MUMBAI: Gross non-performing assets (NPAs) of banks could increase to 5.1-5.7 per cent by March 2016 as against 4.5 per cent as of December 2014, especially because of withdrawal of regulatory forbearance.
Gross NPAs of state-run banks are more than double that of private sector banks, ICRA said.
Public sector banks’ (PSBs) bad and doubtful loans rose to 5.1% as of December 31, 2014 compared with 2.1% for private banks. A key reason for this phenomenon is lower proportion of recoveries and upgradation of loans borrowed, which dropped to 14 per cent in the third quarter from 25-45% in earlier four quarters.
PSBs had standard restructured advances of 6.5% compared with 2% for private sector banks. From the beginning of the new financial year, banks will have to categorise these standard restructured assets as NPAs, thereby increasing NPAs for the banking system.
“Recoveries dropped due to difficult operating environment as well as tightening of norms for sale of NPAs to asset reconstruction companies (ARCs),’’ ICRA said in its outlook for banking sector. The study was conducted by Vibha Batra and Karthik Srinivasan, group heads for financial sector ratings at ICRA.
Yet, there is also a silver-lining. About a quarter of fresh NPAs generated in third quarter to December 2014 came from restructured loans. Also, better recoveries at the SBI helped the system moderate the number of new NPAs. SBI Group accounts for almost a quarter of the banking system and the bank reduced its gross NPA to 4.9% from 5.73% in Q3.
Five sectors of infrastructure, iron & steel, textiles, aviation and mining accounted for 52% of the banks stressed assets even as their share in loans from banks was 24 per cent. Here again, because PSBs gave more loans to nation building segments, their exposure to the stressed sectors is 27-30% as against 15% for private sector. Retail segment, where private sector banks give more loans, had the smallest NPAs while industry the highest. Yet, as the economy improves and with it credit growth, overall stress in the banking system is likely to decline with higher economic activity, lower inflation and falling interest rates, ICRA said.
A challenge, especially for the PSBs is likely to be capital. Banks could need to raise Rs 100,000 crore in the year to March 2016. With new government norms to allocate capital, some banks may find it tough to get money either from the government or the market
Debt recast scheme failing, NPAs may cross R30K crore
After non-performing assets, it is now the turn of restructured debt packages that have got banks worried.
Debt restructuring packages of 121 companies with loans of over Rs 30,000 crore have failed during the last four years, and banks fear that number is set for a sharp rise in the coming months.
Figures available with the Corporate Debt Restructuring (CDR) cell of banks — considered as the “intensive care unit” for financially troubled corporates — show that CDR packages of 86 companies with loans of Rs 14,000 crore failed in 2013-14. In 2012-13, 12 CDR cases for Rs 4,300 crore and in 2011-12, 9 cases for Rs 3,000 crore failed.
These CDR packages failed — from virtually zero to Rs 30,000 crore in four years — even after banks doled out interest rate cuts, moratorium on repayment and in some cases even a haircut by the lenders. After taking into account the stressed loan cases withdrawn from the CDR mechanism, the total amount involved in unsuccessful restructuring comes to Rs 50,104 crore, says the CDR Cell of banks, created under the RBI’s regulatory framework.
RK Bansal, chairman of the Cell said, “One worry is that in cases which we have restructured failure rates might go up. We have noticed that failure rates had gone up during the last year. This is partly because these cases were restructured during 2011-12 and 2012-13.”
“They were based on some projections that the economy will do well and demand will rise etc. In some cases it was not possible to comply with or achieve that,” Bansal said.
Banks had gone overboard in estimating demand and the promoters’ capability in bringing money.
There are two options when a company’s CDR package fails to click. “One is the company perhaps needs another package if it is viable. But as per the RBI guidelines, if it is a second restructuring then it becomes an NPA. The second option before the bank is legal action,” Bansal said.
Some of the top corporates whose CDR packages failed include Bharati Shipyard (Rs 3,500 crore), Hotel Leela (Rs 3,000 crore), Electrotherm, Jayabharat Textiles and Surya Pharma.
While announcing the Q3 results, ICICI Bank MD & CEO Chanda Kochhar said the bank’s fresh slippages stood at Rs 2,279 crore during quarter, with almost Rs 776 crore, coming from advances restructured in the past.
The trend of restructured assets slipping into NPAs is expected to continue for another 2-3 quarters.
“The government needs to amend the Sarfaesi Act and tighten rules governing debt recovery tribunals to speed up recoveries,” said the chairman of a nationalised bank.
Rs65,295 crore proposals rejected, Winsome, Shree Ganesh lead list
MUMBAI: The CDR cell of banks has rejected / closed before approval as many as 121 proposals for debt restructuring worth around Rs 65,295 crore.
“Many of these cases are wilful defaults and fund diversion. “We need a tough law to tackle such wilful defaulters,” he said.
Two such cases are that of Winsome Diamonds and Shree Ganesh Jewellery where banks conducted a forensic audit and found evidence of fund diversion. The application was
“We need a tough law to tackle such wilful defaulters,” a senior banker said.
How will the Centre infuse capital in PSBs?
--Hindu Business LineMumbai, February 23:
Public sector banks need ₹4.6 lakh crore over the next four years as part of Basel-III requirements, and about ₹2.4 lakh crore has to come from the Centre as its equity contribution.
This is three times what the Centre has provided cumulatively over two decades for banks by way of capital infusion.
The Centreis planning to raise this amount partly through stake sale and partly through ploughing back its dividends and making budgetary provisions. The Centre has four years to do the needful since the implementation date is March 2019.
The Centre recently allocated a measly ₹6,990 crore among nine banks using the criteria of return on assets (RoA) and return on equity (RoE) to reward those who did better than the average. This marks a shift in strategy, since earlier infusions of capital were need-based. A retired top banker compared this policy to asking teams to play rugby, but having a cricket umpire and scoring like in cricket to judge the winners. He was alluding to the lack of a level-playing field as well as the multiple social responsibilities foisted on State-owned banks while expecting them to ace all commercial tests of efficiency.
While the usage of financial parameters as criteria to determine capital infusion is unexceptionable, this should have been made clear to the banks and their boards.
Till now public sector banks were recapitalised unconditionally by the government, despite moral hazards of that move. What could have been done was to provide recapitalisation on the basis of mutually agreed targets between the government and the banks. If banks did not meet the targets, then the correct thing would be to sack the management.
What about the banks who did not get funds?
The Centre has said that it will use these yardsticks of efficiency to infuse fresh capital into public sector banks, but it has left an important question unanswered: What will happen to those banks who do not meet the criteria but still need to beef up their capital?
Given that the Centre had an equity stake of 51per cent or more in most public sector banks, it is unclear how they will be able to evade the responsibility to recapitalise banks suitably. Asked about what banks could do meanwhile, the retired banker said that banks must improve revenue streams, diversify sources of fee income, cut down interest expense and improve the mix of business.
Easier said than done, as the banker himself conceded, and they are all medium-term solutions. For the short term, banks will have to shrink their lending and their balance sheet to meet the required norms, a move that, some surmise, could signal the start of a consolidation process.
Informed opinion in the banking industry feels that such shrinking of lending would have damaging consequences. Firstly, the unlucky banks which were not recapitalised may find their good customers migrating to other banks.
Second, their non-performing assets (NPA) ratios that are already on the rise will worsen further if lending curbs are imposed on them. Third, morale as well as valuations, already beaten, will be driven further lower. Now, these banks are technically free to raise capital from the market. It is a moot point, however, if ordinary investors will want to bail them out when the principal stakeholder refuses to.
In which case, the ball will be right back in the Centre’s court and it will most probably face the pressure to recapitalise these banks all at once. One way to avoid such a situation is start making sizeable allocations for capital from the forthcoming budget itself.
That would send the right signals of the Centre’s seriousness about recapitalisation as well as fiscal consolidation. The capital can be infused into banks at a later date based on meeting agreed targets, while they can be allowed to raise money from the market when conditions are appropriate. The Centre will also have to simultaneously pay heed to the task of timing the capital raising of different public sector banks so as not to present investors with a glut of bank paper at one time and then suffer poor valuations. This promises to be a long and arduous process.
My Observations are as follows
Rise in non performing assets in public sector bank will continue unabated and without any check until entire system of recruitment, promotion and posting is changed.
Volume of bad debts is huge and concealed in books till now. Asset quality cannot improve by manipulating and fraudulently concealment of bad assets.
Actual reduction in slippages cannot be stopped until process of lending , monitoring ,system of fixing credit targets and building pressure for achieving credit target is changed, until political exploitation is stopped completely and until legal and administrative system become active and effective to help in recovery of loans from defaulters.
Quality of loan assets cannot improve until bank officers learn to say NO to bad proposals and until they discard greed for bribe and undue favour from loan seekers.
Public sector banks cannot perform better until Government use them as their tool to enrich vote bank.
If GOI want to use PS banks as tool to help poor, common men and business houses and to save farmers and industrialists from money lenders they will have to stop comparing performance of PSBs with that of private banks .
GOI will have to stop losses caused to various PSBs due to inter bank unhealthy competition and force them to follow uniform interest rate policy and to boost the moral of real honest performers instead of giving award to flatterers and bribe earners. After all various PSBs are organs of same government and their survival depends of capital support from same government.
GOI will have to give a considerably good hike in wages of bank staff to boost up their moral and to make them fully devoted to quality and quantity of assets.
Bank staff are crying for respectful wage hike for more than 26 months , but GOI have got no time to look into the casual attitude of Indian Bank's Association. This has caused much frustration to bank staff . Overall impact is negative.
GOI cannot be and should not be so much casual in dealing with Bank staff who take part wholeheartedly in all national programme despite manpower constraints.
Even after working 12 hours a day , if pay package of an officer is less than clerk of central government departments and that of clerk is less than pay of a peon in central services, one cannot expect good result from PS banks in such environment.
GOI has not even bothered to take punitive or corrective action against administrative officials , police officials, court judges, advocates and others who indirectly support defaulters of bank and cause inordinate delay in disposal of bank cases filed in courts.
GOI has failed to stop politicians using PS banks for lending to their kith and kin and in lieu of that promote an bank officer for the post of ED or CMD.
GOI could not fix accountability on top officials of banks, RBI directors, CA directors ,members of Boards and other VIPs who join hands in sanctioning of loan to bad individuals .
GOI could not stop and punish team of Chartered Accountants, valuers, legal officials, Team of rating officials who in nexus with borrowers give certificate of good health and submit fabricated financial statements .
After all who will bell the cat ? Who will take the responsibility when a loan becomes NPA? Should we leave all bad officials and wrong reason for cases of bad loan be accepted all the time?
We cannot dream of credit discipline until bank and GOI learn to identify intention of all officials involved in sanction and monitoring of loans and learn to identify the person behind any bad loan and until some of them are booked to task .
My Observations are as follows
Rise in non performing assets in public sector bank will continue unabated and without any check until entire system of recruitment, promotion and posting is changed.
Volume of bad debts is huge and concealed in books till now. Asset quality cannot improve by manipulating and fraudulently concealment of bad assets.
Actual reduction in slippages cannot be stopped until process of lending , monitoring ,system of fixing credit targets and building pressure for achieving credit target is changed, until political exploitation is stopped completely and until legal and administrative system become active and effective to help in recovery of loans from defaulters.
Quality of loan assets cannot improve until bank officers learn to say NO to bad proposals and until they discard greed for bribe and undue favour from loan seekers.
Public sector banks cannot perform better until Government use them as their tool to enrich vote bank.
If GOI want to use PS banks as tool to help poor, common men and business houses and to save farmers and industrialists from money lenders they will have to stop comparing performance of PSBs with that of private banks .
GOI will have to stop losses caused to various PSBs due to inter bank unhealthy competition and force them to follow uniform interest rate policy and to boost the moral of real honest performers instead of giving award to flatterers and bribe earners. After all various PSBs are organs of same government and their survival depends of capital support from same government.
GOI will have to give a considerably good hike in wages of bank staff to boost up their moral and to make them fully devoted to quality and quantity of assets.
Bank staff are crying for respectful wage hike for more than 26 months , but GOI have got no time to look into the casual attitude of Indian Bank's Association. This has caused much frustration to bank staff . Overall impact is negative.
GOI cannot be and should not be so much casual in dealing with Bank staff who take part wholeheartedly in all national programme despite manpower constraints.
Even after working 12 hours a day , if pay package of an officer is less than clerk of central government departments and that of clerk is less than pay of a peon in central services, one cannot expect good result from PS banks in such environment.
GOI has not even bothered to take punitive or corrective action against administrative officials , police officials, court judges, advocates and others who indirectly support defaulters of bank and cause inordinate delay in disposal of bank cases filed in courts.
GOI has failed to stop politicians using PS banks for lending to their kith and kin and in lieu of that promote an bank officer for the post of ED or CMD.
GOI could not fix accountability on top officials of banks, RBI directors, CA directors ,members of Boards and other VIPs who join hands in sanctioning of loan to bad individuals .
GOI could not stop and punish team of Chartered Accountants, valuers, legal officials, Team of rating officials who in nexus with borrowers give certificate of good health and submit fabricated financial statements .
After all who will bell the cat ? Who will take the responsibility when a loan becomes NPA? Should we leave all bad officials and wrong reason for cases of bad loan be accepted all the time?
We cannot dream of credit discipline until bank and GOI learn to identify intention of all officials involved in sanction and monitoring of loans and learn to identify the person behind any bad loan and until some of them are booked to task .
No comments:
Post a Comment