Auditors’ query forces BOI to declare Gupta Coal loans as NPA-Times of India
Nagpur: The city-based Gupta Group is turning out to be another vexed loan case for the banks. While lenders are yet to finalize a corporate debt restructuring (CDR) proposal for two group companies, Gupta Coal India Limited (GCIL), which has the biggest loan of over 2,000 crore, has been declared a non-performing asset (NPA) by Bank of India (BOI) for its share of the debt.BOI is the leader of a consortium of over half a dozen lending agencies with exposure in GCIL. However, the account was only classified as NPA after BOI auditors raised an objection. BOI's individual loan to GCIL stands at over 550 crore.
GCIL is a coal trading company also engaged in imports. Most of the other consortium banks continue to keep it as a standard asset, saying that the payment has been regular. Sources in BOI say it was in June that the account was finally classified as NPA. Though the bank tried its best to treat it as a standard asset, the auditors did not agree.
Now, with the auditors having raised objections, there is little chance of considering a CDR proposal for this company, which was in the offing to tide over this financial crisis faced by the Gupta Group.
The Gupta group is headed by Padmesh Gupta, a prominent businessman from the city. TOI had sent him a text message seeking his comments, but it remained unanswered.
A large part of the GCIL loan is a cash credit limit, apart from letters of credit (L/C) and bank guarantee. The latter make up non-fund-based loans, which are to the tune of Rs490 crore, say sources. It has been learnt that the auditors had questioned the method on the basis of which the limits were sanctioned. Insiders say the company's credit limit should not have gone beyond 220 crore but the total outstanding ended up crossing over 550 crore.
One of the main features of the loan package was that the non-fund-based loans were convertible into fund-based. With a letter of credit, the company can purchase goods from the vendor with the bank directly paying the vendor. However, the bank's dues have to be cleared within 90 days. If there is a provision to change non-fund-based loans like L/C to fund-based, on non-payment after 90 days, the cash credit limit can be extended proportionately. After this, funds are drawn from
the limit to pay back the dues on L/C.
So, it becomes a part of the larger loan, which does not become NPA so long as the interest is served.
This facility is generally provided when the borrower has a longer realization cycle. But it can also be a convenient method to avoid an account from becoming NPA. If the defaulted amount on L/C becomes part of the larger loan, only interest has to be paid to keep the account as standard, said a chartered accountant engaged in project finance.
A senior officer in BOI who is monitoring the case admitted that the account was classified as NPA following the audit objection. There was an issue related to the limits that were calculated. "The bank has gone by the laid down norms, though it was not correct as per the auditors," the officer said, not wishing to be named. However, another top official in this bank said there are certain instances of diversion of funds too.
12 things your bank must do for you-Source Rediff.com
A conduct checklist for banks and financial institutions in India that must be followed while dealing with loan applications.
Banks and financial institutions touch almost everybody's life in more than one way. From a simple savings account to credit cards, fixed deposits, personal loans, car loans, education loans, home loans etc. banks offer a host of services.
With banks and lending institutions playing such a big role, do we know what should be their ideal conduct?
Here is a list of things that you should expect from your bank or financial institutions while taking a loan.
1. The customer should be provided with all the necessary information about a particular product so that s/he is able to determine the pros and cons of that particular product.
2. If a customer has applied for a loan, her/his application should be acknowledged and a time frame should be give within which the bank will take its decision and convey it to the applicant.
3. The banks should decide a time frame within which all the shortcomings regarding a loan application should be communicated to the customer.
4. The banks and financial institutions should clearly communicate the interest rates on different loan products through various popular media like the bank's branches, outlets, website, print and other media.
5. All borrowers should be informed periodically about the interest rates applicable to their loans.
6. Any revision in the interest rates should be communicated to the concerned borrower with in specified time frame by various popular communication methods.
7. The default or penal interest rates should be mentioned clearly to the borrower.
8. The conditions under which the bank will charge a default or penal interest and under what conditions will the bank revoke the penal interest should also be mentioned clearly.
9. Any other charges applicable to loan and other banking products should be communicated to the customer while accepting the applications.
10. All the terms and conditions applicable to the loan should be given in a document format to the borrower and it should contain full details about the amount of loan sanctioned, responsibilities of the borrower, responsibility of the bank and any other terms applicable to the loan.
11. The bank and financial institution should respect the privacy of its customers and follow strict privacy guidelines. The personal information of the customer must be confidential and should not be disclosed to any third party unless agreed to by the customer. Exceptions if any to this privacy policy should be communicated to the customer.
12. The banks and financial institutions should maintain a grievance redressal mechanism, which should receive customer's complaints and suggestions, and provide a suitable time
http://www.rediff.com/getahead/report/money-12-things-your-bank-must-do-for-you/20140930.htm
Accept self-attested documents to open account: RBI to banks-Financial Express-01.10.2014
The Reserve Bank today relaxed 'know your customer' norms by allowing self-certification of documents needed for opening bank accounts.
"With a view to easing difficulties faced by common persons while opening bank accounts and during periodic updating, guidelines on KYC will be further simplified with immediate effect," the central bank said in its monetary policy statement.
RBI has asked banks to "allow self-certification; accept a certified copy of the document by mail/post" for account opening.
Banks have also been asked not to seek fresh documents if an existing KYC compliant customer of a bank desires to open another account in the bank.
For periodic updating of KYC, the RBI told the banks not "insist on physical presence of the customer" and also not seek fresh proof of identity and address in case of no change in status for 'low risk' customers.
The Reserve Bank further said there is a need for banks to complete KYC for all customers including long standing 'low risk' customers.
"Banks should complete documentation, while minimising the effort on the part of the customer to what is strictly needed," it said.
In the event that customers are unable to comply within a reasonable time period, 'partial freezing' may be introduced in respect of KYC non-compliant customers, RBI added.
This means credits would be allowed in such accounts while debits would not be allowed, with an option to the account holder to close the account and take back the money in the account.
Banks might soon trim fixed deposit rates-Business Standard
Slow credit off-take to put pressure on margins
Banks are likely to pare term deposit rates in the near-term, as muted credit demand with its cascading effect on loan yields is threatening to erode their net interest margin (NIM).
The yield on advances for lenders has been declining steadily, as corporate houses are reluctant to borrow money from banks. This, combined with high deposit rates, have increased the stress on banks' net interest margin, bankers said.
"Yield on advances has been decreasing. Hence, interest rates on some of the deposits will probably have to be reduced. I expect deposit rate cut to start in the next few weeks," Ranjan Dhawan, executive director of Bank of Baroda, told Business Standard. The state-run lender's global yield on advances had narrowed to 8.31 per cent at the end of June, from 8.46 per cent a year earlier.
A few banks have already slashed deposit rates in certain buckets and many others are expected to mirror the move. State Bank of India has announced a 25-basis point (bp) interest rate cut on deposits maturing in one to three years from September 18. The bank said the decision was taken in the wake of slower than anticipated credit growth and surplus liquidity.
The yield on advances for lenders has been declining steadily, as corporate houses are reluctant to borrow money from banks. This, combined with high deposit rates, have increased the stress on banks' net interest margin, bankers said.
"Yield on advances has been decreasing. Hence, interest rates on some of the deposits will probably have to be reduced. I expect deposit rate cut to start in the next few weeks," Ranjan Dhawan, executive director of Bank of Baroda, told Business Standard. The state-run lender's global yield on advances had narrowed to 8.31 per cent at the end of June, from 8.46 per cent a year earlier.
A few banks have already slashed deposit rates in certain buckets and many others are expected to mirror the move. State Bank of India has announced a 25-basis point (bp) interest rate cut on deposits maturing in one to three years from September 18. The bank said the decision was taken in the wake of slower than anticipated credit growth and surplus liquidity.
Bankers rule out cut in deposit rates-FE
Bankers feel there is a possibility that the recovery in non-performing assets (NPA) cycle will be further drawn out following the Supreme Court’s verdict cancelling the allocation of coal blocks.
Arundhati Bhattacharya, chairman of the State Bank of India, said the turning of the NPA cycle could get delayed. “I am not ruling it out, but we are not pressing the panic buttons right now,” Bhattacharya said at the customary post-policy bankers’ press conference on Tuesday. “We need to be a bit patient and watch where it is.”
Bhattacharya said the government planned to come up with measures for companies affected by the cancellation of captive coal blocks. These were expected by October-end and bankers were waiting to assess the impact these would have on their accounts.
“Meanwhile, we are keeping our options open and keeping a track of all these accounts. We are also trying to engage with the necessary people to tell them what are the issues; we may suggest some solutions,” Bhattacharya explained.
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