30 days.
“If some of the banks are not even taking interest to form JLF to tackle stressed assets, less said the better. The government and the RBI should force them to form JLFs,” said an official of a nationalised bank. The Ministry report says a total of 355 JLFs were formed by all the banks, including private banks.
businessThe report said the RBI has issued instructions to the banks to review slippages in asset classification in the borrowal accounts with outstanding of Rs 5 crore and above by the board of directors.
Banks have been issued instructions for devising a comprehensive strategy and its effective implementation as a key to achieve the target, it said.
In India drinking wine or consuming tobacco or pornography is considered as social crime . But Government does not ban it because it generates billions of rupees for them , job opportunities for many unemployed, Business opportunity for wine makers, tobacco makers and traders. GOI does not want to even take penal action against evil doers and law violators. This is called Indian culture.
Write-offs continue to weigh on banks as recoveries lag-Indian Express-20th March 2015
Despite repeated directives by the finance ministry, banks seem to have been writing off more loans than they recover.
According to official data, Rs 33,907 crore worth of prudential write-offs were added between April and December 2014 in the books of public sector banks. In turn, the public sector banks recovered loans to the tune of just Rs 8,886 crore till December end 2014.
Loans that are written off require full provisioning by banks, thereby impacting their profitability. However, they also help banks to record lower gross non-performing assets. The data is significant, given that gross non-performing assets (NPAs) of public sector banks touched Rs 2.62 lakh crore or 5.64 per cent of gross advances by December 2014 from 5.29 per cent in the previous quarter.
With repeated prodding by the finance ministry, public sector banks have been stepping up recovery efforts over the last few years. In 2013-14, public sector banks reduced a total of Rs 1.01 lakh crore of NPAs. This included Rs 33,698 crore of actual recoveries and Rs 34,409 crore of write offs. Another Rs 32,936 crore worth of bad loans were upgraded.
However, in previous fiscals, state run lenders chose to write-off more bad loans compared to actual recoveries. For instance, in 2012-13, public sector banks wrote off Rs 27,231 crore of bad loans as against actual recoveries of Rs 19,832 crore.
Private sector banks, too, seem to prefer writing off loans with Rs 6,461 crore worth of bad loans written off by them in 2013-14 as against actual recoveries of Rs 5,224 crore in the year. Another Rs 3,952 crore worth of bad loans were upgraded and total NPA reduction by private sector banks was Rs 15,637 crore.
The finance ministry has stressed that banks must recover more bad loans than they write-off in any financial year pointing out that cash recovery helps to keep a bank financially sound.
While the Reserve Bank of India have come out with norms for banks to address wilful defaulters as well as review slippages in asset classification, the finance ministry has now also decided to use the basis of performance and efficiency by state run lenders to decide on capital infusion.
http://indianexpress.com/article/business/banking-and-finance/write-offs-continue-to-weigh-on-banks-as-recoveries-lag/
Bhushan Steel lenders to finalize corrective action plan-LiveMint
Most likely option is refinancing of the company’s debt under RBI’s 5:25 scheme for infrastructure projects
Lenders to the debt-laden Bhushan Steel Ltd will finalize a corrective action plan for the steel producer by early next week, said two people familiar with the ongoing negotiations, adding that the most likely option is a refinancing of the company’s debt under the Reserve Bank of India’s (RBI) 5:25 scheme for infrastructure projects.
Under the 5:25 refinancing scheme, RBI allows lenders to extend the tenor of the debt to up to 25 years with periodic refinancing facilities, thereby making repayment easier for the borrowers. The regulator, in July last year, had termed this as “flexible structuring” and had extended this to infrastructure projects and loans to core industries including steel.
“We had asked the company earlier if they can bring in a strategic investor, but that was taking time and we were on a strict deadline. So we decided on options to reduce the debt, refinance it or restructure it,” said the first person cited above.
Among these options, flexible refinancing seems most likely, even though other options including a restructuring of up to Rs.40,000 crore in debt along with sale and leaseback of the company’s assets are also on the table, said this person.
According to RBI’s prudential guidelines on restructuring of debt, all loans restructured after 1 April will attract increased provisions, which could make the restructuring of such a large account unattractive to bankers. Currently, restructured assets are classified as standard restructured loans on the bank’s books and attract a 5% provisions.
A joint lenders’ forum (JLF) consisting of 51 lenders had been set up in August 2014 after Bhushan Steel’s vice-chairman Neeraj Singhal was arrested by the Central Bureau of Investigation (CBI) on alleged corruption charges. Banks had then suggested a forensic audit into the accounts of the company.
“Restructuring the debt is definitely not under consideration. But we are discussing all other possibilities as permitted by RBI,” said the second person cited above under conditions of anonymity.
Lenders also seem open to avoiding the restructuring options as they feel the company is operationally strong.
“It is a good company with a heavily leveraged balance sheet. This is why we have to discuss before extending any new working loans to it,” said a second public sector lender.
“At this point, the promoters of the company and the bankers are working together in consent. The lenders are convinced that the company’s business operations are in place but are just uncomfortable with the high level of debt, which they are aiming to reduce.
Refinancing would probably be the way forward since debt restructuring comes with its limited repayment time in comparison,” said a consultant on conditions of anonymity.
According to a Bloomberg report on 17 March, creditors to Bhushan Steel are considering Rs.7,000 crore in additional working capital loans that will allow the company to complete its expansion plans.
Last month, the steel producer said it has entered an agreement for the sale and leaseback of its oxygen plant in the eastern state of Odisha to improve cash flow, the company had said in a notice to BSE on 27 February. Bhushan Steel is in the final phase of a $3.2 billion plan to boost its capacity and produce high-value steel products, according to a July presentation on its website.
The steel producer has consistently reported losses for the first three quarters of the financial year 2014-2015. For the quarter ended December 2014 , Bhushan Steel reported a loss of Rs.454 crore compared with a loss of Rs.297 crore in the preceding quarter.
On Thursday, Bhushan Steel shares closed at Rs.78.70 on the BSE, down 2.9% from its previous close. The benchmark BSE Sensex closed at 28,469, down 0.5%. On Wednesday, the company’s shares surged after Bloomberg reported that discussions for refinancing were at an advanced stage
I am offered NPA, npa consultants and many types of asset and recovery services. In finance the term recovery refers to collection of amount due. The normally recovery depends on the purpose, time and condition, business running process etc.
ReplyDelete