Well that has been the modus operandi in capitalist world. No matter how much we scream, nothing is going to change.
News India’s Bad Loans: News and Discussions
- Thread starter Infowarrior
- Start date
what should happen if a govt owned bank has an NPA - is only being settled now. earlier, no one cared.
also, take a look at this:
this is a case study from AP (undivided)
In the early 1990's there were lots of students,very few engineering colleges and even fewer folks who could afford engineering college - so the govt said "we will fund qualified students to go through higher education" - a very noble idea.
In late 1990's, many local MLAs had their own engineering colleges - trying to eye this "govt funded students" to get money from the govt funds.
in early 2000's, these students were all funded, so they reduced the cut off marks to enter engineering colleges (pass mark of 35%, just need to appear for the entrance exam etc) and basically just got people unworthy and unwilling into to engineering colleges that were just glorified chicken coops and a they came out with degrees worth little more than toilet paper at the expense of tax payers money - who are you going to hold accountable there?
The government, ministry of HRD, Local Chief Minister, needed educational board, accrediting agency.
Approx 20 percent of the loan was given by private banks. That's no small amount. Why did banks irrespective of state or private owned not do their due diligence? Answer is greed.
K.V.Kamath , his harem , Reliance + Congress . One cosy family . Perhaps you'd like to comment given your itch @Guynextdoor
See not all bad loans are out of corrupt practices. Debt is how banks will make money.
and especially when big industrial houses seek debt, it's easy for them to get it based on their own asset value, Remember Ambani, Adani's Tata's have huge debt numbers, but they are able to deliver the interests.
Issue arises with banks that have issued loans to businesses, and the business with the correct intention is not able to deliver results, lets look at businesses like Uttam Galva/Uttam Value steel combine, Uttam galva bought Llyods steel (renamed to UVSL), and the steel prices shot down, it was high volume low margin business, and it couldn't keep up with it's interests payment, Mittal -accelsor, bought stake in uttam galva, still it had to go to NCLT. look at Videocon, a household electronics name went to diverge in oil and gas and other business and fell flat on it's face. Similar story with jaypee infra, (but Jaypee is still holding land that exceeds its debt by a long shot- and if there is a NCLT led promoter change who decides to sell off the assets instead of restructuring that would be a scam in making), Gammon probable was stuck in debt due to non-clearance of its road projects. In some cases these banks should have stopped incurring interests to relieve interest pressure on these companies which it didn't and rounded up a bill that is much larger due to compounded interests.
Not all of the bad loans are mallya and nirav modi types.
89% was state owned banks.. so rest is 11%.
banks exist to give loans and thats how they make money. a good percent of money goes into good business but there is always certain percent of money that does not make good business due to various factors. the % of bad debt with govt banks is way too high compared to private banks.
true!!
add to the above - just tell me one thing. why should Lanco Infra (owned by congress MP - lagadapati rajgopal) get loans to the tune of 4000 crore? (thats 4 thousand crore) what are they using that money for? there is no history of this firm making that much money - no history of them paying back or having the ability to payback!
I haven't followed Lanco infratech so i wouldn't be able to comment on specifics, Lanco's debt has risen from 3146 cr to 46960 cr to current levels in a decade . its total segment asset at the end of 2017 stood at 56255 cr, so it has the assets to hedge against the debt,
the way I see it, lanco's promoters are not getting richer by the 4000cr loan, its promoter held a massive 58.1% of the equity and almost all of which they have had to pledge, the erosion of mkt cap has damaged the promoters stake much higher that 4000 cr. Their foray into power was the turning point, from where everything headed south. Power has bitten quite a few, lanco is not the first, wont be the last.
I have worked for 3rd private owned largest bank in India and that too in the center which 6 times had the record to disburse the most high value loans(all types). Further now as my current organization is working under RBI majorly, we have monthly meetings with Banks strategy planning team, we do get lot of first hand input how things went wrong. You would be surprised to know that the very same private lenders had given loan to Nirav on the undertaking of state banks in 100s of crores. Nobody has done that in the history of Indian banking system as doing due diligence is most important activity in Retail Asset Centers. Nobody gives loan on plain paper undertaking when it's about 100-1000s of crores of rupees. What were their auditors doing when it was happening under their nose?
You are absolutely spot on, I am not defending any of the bad loans, I am just saying that a some of the NPA's were due to market pressure, global prices as well as bad management , not all of it was planned politically backed theft.
In India's $210 bn stressed assets, Deutsche Bank sees a credit bonanza
Deutsche Bank AG, which is in the throes of a global restructuring involving thousands of job cuts, is zeroing in on an Asian market where an unprecedented bad-loan clean-up offers the potential for a credit bonanza.
In India, where bankruptcy law changes have injected urgency into efforts to restructure $210 billion of stressed assets, Deutsche Bank sees an opportunity to generate outsized returns by refinancing and trading debt, according to Amit Khattar, Asia-Pacific co-head of global credit trading. Khattar is considering adding to his team. “For India, this is where we think the greatest alpha lies for our credit and financing businesses in the region,” Singapore-based Khattar said in an interview. “We want to get involved in most of the major deals out there. The bank has no constraint in terms of scaling up in this area if there’s an opportunity to grow the business.”
Speculators are flocking to India, lured by what the nation’s richest banker has called a “once in a lifetime” opportunity to sift through the wreckage of its bad-loan debacle. Deutsche Bank is already a force there: much of its Asian credit exposure is in India, and the nation accounts for the second-biggest share of regional profits. The bank plans to team up with other firms to arrange financing for Indian debtors, Khattar said. It’s looking for partners to offer debtor-in-possession funding -- which can keep a business operating during bankruptcy proceedings -- as well as for structuring equity and debt financing for companies before they slip into difficulty.
Khattar manages more than 100 people in his Asia-Pacific team, which provides working capital to companies and trades debt on secondary markets. Headcount has been stable in the past four years, and any addition isn’t expected to be massive, he added. He shares the team responsibility with Tokyo-based Beaux Pontak and both of them report to global head of credit trading Chetankumar Shah in Singapore, the bank said.
Frankfurt-based Deutsche Bank is cutting at least 7,000 jobs as new Chief Executive Officer Christian Sewing seeks to end three straight years of losses. The firm dismissed four traders in the U.S. who focused on debt markets, and Chris Lahoud, the head of the distressed team, is leaving, people with knowledge of the matter said last week. In Asia, it’s trimming some equity sales and derivatives coverage, Bloomberg reported last month.
India Exposure
Deutsche Bank had 15.2 billion euros ($17.7 billion) of credit risk exposure in India as of December, making up about 16 percent of its total across Asia-Pacific markets, according to its 2017 annual report. That included lending commitments and traded bonds and debt. By comparison, Japan accounted for 17.3 billion euros while China and Hong Kong made up 16.5 billion euros.
This year alone, Indian lenders are racing to rehabilitate more than 4 trillion rupees ($58 billion) of troubled loans, as the Insolvency and Bankruptcy Code in 2016 and banking rules force defaulters to pay up or restructure. From Canadian pension funds to Asian investment banks, more capital has flowed into lending, rescue financing and trading of distressed securities.
Recent debt restructuring cases in India have involved some of the nation’s biggest companies, including Reliance Communications Ltd., Essar Steel Ltd. and Bhushan Steel Ltd. Many of the biggest bankruptcy cases are running behind schedule, however, hit by issues ranging from a shortage of judges to legal challenges. There are more than 2,500 bankruptcy cases wending their way through 10 insolvency courts in India’s notoriously slow legal system. Global private equity firms, special-situation investors, distressed-debt traders and banks are converging on India, including Apollo Capital Management and Goldman Sachs Group Inc. The likes of Oaktree Capital Group LLC and Varde Partners Inc. are prowling for more.
“The bankruptcy code is a significant development which would generate considerable opportunities in debt resolution,” Khattar said. “Company owners also want to retain their business and see long-standing debt issues resolved. All these need structuring and capital.”
In India's $210 bn stressed assets, Deutsche Bank sees a credit bonanza
Deutsche Bank AG, which is in the throes of a global restructuring involving thousands of job cuts, is zeroing in on an Asian market where an unprecedented bad-loan clean-up offers the potential for a credit bonanza.
In India, where bankruptcy law changes have injected urgency into efforts to restructure $210 billion of stressed assets, Deutsche Bank sees an opportunity to generate outsized returns by refinancing and trading debt, according to Amit Khattar, Asia-Pacific co-head of global credit trading. Khattar is considering adding to his team. “For India, this is where we think the greatest alpha lies for our credit and financing businesses in the region,” Singapore-based Khattar said in an interview. “We want to get involved in most of the major deals out there. The bank has no constraint in terms of scaling up in this area if there’s an opportunity to grow the business.”
Speculators are flocking to India, lured by what the nation’s richest banker has called a “once in a lifetime” opportunity to sift through the wreckage of its bad-loan debacle. Deutsche Bank is already a force there: much of its Asian credit exposure is in India, and the nation accounts for the second-biggest share of regional profits. The bank plans to team up with other firms to arrange financing for Indian debtors, Khattar said. It’s looking for partners to offer debtor-in-possession funding -- which can keep a business operating during bankruptcy proceedings -- as well as for structuring equity and debt financing for companies before they slip into difficulty.
Khattar manages more than 100 people in his Asia-Pacific team, which provides working capital to companies and trades debt on secondary markets. Headcount has been stable in the past four years, and any addition isn’t expected to be massive, he added. He shares the team responsibility with Tokyo-based Beaux Pontak and both of them report to global head of credit trading Chetankumar Shah in Singapore, the bank said.
Frankfurt-based Deutsche Bank is cutting at least 7,000 jobs as new Chief Executive Officer Christian Sewing seeks to end three straight years of losses. The firm dismissed four traders in the U.S. who focused on debt markets, and Chris Lahoud, the head of the distressed team, is leaving, people with knowledge of the matter said last week. In Asia, it’s trimming some equity sales and derivatives coverage, Bloomberg reported last month.
India Exposure
Deutsche Bank had 15.2 billion euros ($17.7 billion) of credit risk exposure in India as of December, making up about 16 percent of its total across Asia-Pacific markets, according to its 2017 annual report. That included lending commitments and traded bonds and debt. By comparison, Japan accounted for 17.3 billion euros while China and Hong Kong made up 16.5 billion euros.
This year alone, Indian lenders are racing to rehabilitate more than 4 trillion rupees ($58 billion) of troubled loans, as the Insolvency and Bankruptcy Code in 2016 and banking rules force defaulters to pay up or restructure. From Canadian pension funds to Asian investment banks, more capital has flowed into lending, rescue financing and trading of distressed securities.
Recent debt restructuring cases in India have involved some of the nation’s biggest companies, including Reliance Communications Ltd., Essar Steel Ltd. and Bhushan Steel Ltd. Many of the biggest bankruptcy cases are running behind schedule, however, hit by issues ranging from a shortage of judges to legal challenges. There are more than 2,500 bankruptcy cases wending their way through 10 insolvency courts in India’s notoriously slow legal system. Global private equity firms, special-situation investors, distressed-debt traders and banks are converging on India, including Apollo Capital Management and Goldman Sachs Group Inc. The likes of Oaktree Capital Group LLC and Varde Partners Inc. are prowling for more.
“The bankruptcy code is a significant development which would generate considerable opportunities in debt resolution,” Khattar said. “Company owners also want to retain their business and see long-standing debt issues resolved. All these need structuring and capital.”
In India's $210 bn stressed assets, Deutsche Bank sees a credit bonanza
Banks' recovery improves after insolvency code, changes in Sarfaesi
Recovery of Indian banks improved in 2017-18 after the implementation of the Insolvency and Bankruptcy Code (IBC) and amendment of the Sarfaesi Act, according to the Trends and Progress Report released on Friday.
The central bank corrected data for the IBC recovery on Saturday morning. Earlier, the data showed that recovery under IBC had been huge and much more than other modes of recovery, but the updated data showed that the recovery under IBC was much smaller.
For the 701 cases admitted under the National Company Law Tribunals (NCLT), and claims admitted on 21 accounts for an amount of Rs 99 billion, the recovery has been Rs 49 billion, indicating a haircut of about 50 per cent.
With Lok Adalats, 3,317,897 cases yielded just Rs 18 billion, and in the case of the debt recovery tribunal, for 29,551 cases referred in 2017-18, the recovery has been Rs 72 billion. In Sarfaesi, cases referred have been 91,330, of which recovery done was to the tune of Rs 265 billion.
"Apart from vigorous efforts by banks for speedier recovery, amending the Sarfaesi Act to bring in a provision of three months' imprisonment in case the borrower does not provide asset details and for the lender to get possession of mortgaged property within 30 days, may have contributed to better recovery," the report said.
The non-performing asset (NPA) pile up happened because of a credit boom between 2006 and 2011. "The deterioration in asset quality of Indian banks, especially public sector banks (PSBs), can be traced to the credit boom of 2006-2011 when bank lending grew at an average rate of over 20 per cent. Other factors that contributed to the deterioration in asset quality were lax credit appraisal and post-sanction monitoring standards; project delays and cost overruns; and absence of a strong bankruptcy regime until May 2016," the report said.
In 2017-18, the gross NPA ratio of all scheduled commercial banks reached 11.2 per cent of the gross advances, up from 9.3 per cent a year ago. PSBs, which account for nearly 70 per cent of the advances, saw gross NPA ratios rising to 14.6 per cent "due to restructured advances slipping into NPAs and better NPA recognition".
For private sector banks, NPA ratios were at little higher than 4 per cent, and for foreign banks, the gross NPA ratio was at less than 4 per cent. The resolution of large NPA accounts under IBC helped improve the NPA ratios in the year, the report said.
"In terms of the net NPA ratio, PSBs experienced significant deterioration during 2017-18. During the year, the share of doubtful advances in total GNPAs increased sizably, driven up by PSBs. The share of sub-standard and loss assets in GNPAs of private banks declined."
Efforts on the part of private banks to clean up their balance sheets through higher write-offs and better recoveries contributed to low GNPA ratios in these banks, the report said. Slippages, or good loans turning bad, increased in public sector banks largely "attributable to restructured advances slipping into NPAs and a decline in standard advances". However, slippages in private banks moderated.
During 2017-18, the GNPA ratio of PSBs increased to 23.1 per cent from 18.1 per cent in the previous year. Private banks witnessed a similar trend, especially after the implementation of the revised framework of resolution of stressed assets from February 12.
Asset quality in the industrial sector deteriorated mainly with better recognition. The agricultural sector posted a rise in bad debt mainly because of farm debt waivers, it said. One-fourth of loans to large industries turned into NPAs by the end of March 2018. Medium-sized industries underwent improvement in loan quality during 2017-18 but showed pressure on asset quality in the first half of 2018-19.
The gems and jewellery sector faced a significant increase in GNPAs during 2017-18 with the unearthing of frauds, but the cement sector NPAs moderated significantly, with the resolution of some stressed accounts and an uptick in financial performance.
Basic metals and metal products remained highly leveraged, but the proportion of bad loans declined in the first half of the current financial year due to resolutions in the steel sector.
Banks' recovery improves after insolvency code, changes in Sarfaesi: Report
Recovery of Indian banks improved in 2017-18 after the implementation of the Insolvency and Bankruptcy Code (IBC) and amendment of the Sarfaesi Act, according to the Trends and Progress Report released on Friday.
The central bank corrected data for the IBC recovery on Saturday morning. Earlier, the data showed that recovery under IBC had been huge and much more than other modes of recovery, but the updated data showed that the recovery under IBC was much smaller.
For the 701 cases admitted under the National Company Law Tribunals (NCLT), and claims admitted on 21 accounts for an amount of Rs 99 billion, the recovery has been Rs 49 billion, indicating a haircut of about 50 per cent.
With Lok Adalats, 3,317,897 cases yielded just Rs 18 billion, and in the case of the debt recovery tribunal, for 29,551 cases referred in 2017-18, the recovery has been Rs 72 billion. In Sarfaesi, cases referred have been 91,330, of which recovery done was to the tune of Rs 265 billion.
"Apart from vigorous efforts by banks for speedier recovery, amending the Sarfaesi Act to bring in a provision of three months' imprisonment in case the borrower does not provide asset details and for the lender to get possession of mortgaged property within 30 days, may have contributed to better recovery," the report said.
The non-performing asset (NPA) pile up happened because of a credit boom between 2006 and 2011. "The deterioration in asset quality of Indian banks, especially public sector banks (PSBs), can be traced to the credit boom of 2006-2011 when bank lending grew at an average rate of over 20 per cent. Other factors that contributed to the deterioration in asset quality were lax credit appraisal and post-sanction monitoring standards; project delays and cost overruns; and absence of a strong bankruptcy regime until May 2016," the report said.
In 2017-18, the gross NPA ratio of all scheduled commercial banks reached 11.2 per cent of the gross advances, up from 9.3 per cent a year ago. PSBs, which account for nearly 70 per cent of the advances, saw gross NPA ratios rising to 14.6 per cent "due to restructured advances slipping into NPAs and better NPA recognition".
For private sector banks, NPA ratios were at little higher than 4 per cent, and for foreign banks, the gross NPA ratio was at less than 4 per cent. The resolution of large NPA accounts under IBC helped improve the NPA ratios in the year, the report said.
"In terms of the net NPA ratio, PSBs experienced significant deterioration during 2017-18. During the year, the share of doubtful advances in total GNPAs increased sizably, driven up by PSBs. The share of sub-standard and loss assets in GNPAs of private banks declined."
Efforts on the part of private banks to clean up their balance sheets through higher write-offs and better recoveries contributed to low GNPA ratios in these banks, the report said. Slippages, or good loans turning bad, increased in public sector banks largely "attributable to restructured advances slipping into NPAs and a decline in standard advances". However, slippages in private banks moderated.
During 2017-18, the GNPA ratio of PSBs increased to 23.1 per cent from 18.1 per cent in the previous year. Private banks witnessed a similar trend, especially after the implementation of the revised framework of resolution of stressed assets from February 12.
Asset quality in the industrial sector deteriorated mainly with better recognition. The agricultural sector posted a rise in bad debt mainly because of farm debt waivers, it said. One-fourth of loans to large industries turned into NPAs by the end of March 2018. Medium-sized industries underwent improvement in loan quality during 2017-18 but showed pressure on asset quality in the first half of 2018-19.
The gems and jewellery sector faced a significant increase in GNPAs during 2017-18 with the unearthing of frauds, but the cement sector NPAs moderated significantly, with the resolution of some stressed accounts and an uptick in financial performance.
Basic metals and metal products remained highly leveraged, but the proportion of bad loans declined in the first half of the current financial year due to resolutions in the steel sector.
Banks' recovery improves after insolvency code, changes in Sarfaesi: Report
LIC sees a sharp fall in NPAs from Rs 70.40 bn in Mar to 15.80 bn in Oct
State owned life insurer, Life Insurance Corporation, has seen a sharp fall in its net non-performing assets from Rs 70.40 billion in March 2018 to Rs 15.80 billion as of October 31, 2018, according to the figures provided by the finance ministry in reply to a question asked by members of parliament in the Lok Sabha.
“With regard to whether there is risk in LIC’s NPAs and clearing of the NPAs, it may be noted that as per LIC’s inputs, the rising trend in LIC’s gross NPAs over the last three financial years has been reversed in the current financial year”, said Shiv Pratap Shukla, Minister of state in the Ministry of Finance.
Also, the government informed the Lok Sabha that the gross NPAs in the current financial year of the biggest life insurer has declined by Rs 14.63 billion till October 31, 2018.
According to the annual report of LIC for FY18, the gross NPAs of the life insurance behemoth was to tune of Rs 252.41 billion as of March, 2018. The doubtful asset stood at Rs 131.57 billion and loss assets amounted to Rs 42.55 billion.
In FY17, gross NPAs was to the tune of Rs 181.73 billion of a total debt of Rs 3.8 trillion. The sub-standard asset were to the tune of Rs 46.44 billion whereas the doubtful asset amounted to Rs 109 billion and loss assets were Rs 26.28 billion.
In percentage terms, gross NPAs in FY 18 was 6.23 per cent and net NPAs was 1.82 per cent. In FY 17, gross NPAs
was 4.73 per cent and net NPAs was 1.96 per cent.
On the question of solvency ratio of LIC over the years, the government said, “It may be noted that year wise solvency ratios of LIC’s total business for the financial years 2013-14 to 2017-18 are 1.55,1.55,1.55, 1.59 and 1.59 respectively”.
The solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-term and long-term liabilities. The lower the company's solvency ratio, the greater is the probability that it will default on its debt obligations.
LIC sees a sharp fall in NPAs from Rs 70.40 bn in Mar to 15.80 bn in Oct
State owned life insurer, Life Insurance Corporation, has seen a sharp fall in its net non-performing assets from Rs 70.40 billion in March 2018 to Rs 15.80 billion as of October 31, 2018, according to the figures provided by the finance ministry in reply to a question asked by members of parliament in the Lok Sabha.
“With regard to whether there is risk in LIC’s NPAs and clearing of the NPAs, it may be noted that as per LIC’s inputs, the rising trend in LIC’s gross NPAs over the last three financial years has been reversed in the current financial year”, said Shiv Pratap Shukla, Minister of state in the Ministry of Finance.
Also, the government informed the Lok Sabha that the gross NPAs in the current financial year of the biggest life insurer has declined by Rs 14.63 billion till October 31, 2018.
According to the annual report of LIC for FY18, the gross NPAs of the life insurance behemoth was to tune of Rs 252.41 billion as of March, 2018. The doubtful asset stood at Rs 131.57 billion and loss assets amounted to Rs 42.55 billion.
In FY17, gross NPAs was to the tune of Rs 181.73 billion of a total debt of Rs 3.8 trillion. The sub-standard asset were to the tune of Rs 46.44 billion whereas the doubtful asset amounted to Rs 109 billion and loss assets were Rs 26.28 billion.
In percentage terms, gross NPAs in FY 18 was 6.23 per cent and net NPAs was 1.82 per cent. In FY 17, gross NPAs
was 4.73 per cent and net NPAs was 1.96 per cent.
On the question of solvency ratio of LIC over the years, the government said, “It may be noted that year wise solvency ratios of LIC’s total business for the financial years 2013-14 to 2017-18 are 1.55,1.55,1.55, 1.59 and 1.59 respectively”.
The solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-term and long-term liabilities. The lower the company's solvency ratio, the greater is the probability that it will default on its debt obligations.
LIC sees a sharp fall in NPAs from Rs 70.40 bn in Mar to 15.80 bn in Oct
Banking sector on “course to recovery” as NPAs recede, says RBI
The weaker ones among the public sector banks need to be supported through recapitalisation, the Governor said.
The banking sector is on “course to recovery” as the afflicting non-performing assets recede, but state-run lenders need reforms in governance, Governor Shaktikanta Das said on Monday.
The weaker ones among the public sector banks need to be supported through recapitalisation, the Governor said in his foreword to RBI’s half-yearly financial stability report (FSR).
“After a prolonged period of stress, the banking sector appears to be on course to recovery as the load of impaired assets recedes,” Mr. Das, who took charge earlier this month after the sudden exit of Urjit Patel, said.
He pointed out that the period till September has seen a decline in gross NPA ratios — the first such dip in three years — and also pointed out at improving provision coverage ratio, which is the ability of a bank to withstand stress, as a positive.
According to the FSR, gross NPAs ratio declined to 10.8 per cent in September 2018 from 11.5 per cent in March 2018, while for the state-run lenders, the same improved to 14.8 per cent in September 2018 from close to 15.2 per cent in March 2018.
Under the baseline scenario, the GNPA ratio of all banks may come down to 10.3 per cent by March 2019 from 10.8 per cent in September 2018, the report said.
Current NPA levels
The Governor said even though the current NPA levels are high, stress tests done by the RBI have pointed to an improvement in the ratio in future.
Having done a lot of work on the NPA front, which started with the accelerated recognition through the asset quality review, Mr. Das said there is a need for operational improvements at the state-run lenders which account for a bulk of the dud assets.
“The immense effort put in by the stakeholders so far is required to be buttressed with substantive reforms in governance and oversight regime, supported by recapitalisation of weak PSBs,” he said in the comments, which come days after the Centre committed an additional Rs 41,000 crore in FY19 for the recapitalisation.
Eleven of the 20 state-run lenders are under the prompt corrective action (PCA) framework, which restricts their normal lending and is a bone of contention between the conservative regulator and a government that will be facing elections in a few months.
NPA recognition led to improvements
Mr. Das, a career bureaucrat who steered the Government’s note ban move from the Finance Ministry, said despite its high costs, the NPA recognition has led to improvements in the operational risk assessment at state-run lenders.
“...it appears to have led to a greater discipline in credit assessment, higher sensitivity to market risk and better appreciation of operational risks,” he said.
Mr. Das acknowledged that some of the cases referred for resolution under the two-year-old bankruptcy framework have lagged time-lines, but said the Insolvency and Bankruptcy Code (IBC) will strengthen credit discipline.
“A time-bound resolution of impaired assets will go a long way in unclogging the credit pipeline thus improving the allocative efficiency in the economy,” he said.
Troubled non-bank lending sector
Mr. Das also touched on the troubled non-bank lending sector, saying the non banking finance companies (NBFCs) need to be more prudent on risk-taking and also underlined the need to rebalance excessive credit growth, especially the one funded by short term liabilities.
The high credit growth is “not stability enhancing”, Mr. Das said.
Both the banks as well as non-banks need to be diligent, prudent and follow sound risk management practices as they support the growth needs of the economy, he said.
Mr. Das said the slowdown in GDP growth to 7.1 per cent is slower than expected, but pointed out to an uptick in gross fixed capital formation along with the dip in crude oil prices as a positive for a sustained growth going forward.
Globally, the threat of trade war which would have weakened growth prospects has softened, he said.
A stricter enforcement of global trade and investment rules could potentially lead to market stability and win-win bargains in trade, Mr. Das said.
Banking sector on “course to recovery” as NPAs recede, says RBI
The weaker ones among the public sector banks need to be supported through recapitalisation, the Governor said.
The banking sector is on “course to recovery” as the afflicting non-performing assets recede, but state-run lenders need reforms in governance, Governor Shaktikanta Das said on Monday.
The weaker ones among the public sector banks need to be supported through recapitalisation, the Governor said in his foreword to RBI’s half-yearly financial stability report (FSR).
“After a prolonged period of stress, the banking sector appears to be on course to recovery as the load of impaired assets recedes,” Mr. Das, who took charge earlier this month after the sudden exit of Urjit Patel, said.
He pointed out that the period till September has seen a decline in gross NPA ratios — the first such dip in three years — and also pointed out at improving provision coverage ratio, which is the ability of a bank to withstand stress, as a positive.
According to the FSR, gross NPAs ratio declined to 10.8 per cent in September 2018 from 11.5 per cent in March 2018, while for the state-run lenders, the same improved to 14.8 per cent in September 2018 from close to 15.2 per cent in March 2018.
Under the baseline scenario, the GNPA ratio of all banks may come down to 10.3 per cent by March 2019 from 10.8 per cent in September 2018, the report said.
Current NPA levels
The Governor said even though the current NPA levels are high, stress tests done by the RBI have pointed to an improvement in the ratio in future.
Having done a lot of work on the NPA front, which started with the accelerated recognition through the asset quality review, Mr. Das said there is a need for operational improvements at the state-run lenders which account for a bulk of the dud assets.
“The immense effort put in by the stakeholders so far is required to be buttressed with substantive reforms in governance and oversight regime, supported by recapitalisation of weak PSBs,” he said in the comments, which come days after the Centre committed an additional Rs 41,000 crore in FY19 for the recapitalisation.
Eleven of the 20 state-run lenders are under the prompt corrective action (PCA) framework, which restricts their normal lending and is a bone of contention between the conservative regulator and a government that will be facing elections in a few months.
NPA recognition led to improvements
Mr. Das, a career bureaucrat who steered the Government’s note ban move from the Finance Ministry, said despite its high costs, the NPA recognition has led to improvements in the operational risk assessment at state-run lenders.
“...it appears to have led to a greater discipline in credit assessment, higher sensitivity to market risk and better appreciation of operational risks,” he said.
Mr. Das acknowledged that some of the cases referred for resolution under the two-year-old bankruptcy framework have lagged time-lines, but said the Insolvency and Bankruptcy Code (IBC) will strengthen credit discipline.
“A time-bound resolution of impaired assets will go a long way in unclogging the credit pipeline thus improving the allocative efficiency in the economy,” he said.
Troubled non-bank lending sector
Mr. Das also touched on the troubled non-bank lending sector, saying the non banking finance companies (NBFCs) need to be more prudent on risk-taking and also underlined the need to rebalance excessive credit growth, especially the one funded by short term liabilities.
The high credit growth is “not stability enhancing”, Mr. Das said.
Both the banks as well as non-banks need to be diligent, prudent and follow sound risk management practices as they support the growth needs of the economy, he said.
Mr. Das said the slowdown in GDP growth to 7.1 per cent is slower than expected, but pointed out to an uptick in gross fixed capital formation along with the dip in crude oil prices as a positive for a sustained growth going forward.
Globally, the threat of trade war which would have weakened growth prospects has softened, he said.
A stricter enforcement of global trade and investment rules could potentially lead to market stability and win-win bargains in trade, Mr. Das said.
Banking sector on “course to recovery” as NPAs recede, says RBI
Bank of India, OBC, Bank of Maharashtra may exit PCA framework before year ends
The next tranche of bank recapitalisation bonds worth Rs 28,000 crore is likely to be issued latest by December 28, sources told CNBC-TV18.
Sources said that three banks — Bank of India, Oriental Bank of Commerce, Bank of Maharashtra — may exit from the prompt corrective action (PCA) framework post the approval for supplementary recap bond.
Syndicate Bank, which is not in the PCA framework, said that they haven't yet heard formally from the government regarding the exact amount of capital infusion.
However, the sources said Syndicate Bank may be infused with Rs 1,600 crore and Bank of Maharashtra with around Rs 4,498 crore.
Mrutyunjay Mahapatra, Managing Director and Chief Executive Officer, Syndicate Bank, said: "If the recapitalisation amount is around Rs 1,600 crore, it would be an adequate amount for the bank. It would raise their capital adequacy ratio by 1 percent". He also clarified that the net NPAs would come down through recoveries and not through this recapitalization money.
Meanwhile, Alekh Rout, executive director at Bank of Maharashtra, said "Rs 4498 crore amount would be adequate for the bank and help the bank come out of PCA".
"Post recapitalisation, the capital adequacy ratio would go above 11 percent, said Rout and the net NPA would to come down from 10.61 percent to around 6 percent."
Bank of India, OBC, Bank of Maharashtra may exit PCA framework before year ends
The next tranche of bank recapitalisation bonds worth Rs 28,000 crore is likely to be issued latest by December 28, sources told CNBC-TV18.
Sources said that three banks — Bank of India, Oriental Bank of Commerce, Bank of Maharashtra — may exit from the prompt corrective action (PCA) framework post the approval for supplementary recap bond.
Syndicate Bank, which is not in the PCA framework, said that they haven't yet heard formally from the government regarding the exact amount of capital infusion.
However, the sources said Syndicate Bank may be infused with Rs 1,600 crore and Bank of Maharashtra with around Rs 4,498 crore.
Mrutyunjay Mahapatra, Managing Director and Chief Executive Officer, Syndicate Bank, said: "If the recapitalisation amount is around Rs 1,600 crore, it would be an adequate amount for the bank. It would raise their capital adequacy ratio by 1 percent". He also clarified that the net NPAs would come down through recoveries and not through this recapitalization money.
Meanwhile, Alekh Rout, executive director at Bank of Maharashtra, said "Rs 4498 crore amount would be adequate for the bank and help the bank come out of PCA".
"Post recapitalisation, the capital adequacy ratio would go above 11 percent, said Rout and the net NPA would to come down from 10.61 percent to around 6 percent."
Bank of India, OBC, Bank of Maharashtra may exit PCA framework before year ends
IBC helped creditors recover Rs 80,000 crore to date, says Arun Jaitley
Enacting the Insolvency and Bankruptcy Code (IBC) has helped lenders get Rs 80,000 crore in 66 cases and another about Rs 70,000 crore is likely to be recovered in the remaining months of the current financial year, Finance Minister Arun Jaitley said on Thursday.
On his Facebook page, Jaitley said National Company Law Tribunal (NCLT) had started receiving corporate insolvency cases by the end of 2016 and so far, 1,322 cases have been admitted by it. A total of 4,452 cases have been disposed of at pre-admission stage and 66 have been resolved after adjudication. As many as 260 cases have been ordered for liquidation, he said in the post, titled two years of Insolvency and Bankruptcy Code (IBC).
“In 66 resolution cases, realisation by creditors was around Rs 80,000 crore... Some of the big 12 cases, such as Bhushan Power and Steel and Essar Steel India are in advanced stages of resolution and are likely to be resolved in this financial year, in which realisation is expected to be around Rs 70,000 crore,” Jaitley said.
He said the code, particularly after insertion of Section 29 (A), has forced promoters not to turn potential debtors, and pay their dues. The section debars promoters and related parties, who have more than one year of NPAs, to bid for companies. The defaulters know well that once they get into IBC they will surely be out of management because of Section 29(A), he said.
Also, once a petition of the creditor is filed before the NCLT many debtors have been paying at the pre-admission stage so that the declaration of insolvency does not take place.
Many major insolvency cases have already been resolved and many are on the way of resolving. Those which cannot be resolved move towards liquidation and the banks are receiving the liquidation value, he said.
“Those who drive the companies to insolvency, exit from management. The selection of new management has been an honest and transparent process. There has been no political or government interference in the cases,” he added.
According to the NCLT database, in 4,452 cases disposed at pre-admission stage, the amount apparently settled was around Rs 2.02 trillion, the minister added.
Jaitley said the increase in conversion of NPAs into standard accounts and decline in new accounts in NPA category show a definite improvement in the lending and borrowing behaviour. “The early harvest through the IBC process has been extremely satisfactory. It has changed the debtor-creditor relationship. The creditor no longer chases the debtor. In fact, it is otherwise,” the minister said.
Accusing the Congress of leaving behind a legacy of an “anachronic system” of resolving commercial insolvency, Jaitley said the NDA government acted swiftly to recover non-performing loans and legislated IBC.
Jaitley said the Congress government had enacted the Sick Industrial Companies Act during the 1980s for rehabilitation of sick companies. This applied to companies whose net worth had become negative.
“The law proved to be an utter failure,” he said.
Besides, the Debt Recovery Tribunal was created to enable banks to recover every due diligently, but these have not proved to be highly efficient mechanism for recovering debt, he added. “For non-corporate insolvencies the Provincial Insolvency Act was applicable. This was a rusted piece of legislation, ineffective and had faded away because of disuse,” Jaitley added.
IBC helped creditors recover Rs 80,000 crore to date, says Arun Jaitley
Enacting the Insolvency and Bankruptcy Code (IBC) has helped lenders get Rs 80,000 crore in 66 cases and another about Rs 70,000 crore is likely to be recovered in the remaining months of the current financial year, Finance Minister Arun Jaitley said on Thursday.
On his Facebook page, Jaitley said National Company Law Tribunal (NCLT) had started receiving corporate insolvency cases by the end of 2016 and so far, 1,322 cases have been admitted by it. A total of 4,452 cases have been disposed of at pre-admission stage and 66 have been resolved after adjudication. As many as 260 cases have been ordered for liquidation, he said in the post, titled two years of Insolvency and Bankruptcy Code (IBC).
“In 66 resolution cases, realisation by creditors was around Rs 80,000 crore... Some of the big 12 cases, such as Bhushan Power and Steel and Essar Steel India are in advanced stages of resolution and are likely to be resolved in this financial year, in which realisation is expected to be around Rs 70,000 crore,” Jaitley said.
He said the code, particularly after insertion of Section 29 (A), has forced promoters not to turn potential debtors, and pay their dues. The section debars promoters and related parties, who have more than one year of NPAs, to bid for companies. The defaulters know well that once they get into IBC they will surely be out of management because of Section 29(A), he said.
Also, once a petition of the creditor is filed before the NCLT many debtors have been paying at the pre-admission stage so that the declaration of insolvency does not take place.
Many major insolvency cases have already been resolved and many are on the way of resolving. Those which cannot be resolved move towards liquidation and the banks are receiving the liquidation value, he said.
“Those who drive the companies to insolvency, exit from management. The selection of new management has been an honest and transparent process. There has been no political or government interference in the cases,” he added.
According to the NCLT database, in 4,452 cases disposed at pre-admission stage, the amount apparently settled was around Rs 2.02 trillion, the minister added.
Jaitley said the increase in conversion of NPAs into standard accounts and decline in new accounts in NPA category show a definite improvement in the lending and borrowing behaviour. “The early harvest through the IBC process has been extremely satisfactory. It has changed the debtor-creditor relationship. The creditor no longer chases the debtor. In fact, it is otherwise,” the minister said.
Accusing the Congress of leaving behind a legacy of an “anachronic system” of resolving commercial insolvency, Jaitley said the NDA government acted swiftly to recover non-performing loans and legislated IBC.
Jaitley said the Congress government had enacted the Sick Industrial Companies Act during the 1980s for rehabilitation of sick companies. This applied to companies whose net worth had become negative.
“The law proved to be an utter failure,” he said.
Besides, the Debt Recovery Tribunal was created to enable banks to recover every due diligently, but these have not proved to be highly efficient mechanism for recovering debt, he added. “For non-corporate insolvencies the Provincial Insolvency Act was applicable. This was a rusted piece of legislation, ineffective and had faded away because of disuse,” Jaitley added.
IBC helped creditors recover Rs 80,000 crore to date, says Arun Jaitley
Govt working with RBI to track fraud cases of below Rs 1L: Prasad in RS
The government is working with the Reserve Bank (RBI) to look into cases of financial frauds involving amounts which are below Rs 1 lakh, IT Minister Ravi Shankar Prasad said in the Rajya Sabha on Friday.
A Financial Data Protection bill has been drafted that aims to address issues related to data theft, including from social networking websites, he also told the House.
Presently, the RBI along with banks is tracking cases of frauds related to credit, debit and ATM cards and internet banking involving over Rs one lakh, he said.
"The data of India cannot be stolen and strict action will be taken against any kind of fraud," Prasad said during the Question Hour while responding to Supplementary queries.
He also mentioned that the data on hacking placed before the Upper House is substantially related to financial fraud. The RBI is already looking into cases of frauds involving transaction above Rs one lakh.
"We are working with the RBI to look into frauds involving transaction below Rs one lakh amount," he said.
To a supplementary query on steps taken to curb hacking of data from social networking sites, Prasad said, "Today, India will not bow down to the new imperialism. We took action against Facebook the moment we received the complaint."
A Financial Data Protection bill has been drafted that aims to address all these issue, he said.
The Minister also said there are problems because of uncertainty of cyber world. However, the government conducts security drills and has also set up centres to provide protection.
Govt working with RBI to track fraud cases of below Rs 1L: Prasad in RS
The government is working with the Reserve Bank (RBI) to look into cases of financial frauds involving amounts which are below Rs 1 lakh, IT Minister Ravi Shankar Prasad said in the Rajya Sabha on Friday.
A Financial Data Protection bill has been drafted that aims to address issues related to data theft, including from social networking websites, he also told the House.
Presently, the RBI along with banks is tracking cases of frauds related to credit, debit and ATM cards and internet banking involving over Rs one lakh, he said.
"The data of India cannot be stolen and strict action will be taken against any kind of fraud," Prasad said during the Question Hour while responding to Supplementary queries.
He also mentioned that the data on hacking placed before the Upper House is substantially related to financial fraud. The RBI is already looking into cases of frauds involving transaction above Rs one lakh.
"We are working with the RBI to look into frauds involving transaction below Rs one lakh amount," he said.
To a supplementary query on steps taken to curb hacking of data from social networking sites, Prasad said, "Today, India will not bow down to the new imperialism. We took action against Facebook the moment we received the complaint."
A Financial Data Protection bill has been drafted that aims to address all these issue, he said.
The Minister also said there are problems because of uncertainty of cyber world. However, the government conducts security drills and has also set up centres to provide protection.
Govt working with RBI to track fraud cases of below Rs 1L: Prasad in RS
IBBI signs pact with Int'l Finance Corporation for implementation of IBC
New Delhi, Mar 7 (UNI) The Insolvency and Bankruptcy Board of India (IBBI) has signed a cooperation agreement with the International Finance Corporation (IFC), a Member of the World Bank Group (WBG) to build capacity of the insolvency professionals and its agencies for the the effective implementation of the Insolvency and Bankruptcy Code, 2016.
The agreement was signed on Wednesday by K R Saji Kumar, Executive Director, IBBI and Jun Zhang, Country Manager, IFC India. Injeti Srinivas, Secretary, Ministry of Corporate Affairs, M S Sahoo, Chairperson, IBBI, Gyaneshwar Kumar Singh, Joint Secretary, Ministry of Corporate Affairs, and other Ministry officials were present on the occasion.
The Insolvency and Bankruptcy Code, 2016 (Code) provides for re-organisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders. For this purpose, it has established an institutional infrastructure comprising adjudicating authorities, the IBBI, insolvency professionals, insolvency professional agencies and information utilities.
The IBBI exercises regulatory oversight over the insolvency professionals, insolvency professional agencies and information utilities. It writes and enforces rules for processes, namely, corporate insolvency resolution, corporate liquidation, individual insolvency resolution and individual bankruptcy under the Code.
The IBBI is interested in the effective implementation of the Code and its allied rules and regulations. The IFC is interested to assist the IBBI to further build the capacity of the insolvency professionals, and insolvency professional agencies for the purposes of the Code.
The Cooperation agreement envisages technical assistance up to June 30, 2021 by the IFC to IBBI in this regard.
IBBI signs pact with Int'l Finance Corporation for implementation of IBC | Indiablooms - First Portal on Digital News Management
New Delhi, Mar 7 (UNI) The Insolvency and Bankruptcy Board of India (IBBI) has signed a cooperation agreement with the International Finance Corporation (IFC), a Member of the World Bank Group (WBG) to build capacity of the insolvency professionals and its agencies for the the effective implementation of the Insolvency and Bankruptcy Code, 2016.
The agreement was signed on Wednesday by K R Saji Kumar, Executive Director, IBBI and Jun Zhang, Country Manager, IFC India. Injeti Srinivas, Secretary, Ministry of Corporate Affairs, M S Sahoo, Chairperson, IBBI, Gyaneshwar Kumar Singh, Joint Secretary, Ministry of Corporate Affairs, and other Ministry officials were present on the occasion.
The Insolvency and Bankruptcy Code, 2016 (Code) provides for re-organisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders. For this purpose, it has established an institutional infrastructure comprising adjudicating authorities, the IBBI, insolvency professionals, insolvency professional agencies and information utilities.
The IBBI exercises regulatory oversight over the insolvency professionals, insolvency professional agencies and information utilities. It writes and enforces rules for processes, namely, corporate insolvency resolution, corporate liquidation, individual insolvency resolution and individual bankruptcy under the Code.
The IBBI is interested in the effective implementation of the Code and its allied rules and regulations. The IFC is interested to assist the IBBI to further build the capacity of the insolvency professionals, and insolvency professional agencies for the purposes of the Code.
The Cooperation agreement envisages technical assistance up to June 30, 2021 by the IFC to IBBI in this regard.
IBBI signs pact with Int'l Finance Corporation for implementation of IBC | Indiablooms - First Portal on Digital News Management
I-T department, other tax agencies can initiate insolvency: NCLAT
The Income Tax department of the central government, the sales tax department of the state government and other local authorities “who are entitled for dues arising out of the existing law” can now initiate corporate insolvency resolution process against such companies who owe them the dues, the National Company Law
Appellate Tribunal (NCLAT) has held.
These tax departments will be considered as operational creditors of the debtor companies and all statutory dues including income tax, value added tax and others will come within the meaning of operational debt, a two-member Bench headed by Justice S J Mukhopadhaya said on Wednesday. The NCLAT’s judgment came on various appeals moved by the income tax and other services tax departments of the various states against decision of various benches of National Company Law Tribunals (NCLT).
In one such case, the sales tax department Maharashtra had challenged the decision of the Resolution Professional of Raj Oil Mills Limited to not call the tax agency to the meeting of the Committee of Creditors (CoC). It had also claimed that the dues owed to the tax department did not come under operational debt, and hence it should not be considered as an operational creditor.
In its judgement of Wednesday, the NCLAT however, held that since operational debt in normal course meant a due arising during the operation of the company, all statutory dues owed to the income tax department, along with others would be operational debt.
“As the income tax’, value added tax and other statutory dues arising out of the existing law arises when the company is operational, we hold such statutory dues has direct nexus with operation of the Company. For the said reason also, we hold that all statutory dues including ‘income tax’, ‘value added tax’ come within the meaning of operational debt,” the NCLAT said.
In another case, the Principal Director General of Income Tax of Mumbai had challenged a ruling of NCLT Mumbai alleging that it had approved a resolution plan for Raj Oil Mills Limited which gave a maximum of Rs 2.58 crore to the department against the total claim of Rs 338 crore.
This settlement for 1% of the ‘crystallized demand’ was against the mandate of Income Tax Act of 1961, the department had claimed. However, as the successful resolution applicant had proposed to repay the all the Rs 338 crore dues of the tax department over the next three years, the plea was been disposed-off by the NCLAT.
I-T department, other tax agencies can initiate insolvency: NCLAT
The Income Tax department of the central government, the sales tax department of the state government and other local authorities “who are entitled for dues arising out of the existing law” can now initiate corporate insolvency resolution process against such companies who owe them the dues, the National Company Law
Appellate Tribunal (NCLAT) has held.
These tax departments will be considered as operational creditors of the debtor companies and all statutory dues including income tax, value added tax and others will come within the meaning of operational debt, a two-member Bench headed by Justice S J Mukhopadhaya said on Wednesday. The NCLAT’s judgment came on various appeals moved by the income tax and other services tax departments of the various states against decision of various benches of National Company Law Tribunals (NCLT).
In one such case, the sales tax department Maharashtra had challenged the decision of the Resolution Professional of Raj Oil Mills Limited to not call the tax agency to the meeting of the Committee of Creditors (CoC). It had also claimed that the dues owed to the tax department did not come under operational debt, and hence it should not be considered as an operational creditor.
In its judgement of Wednesday, the NCLAT however, held that since operational debt in normal course meant a due arising during the operation of the company, all statutory dues owed to the income tax department, along with others would be operational debt.
“As the income tax’, value added tax and other statutory dues arising out of the existing law arises when the company is operational, we hold such statutory dues has direct nexus with operation of the Company. For the said reason also, we hold that all statutory dues including ‘income tax’, ‘value added tax’ come within the meaning of operational debt,” the NCLAT said.
In another case, the Principal Director General of Income Tax of Mumbai had challenged a ruling of NCLT Mumbai alleging that it had approved a resolution plan for Raj Oil Mills Limited which gave a maximum of Rs 2.58 crore to the department against the total claim of Rs 338 crore.
This settlement for 1% of the ‘crystallized demand’ was against the mandate of Income Tax Act of 1961, the department had claimed. However, as the successful resolution applicant had proposed to repay the all the Rs 338 crore dues of the tax department over the next three years, the plea was been disposed-off by the NCLAT.
I-T department, other tax agencies can initiate insolvency: NCLAT