Old Wine In New Bottle

Debt recasts: Not just small firms, big ones use them too ( Read My Observation Given Below)

While Essar Steel has approached banks for a recast of loans worth close to Rs 12,000 crore, Essar Port has also sought a Rs 6,000 crore recast, bankers say

The option of recasting bank loans after getting into financial trouble isn’t something that is being exercised only by medium- and small-sized companies. Even the likes of Mukesh Ambani-promoted Reliance Gas Transportation Infrastructure Ltd (RGTIL) have managed to secure a long-term loan restructuring package extending up to fiscal 2030-31 from local banks.

Banks had also recast the Rs 7,500-crore loan of Pipavav Defence & Offshore Engineering, now controlled by the Anil Ambani group, in March this year. Jaypee Infratech, Adani Power and Uttam Galva Metallics also managed to obtain the approval of lenders to restructure their loans worth Rs 25,000 crore under the 5:25 scheme allowed by the Reserve Bank of India.

While Essar Steel has approached banks for a recast of loans worth close to Rs 12,000 crore, Essar Port has also sought a Rs 6,000 crore recast, bankers say. Last week, banks approved the restructuring of the Rs 35,000 crore loan of Bhushan Steel.

Debt recast plans of 285 companies — including HCC, Gammon and ABG Shipyard — for Rs 2,86,505 crore are currently being implemented, says the corporate debt restructuring (CDR) cell of banks.

Unlisted RGTIL, with a debt of Rs 16,010 crore at the end of March, 2015 (Rs 16,357 crore in the previous year), has quietly got the approval from lenders to change the repayment conditions. “The company has obtained sanctions from banks for rescheduling the principal repayment of the rupee term loans till 2030-31 as against the current repayment schedule over next four years,” RGTIL managing director RK Dhadda said in a statement to the National Stock Exchange.

“The continued decline in natural gas production in the KG-D6 block and consequent lower pipeline capacity utilisation of the company has resulted in the company incurring losses and erosion of net worth since FY12,” Dhadda said.

The RBI had complained that “restructuring is resorted to liberally in case of the industrial sector (particularly large industries — 9.3 per cent of advances), while smaller borrower accounts such as agriculture (1.45 per cent) and micro and small enterprises (0.94 per cent) see less of restructuring.” Gross NPAs of PSBs as on March 2015 stood at 5.17 per cent while the stressed assets ratio (which include NPAs and restructured loans) stood at 13.2 per cent (or overRs 7,12,000 crore), which is nearly 230 bps more than that for the system, according to figures released by the RBI. Many of the restructured loans —165 firms with a debt of Rs 56,995 crore — have not worked with nearly half of the failures coming in 2014-15.

Bankers were rescheduling stressed loans under the corporate debt restructuring (CDR) route till March 31, 2015. After it was shut from April 1, corporates are now lining up under the 5:25 flexible structuring scheme. Here, lenders are allowed to fix a longer amortisation period for loans to projects in infrastructure and core industries, for say 25 years, based on economic life or concession period of the project, with periodic refinancing in every 5 years.

Rating agency Crisil has cautioned that around Rs 80,000 crore of stressed loans which could be structured under the 5:25 scheme could mask the asset-quality pressures and NPAs to be reported by banks may not give a clear picture about their stress levels. “Infra companies have already queued up before lenders to restructure loans worth over Rs 50,000 crore under the 5:25 scheme. If you go through the scheme it’s very clear that it’s tailor-made for ever-greening of problem infra loan accounts. It’s surprising that the RBI has agreed for such a scheme,” said a banking source.
http://www.financialexpress.com/article/industry/banking-finance/debt-recasts-not-just-small-firms-big-ones-use-them-too/84036/

MY Observation

RBI has taken a clever step to hide bad loans and postpone its treatment from 5 to 25 years. Bankers were rescheduling stressed loans under the corporate debt restructuring (CDR) route till March 31, 2015. After it was shut from April 1, corporates are now lining up under the 5:25 flexible structuring scheme. Here, lenders are allowed to fix a longer amortisation period for loans to projects in infrastructure and core industries, for say 25 years, based on economic life or concession period of the project, with periodic refinancing in every 5 years.

AT first it was RBI which told bankers that restructure of loans only to hide bad loans will not be tolerated as because it helps banks in accumulating bad debts and saving provisions for inflating profit.

All of a sudden RBI took a U-turn by advising banks to use 5/25 scheme to provide Ventilator for sick companies . This is nothing but Old wine in New Bottle. Actually neither Government of India nor RBI or Bank Chiefs want to punish fraudulent borrowers, corrupt bankers and corrupt politicians who worked in nexus with each other to lend to unscrupulous business houses and who helped to conceal their stressed assets  for years and who are no again helping them to postpone real treatment.

RBI has thus once again promoted and propagated the culture of manipulation as hitherto bankers used to do to conceal their evil works and to conceal bad assets. Hundreds of vigilance cases pending against top officials of banks and top politicians are languishing in the offices of CVC or CVO for action. All wants to suppress the corruption related cases of top bosses, because all are birds of same feather. It may be CVC or CVO, CMD or ED or ministers of any department.

Obviously , RBI is either playing in the hands of corporate houses or Government of India or has accepted that only evil ways and means can keep the bank in (pseudo) healthy position .

It is open secret that All top officials are passing their time somehow or the other and keeping the sickness concealed for future generation officials. They are waiting for final collapse and happening of crisis like Sub-Prime Crisis of 2008 which erupted in USA and spread to entire world.

If we talk of capital infusion in sick banks, RBI and GOI told a few months ago that only performing banks will be provided support of capital . They advised banks to arrange capital at their own. This advice could lead weak banks to become weaker and weaker. Now the same government has taken a U-turn and promised banks to provide capital to each bank which is in need of it to comply Basel Norms.

Similarly GOI asked all PSBs to open accounts of each citizen and for this purpose banks were forced to open branches even in remotest corner and thus huge expansion of bank took place. Then government asked banks to sanction loan to villagers and issue Kisan Credit Card to all . As a result of it , majority of branches situated in rural areas became sick and  full of bad loans . Most of rural branches are running in loss and have accumulated bad debts to the tune of more than 50% to 80% of their total advances. Now GOI has come to senses and told banks to ensure that each branch is economically viable or else stop expansion.

In the same way, GOI has been making one after other experiment for last one year for choosing officials for the post of ED and CMD of public sector banks. It appears and I am sure that they will not get success in improving the health of ailing banks by such surgical operations or by rubbing ointment on upper skin. Temporary solutions cannot give permanent relief to ailing banks.

GOI has suggested for framing sound and strict appraisal system to create healthy culture .But GOI is not perhaps aware that banking is a service industry where none of work can be assessed by a fixed yardstick. And writing of appraisal report in India depends not on the quality and potential of individual but depends fully on perception of assessing authority. If higher official who writes appraisal is corrupt, wants flattery and inclined to earn bribe  through juniors , he cannot write true appraisal report on any of his junior.

Similarly members of Interview panel constituted for promotion process give marks truly as per their whims and fancies,  not at all on the basis of merit of officer who appear before Interview board. Fact is that an officer cannot be assessed in two minutes of Interview if the same officers could not be judged in ten years or twenty years of his real performance in branches and administrative offices.

Obviously entire appraisal system and interview system is faulty and prone to fraud and manipulation to deprive good officers from promotion and award bad officers with elevation out of turn. 

It is therefore not enough for GOI to make experiment with policies or rules meant  for lending or for appointment of top officials or for promotions only. or by focussing  on fixing rate of interest only. If they want real reformation , GOI will have to strike at the root of all. First they will have to identify the disease and then invent correct medicine to prescribe bankers .

I think PSBs were doing better before the launch of reformation era and liberalised banking or before freedom and autonomy given to PSBs.  Banks can perform better only when workforce are happy, honest, devoted and loyal to bank. Officers can brighten their career by flattery and bribery but cannot protect the organisation they serve. Similarly politicians ruling the country can exploit PSBs for vote purpose but cannot protect banks from disaster by rubbing ointment here and there.

PSU banks told to be ‘vigilant’, settle cases in 90 days
As many as 400 cases related to various public sector banks are pending before the anti-graft body Central Vigilance Commission (CVC).

The CVC has directed all central vigilance officers (CVOs) of the banks to settle at least 75% of the cases within the next 45 days, and the remaining within three months.

“These cases have been pending and we have asked the respective CVOs and banks to settle these cases at the earliest,” T M Bhasin, who was appointed vigilance commissioner earlier this month, told HT.

Bhasin, former chairman of Indian Banks’ Association and Indian Bank, said CVOs engaged with state-owned banks have also been asked to devise early warning systems, including prevention and detection, to reduce the number of frauds.
“We have to understand the main reasons of the frauds so that we can contain them at an early stage,” Bhasin said.

The CVC will not allow delays in granting vigilance clearance to government officials for their promotion and empanelments, he added.

Government banks incurred a loss of over `11,000 crore in 2014-15 due to frauds, an increase from `7,542 crore in 2013-14, RBI said.

According to the RBI, “a deliberate act of omission or commission by any person, carried out in the course of a banking transaction or in the books of accounts maintained manually or under computer system in banks, resulting into wrongful gain to any person for a temporary period or otherwise, with or without any monetary loss to the bank” is considered a fraud.

Arun Mishra Writes on Facebook

Public sector banks are used to listen to some sort of advice from different quarters, be it Ministry, RBI or any one else. Currently PSBs are being goaded to transmit the benefit of lowering of REPO rate by RBI by 75 basis points since January,15 in totality whereas bankers have done the same between 25 to 30 basis barring few exceptions. 

 Though PSBs are said to be autonomous but such missives speak of pseudo autonomy.
Does the government decide the price of a car?

 On the contrary banks are covertly made to fix rate of interest on vehicle loans almost at par with housing loans but surprisingly much lower than that on Education loan.
Is it logical for govt. to micromanage banks in fixing their base rates simply because it has majority share holding?

 If govt. feels it proper to poke its nose in PSBs affair then why does it not find it pertinent to ask RBI to pay at least some amount of interest on CRR balances which all banks are mandatorily required to keep with RBI, if it can't dispense with CRR completely?

 Its not out of place to mention that about a decade or so back RBI would pay some interest on CRR balances which was later on withdrawn arbitrarily. Its a fact that if RBI pays interest on such balances it will be more than Rs 20000 crores. If such huge amount is passed on to the banks the bottom lines of banks would get a boost, leading to banks to reduce the base rate suo moto.

 You all might be aware that in 2013 the former chairman of SBI sri Chaudhary raised the issue of either doing away with CRR concept or payment of interest on that. His such pragmatic approach was bogged down by a very uncalled for and unwarranted terse reply of the then Dy. Governor RBI, Sri K.C. Chakraborty, who incidently had been the CMD of Indian Bank and PNB before joining RBI who said that if SBI Chief can't work under regulatory environment who should find a job else where.

 I add further that during this period one Senior RBI official gave a statement on condition of anonymity that if RBI start paying interest on CRR, its balance sheet will turn RED.
Now my question is -- Is CRR a monetary tool or an instrument to keep RBI in BLACK?
So if government sincerely wants transmission of benefits of lowering REPO rates RBI be asked to pay interest on CRR.

 After all CRR balances are part of hard mobilised deposits by banks on whom banks have to pay interest as well despite their being held with RBI.

 Can I take liberty to assume, presume and then conclude that concept of CONFLICT OF INTEREST appears to play role as if RBI turns RED, if it pays interest on CRR the govt. may not get a fat dividend which it receives from RBI every year.

 Respected FM and RBI guv. don't strangulate banks. Moreover its a fact that economic growth and Rate of interest have got no direct relationship.
Any one in line with me !

Consensus eludes banks on debt restructuring

Reluctant small lenders and headless public sector banks make the task of lender groups difficult-Business Standard  16th June 2015

 

In April, two large banks called a meeting of the chief executives of 24 banks that together have an exposure, fund as well as non-fund based, of Rs 50,000 crore to Essar Steel to discuss the loan restructuring proposal of the company.

The amount was huge and the banks were worried about the loan turning into a non-performing asset, which happens once repayment of principle and/or interest is due for more than 90 days. If that were to happen, the rot would show in the annual P&L of the banks. Some of the lenders with a large exposure to Essar Steel were State Bank of India (Rs 9,333 crore), Canara Bank (Rs 4,904 crore), Punjab National Bank (Rs 3,885 crore) and ICICI Bank (Rs 3,499 crore). The issue needed to be sorted out on a priority basis.

So the meeting was called to finalise the contours of the debt recast. However, none of the chief executives of the banks with a relatively smaller exposure turned up for the meeting, frustrating the bigger ones that were keen to seal the deal as quickly as possible.

This case highlights the state of affairs at a time when the banking sector is seeing a steady rise in its portfolio of stressed assets. The Reserve Bank of India came out with new rules last year to incentivise banks to recognise and resolve stress at an early stage. The concept of a joint lenders' forum was floated - a group of lenders that will be formed if a borrower is facing stress and will take proactive steps to resolve the issue.

The banking regulator did everything that it could. It laid down the new rules, and gave banks flexibility. However, the ground realities are somewhat different. To begin with, consensus is elusive: 75 per cent of the banks by value and 60 per cent by number in the joint lenders' forum should agree to a debt recast proposal for it to go through.

In Essar Steel's case, while most banks provided additional funds to the company and have refrained from classifying it as a non-performing asset, some lenders like HDFC Bank (which sold its exposure) and Bank of India have chosen to do so. Bank of India said that for some accounts where repayment was made on the 92nd or 93rd day, the upgrade will happen in the current quarter.

Essar Steel is just one example. There are many more cases where banks are not on the same page so far as debt recast is concerned.

Lenders with smaller exposures say there is no point in throwing good money after bad, which explains their reluctance to restructure loans. They cite the example of HDFC Bank which has sold its Rs 550-core Essar Steel exposure to an asset reconstruction company at 40 per cent discount. "Are the HDFC Bank people fools? They exited because they saw no merit in putting in additional funds for the restructuring of the debt," says the chief executive of a public sector bank with a small exposure to Essar Steel.

"The fact is that everybody (all banks) is not able to move in step. We have to understand that if you have a joint lenders forum, then everybody should have the ability to take calls. Now, very often very junior people come into the joint lenders' forum and they are not in a position to take decisions," State Bank of India Chairperson Arundhati Bhattacharya told Business Standard in an interview earlier this month.

 

 

To read more click on following link

 

http://www.business-standard.com/article/finance/consensus-eludes-banks-on-debt-restructuring-115061601197_1.html