Thiruvananthapuram, February 18:
The Madras High Court has extended an interim order against a circular issued a year ago that took away leave fare concession (LFC) to bank officers for foreign travel.
The court clarified that TDS should not be imposed on LFC payments made pending final disposal of writ petition. An advice to this effect has been sent to respondent banks, according to R Vaigai, Anna Mathew and K Tamilarasan, counsels for petitioners.
Justice S Nagamuthu had ordered an interim stay on the contentious circular in May last year on a writ moved by the All India State Bank Officers’ Federation, (AISBOF) Chennai, and All India Bank Officers Confederation (AIBOC), New Delhi.
The petitioners had sought an interim stay on the circular of April 7 by the Chief Executive, Indian Banks’ Association (IBA) read with the e-circular dated April 15 by Deputy Managing Director and Corporate Development Officer, State Bank of India. Counsel for petitioners had cited specific provisions of leave travel/home travel concession rules to substantiate their argument against the circular.
But without making amendment to these rules, SBI had issued the impugned letter saying that officers shall not be entitled to travel abroad as part of LFC. The extension of the stay comes in response to a rejoinder affidavit filed by D Thomas Franco Rajendra Dev, Vice-President, AISBOF, and joint general secretary, AIBOC. Officers are permitted to touch foreign land within the permitted limit of LFC provided the foreign travel is covered in between the domestic destinations, Dev submitted.
Many officers and their family members use this facility to visit destinations abroad, some of which are of religious importance. With regard to the Centre’s advice to the IBA in the matter, Dev pointed out that it was to check misuse of the facility and not issue a directive to deny it entirely.
http://www.thehindubusinessline.com/industry-and-economy/banking/court-extends-interim-stay-on-curbs-on-bank-officers-foreign-travel/article6909496.ece
http://www.thehindubusinessline.com/industry-and-economy/banking/court-extends-interim-stay-on-curbs-on-bank-officers-foreign-travel/article6909496.ece
RBI warns banks against making "mockery" of its lending operations-Business Standard
Reuters | MUMBAI February 20, 2015
By Neha Dasgupta and Swati Bhat
MUMBAI (Reuters) - The Reserve Bank of India (RBI) is getting tougher on extending unlimited credit to the country's banks to try to ensure they push interest rate cuts through the financial system and to stop them from making what one official called a "mockery" of its operations.
India's commercial banks readily borrow from the central bank at the policy rate but then lend that money out at a high rate, in what RBI Governor Raghuram Rajan describes as a culture of "lazy banking."
The RBI argues this reduces the effectiveness of its monetary policy decisions and the cheap funding rates for banks are not passed on to retail and corporate borrowers at a time when the economy is only gradually recovering from a slowdown.
"They have made a mockery of our monetary policy transmission framework," said one official familiar with the RBI's thinking.
Another senior official with knowledge of the central bank's views said the RBI wanted to end a "whenever you want, you come" mentality that many lenders had regarding funding.
"It is not actually the responsibility of the central bank to always keep the tap open," he said.
An RBI spokeswoman did not have immediate comment.
Reducing banks' reliance on overnight funding from the central bank is a key part of Rajan's goal of reforming Indian money markets unveiled in January 2014.
The RBI believes that banks which manage their assets and liabilities without always tapping the central bank for cash, will be more efficient and so will react more quickly to changes in monetary policy through their deposit and lending rates.
India's banks rely on overnight borrowings to fund longer-term lending and these rates are often volatile. Furthermore, tight liquidity constrains lending with banks worried they will be caught short of funds, according to bankers.
Only three of 45 commercial banks have cut base lending rates since the RBI's surprise easing this month, hurting the government's drive to lift business investment.
The sources said the RBI is adamant it will not inject additional liquidity after loosening the statutory liquidity ratio further to give banks more available cash. The ratio is the proportion of deposits that banks must hold in government bonds, cash or gold.
It also ruled out for now introducing longer-term repos beyond the 7-day and 14-day repos.
OLD WORLD
A firm RBI stance risks increasing market volatility at a time when analysts expect the central bank to cut rates by another 50 to 75 basis points this year after last month's 25 basis point cut.
The overnight cash rate surged to as high as 26 percent this month. Ideally, it should closely track the RBI's 7.75 percent repo rate, the key policy rate. Tough-love tactics by China's central bank in 2013, seen as a way to stop banks from using short-term funds to mask their activities in risky wealth management products, also sparked spikes in short-term lending rates.
Yet, lacking any means to penalise banks beyond verbal arm twisting, analysts say the RBI will struggle to change banks' behaviour, with only a few incentives left such as shifting the timings of fund infusions to earlier in the day when cash needs are higher.
Banks have grown accustomed to easy overnight funding because the RBI was previously seen as always willing to inject funds, a practice that Rajan derided as "bailing out the banking system" and subsequently curbed.
"These banks are still in the old world," said a senior executive at a large primary dealership.
"Earlier it was free-for-all. Right now, the system has improved in terms of predicting shortfalls. And RBI is managing shortfall dynamically. It is the problem of the banks not the problem of the RBI."
That is not how domestic banks see it. Bank executives complain the RBI consistently underestimates how much money banks need and does not provide enough clarity on how much it plans to inject on days it anticipates tighter cash conditions.
A senior treasury official at a large state-run bank said as a rule of thumb it kept a daily cash cushion of 4 to 5 billion rupees ($64-$80 million) to guard against any unexpected demand for funding from retail or corporate customers.
"The only solution I see is that they (RBI) will have to give more cash," he said.
($1 = 62.2000 Indian rupees)
Banks rush for debt recast-Business Standard 20.02.2015
Forbearance window shuts in end-March, with recast loans to be treated as NPAs under a new regime, raising provisioning burden
Several lenders are rushing to restructure debt this quarter before the new norms apply, from April 1, when the new financial year begins.
Except in a few sectors, loan restructuring will no longer enjoy leniency on asset treatment and provisioning. Banks can continue to do this but such loans will be treated as non-performing assets (NPAs). So, the provisioning burden on the balance sheet will go up. At present, restructured loans need a provision of five per cent of their total value. Under the new regime, recast loans could be treated as sub-standard, the first level of an NPA, with the obligation to make a provision of 15 per cent.
The sectors which could throw up a higher number of recast cases are infrastructure, power, iron and steel, construction and textiles. These top the number of cases and in the amount recast under Corporate Debt Restructuring (CDR). They accounted for 157 of the 288 live cases, accounting for 64 per cent of the debt in question (Rs 1,73,824 crore) by end-December 2014, according to CDR Forum data.
Rating agency ICRA, in a conference call for its banking sector review, said referrals to the CDR Cell declined in April-December 2014 as against April-December 2013. However, restructuring outside the CDR Cell remained high. This could remain elevated in the fourth quarter of 2014-15, with regulatory forbearance to go away from FY16. While banks restructured assets worth Rs 25,000 crore in the third quarter, this could go up to Rs 40,000- 50,000 crore in the fourth quarter, ending March, according to Vibha Batra, senior vice-president and group head for financial sector ratings at ICRA.
SBI sets trend
The country’s largest lender, State Bank of India, has set the tone for the January-March quarter. Its pipeline for restructuring will be up to Rs 5,500 crore in the quarter. The bank preferred to be generous while giving its forecast (‘guidance’), to accommodate any rush of cases before the forbearance window closes. Its internal target is Rs 3,800 crore. SBI’s restructured book was Rs 66,704 crore in end-December 2014.
Arundhati Bhattacharya, SBI chairman, said it (guidance of Rs 5,000-5,500 crore) was a bit on the higher side. “This is because we do not know what will happen in this quarter. When a particular window (forbearance) is closing, there is a little bit of rush. I am taking that into consideration,” she said.
A similar story is playing out at other large commercial banks like ICICI. The loan restructuring pipeline there is Rs 2,300 crore. Additions to this in the third quarter were Rs 1,755 crore.
“Asset quality deteriorated during the quarter. However, the management has been saying restructuring would swell before the provisioning arbitrage goes, between the sub-standard and restructured portfolio,” said Saday Sinha, banking analyst with Kotak Securities, after an earnings conference call with the ICICI Bank management for the October-December quarter.
Axis, the country’s third largest private sector bank, expects gross stress addition of Rs 6,500 crore in FY15, of which Rs 3,539 crore was done in the first three quarters. Though gross stress additions in these three quarters was much lower than the guidance given by the bank, the management hasn’t revised it. Its net restructured loans stood at Rs 6,808 crore.
There seems less pressure on the books of Delhi-based Punjab National Bank. The pipeline to be recast under CDR in Q4 is Rs 600 crore and there is no indication of a rise in the pool till now, said a PNB executive.
Firm on new regime
Despite banks’ plea to relax the window for the new restructuring norms and extend the forbearance regime beyond March, the Reserve Bank of India has firmly ruled this out. RBI governor Raghuram Rajan, soon after the earlier monetary policy review, said the forbearance regime had to end, to build confidence in bank balance sheets.
“RBI has given enormous amounts of new flexibility in trying to put distressed projects back on track. It is important to clean up bank balance sheets. They should show what they actually contain,” he said.
Except in a few sectors, loan restructuring will no longer enjoy leniency on asset treatment and provisioning. Banks can continue to do this but such loans will be treated as non-performing assets (NPAs). So, the provisioning burden on the balance sheet will go up. At present, restructured loans need a provision of five per cent of their total value. Under the new regime, recast loans could be treated as sub-standard, the first level of an NPA, with the obligation to make a provision of 15 per cent.
The sectors which could throw up a higher number of recast cases are infrastructure, power, iron and steel, construction and textiles. These top the number of cases and in the amount recast under Corporate Debt Restructuring (CDR). They accounted for 157 of the 288 live cases, accounting for 64 per cent of the debt in question (Rs 1,73,824 crore) by end-December 2014, according to CDR Forum data.
Rating agency ICRA, in a conference call for its banking sector review, said referrals to the CDR Cell declined in April-December 2014 as against April-December 2013. However, restructuring outside the CDR Cell remained high. This could remain elevated in the fourth quarter of 2014-15, with regulatory forbearance to go away from FY16. While banks restructured assets worth Rs 25,000 crore in the third quarter, this could go up to Rs 40,000- 50,000 crore in the fourth quarter, ending March, according to Vibha Batra, senior vice-president and group head for financial sector ratings at ICRA.
SBI sets trend
The country’s largest lender, State Bank of India, has set the tone for the January-March quarter. Its pipeline for restructuring will be up to Rs 5,500 crore in the quarter. The bank preferred to be generous while giving its forecast (‘guidance’), to accommodate any rush of cases before the forbearance window closes. Its internal target is Rs 3,800 crore. SBI’s restructured book was Rs 66,704 crore in end-December 2014.
Arundhati Bhattacharya, SBI chairman, said it (guidance of Rs 5,000-5,500 crore) was a bit on the higher side. “This is because we do not know what will happen in this quarter. When a particular window (forbearance) is closing, there is a little bit of rush. I am taking that into consideration,” she said.
A similar story is playing out at other large commercial banks like ICICI. The loan restructuring pipeline there is Rs 2,300 crore. Additions to this in the third quarter were Rs 1,755 crore.
“Asset quality deteriorated during the quarter. However, the management has been saying restructuring would swell before the provisioning arbitrage goes, between the sub-standard and restructured portfolio,” said Saday Sinha, banking analyst with Kotak Securities, after an earnings conference call with the ICICI Bank management for the October-December quarter.
Axis, the country’s third largest private sector bank, expects gross stress addition of Rs 6,500 crore in FY15, of which Rs 3,539 crore was done in the first three quarters. Though gross stress additions in these three quarters was much lower than the guidance given by the bank, the management hasn’t revised it. Its net restructured loans stood at Rs 6,808 crore.
There seems less pressure on the books of Delhi-based Punjab National Bank. The pipeline to be recast under CDR in Q4 is Rs 600 crore and there is no indication of a rise in the pool till now, said a PNB executive.
Firm on new regime
Despite banks’ plea to relax the window for the new restructuring norms and extend the forbearance regime beyond March, the Reserve Bank of India has firmly ruled this out. RBI governor Raghuram Rajan, soon after the earlier monetary policy review, said the forbearance regime had to end, to build confidence in bank balance sheets.
“RBI has given enormous amounts of new flexibility in trying to put distressed projects back on track. It is important to clean up bank balance sheets. They should show what they actually contain,” he said.
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