Banking, India: I
This is a collection of articles archived for the excellence of their content. |
History
1720
The Times of India, Aug 22 2016
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The Times of India
India's first joint stock bank was established in 1720 in Mumbai. This was followed by the setting up of a similar bank in Kolkata in 1770 and, later, in many other cities. Because of the growing need for modern banking services, of uniform currency to streamline foreign trade and to manage the remittances of British Army personnel and civil servants, three Presidency Banks were established in Mumbai, Kolkata and Chennai. Apart from normal banking, these banks could also issue currency until 1861.During the same period, there was a significant increase in privately-owned commercial banks and, by 1913, there were 56 commercial banks operating in India. The First World War and the Great Depression exposed the flaws of banking in India as many banks failed and the need for a cent ral bank to ensure regulatory safeguards was felt.
1969: Nationalisation and political misuse
The Times of India, April 10, 2016
Banks will remain political fiefdoms till privatized
Public sector banks are losing huge sums and running up gargantuan bad debts. Defaulters like Vijay Mallya, once politically powerful, are fleeing abroad. India's banking crisis is fundamentally political, not financial.
The left, predictably, blames wicked busi nessmen, saying the banking system has become a fiefdom of big business. Rubbish! The banks were indeed fiefdoms of big business before 1969. Then Indira Gandhi nationalized them to make them the fiefdoms of politicians. That's the root of today's crisis.
Indira and her socialist acolytes claimed bank nationalization was essential for the state to capture the commanding heights of the economy , and channel bank lending to top social priorities.Actually , she could have ordered private banks to lend to favoured sectors (as is done today) without nationalization.
Her real aim was to control all big finance, emasculating the businessmen and maharajas leading the Swatantra Party , the main opposition party after the 1967 election. She nullified the treaties Sardar Patel had signed with the princes to persuade them to accede to India in 1947. She abolished their privy purses and made them taxable, bankrupting them.
She raised income-tax rates to 97.75%, added a wealth tax of 3.5%, nationalized several other industries, and made it clear to businessmen that dissenters would be crushed. The ploy succeeded. The Swatantra Party collapsed, and businessmen crawled.
However, the poverty ratio did not fall at all after 1947 till 1983. Meanwhile, the population doubled, so the absolute number of poor doubled. That terrible human cost exposes the fraudulent intent and outcome of Indira's Garibi Hatao policies, spearheaded by bank nationalization.
Did nationalization spur lending to “the people“? As Orwell said, in socialism all are equal, but some are more equal than others. Most equal of all was Sanjay Gandhi, Indira's son, who sought unending loans for his dud car project. Anyone opposing Sanjay -including R K Hazari, deputy RBI governor, and R K Talwar, chairman of the State Bank of India -got marching orders. After that, bank chiefs obediently followed orders (official or unofficial) from top politicians. That's the genesis of today's bank misgovernance and losses. The economy has grown 50 times since, so the misgovernance and losses have risen too. But in essence, Vijay Mallya is simply a new avatar of Sanjay Gandhi.
After Talwar's travails, pre-nationalization financial discipline was quickly destroyed. Loans were given to dud businesses and dud social projects (like loan melas to woo political vote banks). How many defaulters did nationalized banks remove from control of their businesses? Virtually none, since they had all bought political protection. Regional rural banks (RRBs) did indeed penetrate the countryside, a social plus. But they lost vast sums and had to be merged with the big banks.
By the early 1980s, the bad loans of banks exceeded their equity capital. Technically , they were bankrupt. But given government ownership, that was not even news. After all, public sector behemoths had always lost huge sums, and been replenished indefinitely by the taxpayer.
By the 1980s, nationalized banks were okaying highly inflated project costs that enabled promoters to skim off the excess. Banks “evergreened“ bad loans (renewing them indefinitely) instead of admitting they were unpayable, taking over the assets of borrowers and auctioning them. Unpaid and unpayable dues were listed as “receivables“. And all receivables, believe it or not, were classified as “income“, even though nothing was coming in.
Banking doyen Narayan Vaghul told me at the time that most bank profits were fictional, since they were based on receivables that were never received. On this fictional income the banks declared profits, and even paid corporate tax. And those that had no cash borrowed money to pay the taxes! That sad farce has continued ever since, in greater or lesser measure. Politicians have continued phoning bank managers.And at budget time finance ministers announce a host of schemes to be financed by the banks, a political diktat.
Governments have the right to lay down lending priorities.But bank funds are actually the resources of citizen savers, not the government. So, politicians should not force banks to hold loan melas for vote banks, or go easy on favoured borrowers.
Modi has brought in reforms aiming to provide more honest, independent bank chiefs and boards. This may improve matters.But the process is hardly foolproof, and can be reversed by a future government.
Private-sector banks (like ICICI Bank) have also been hit by bad loans in problem sectors like infrastructure and metals. But they avoided the worst loan proposals that nationalized banks happily accepted, with disastrous results. The private banks lent on commercial principles, not political orders. Probably bank privatization alone can ensure commercial discipline in future. But no political party wants that.
Administrative measures, initiatives, issues
RBI’s asset quality review under Raghuram Rajan: 2015
The Times of India, June 19, 2016
A few years down the line several of the current bank chiefs would probably remember Raghuram Rajan for one thing eating into their annual bonuses. ICICI Bank has already announced that its top management won't receive performance bonus for 201516. PSU bank chiefs too are expected to miss the annual pay-out as soaring bad debts have hit the financial performance of lenders.
Just when data showed promise of the economy stabilising, the RBI started what's come to be known as asset quality review, a term that most bankers dread.While annual inspection of banks was the norm, RBI has now opted to ask banks to classify several loans as non-performing assets (NPA), which in normal course would have been treated as “standard“.
Classifying a loan as an NPA or a sub-standard asset means that banks have to set aside more funds to cover for potential losses due to nonpayment of dues. The result is for everyone to see: NPAs of Indian banks shot up to a little under Rs 6 lakh crore as each lender was handed a list of companies where funds had to be set aside, called provisioning in banking parlance. Even loans which were restructured were to be monitored strictly and funds set aside for a year.
As a result, against cumulative profits of close to Rs 31,000 crore in 2014-15, state-run lenders ran up losses of almost Rs 18,000 crore as bank after bank reported record losses. Some of the large private banks, such as ICICI Bank, man aged to stay profitable but saw a steep decline in profit.
But the hit is not just for banks, it also impacts India Inc. Companies that get the NPA tag would be choked of funding, a move that will impact economic revival as these entities would be unable to add more capacity to their factories.
Banks can't refuse faded, scribbled notes: RBI
Banks can't refuse scribbled notes, says RBI circular, April 29, 2017: The Times of India
The RBI has said banks cannot refuse to accept faded notes or those with scribbles. The central bank said such banknotes had to be treated as “soiled notes“ and dealt with according to the RBI's “clean note policy“.
The circular to banks was sent by the RBI after it received complaints that many branches were not accepting banknotes, specifically of 500 and 2,000 denominations, with anything written on them or those either smudged with colour or faded due to washing.
Bank branches have been rejecting such notes following rumours in social media that such notes were not acceptable.
The RBI drew attention to its December 2013 statement, issued in response to rumours that from 2017 onwards banks would not accept notes with anything written on them. The RBI had then stated that it had not issued any such instruction. The central bank clarified that its instructions on scribbling on notes was a directive for staffers not to write on banknotes. This was after the RBI had observed that bank officials themselves were in the habit of writing on banknotes, which went against the central bank's clean note policy.
The RBI has sought cooperation from all members of public, institutions and others in keeping banknotes clean by not scribbling on them.
Unified Payment System/ UPI
The Times of India, August 26, 2016
Mayur Shetty
The RBI has cleared a Unified Payment System a platform which links bank account numbers to virtual payment addresses (aliases). The UPI-enabled app in effect turns your smartphone into a bank and has come as a boost to a cashless economy .
Just as an ATM of one bank can be used to access accounts in all banks in the network, any UPI-enabled app can be used to log into one's accounts in other banks. Second, the interface overcomes one of the biggest pain points in sending money online -that of knowing 15-digit account numbers and an 11digit IFSC code (used to identify bank branches). Instead of account details, the receiver has to merely share an alias like xyz@axisbank. The UPI makes use of the existing Immediate Payment System (IMPS) which allows funds transfer using bank account number, an IFSC code and other credentials.
“Real-time sending and receiving money through a mobile application at such a scale on interoperable basis has not been attempted anywhere else in the world. The UPI app will be made available on Google Play Store by banks,“ NPCI managing director and CEO A P Hota said here on Thursday .
Twenty-one banks will go live over the next couple of days. But the country's largest bank, SBI, has expressed concerns and has kept it on hold until it gets more clarity from the National Payments Corporation of India (NPCI), the umbrella organisation for retail payment systems in India. Of the 21 banks, eight banks have gone live.
“Our app is still under development. We have raised some security concerns on the registration process and transactions being timed out. The NPCI has not yet come back.We will be ready by Septemberend. But the decision to join will depend on NPCI coming back to us with clarifications,“ said Manju Agarwal, deputy MD, SBI. HDFC Bank too is working on its application and expects to be ready in three weeks. ICICI Bank has announced that it will integrate its iMobile and Pockets app with UPI in the next few days. iMobile is for the bank's customers, while Pockets is an app with a prepaid instrument available to anyone who downloads it.
Kotak Mahindra Bank has decided to play it safe and provide a separate application for UPI. “We are in process of development and certification of UPI-enabled app. We will launch a new app which will be UPI-enabled in 4-6 weeks. “ said Deepak Sharma, chief digital officer, Kotak Mahindra Bank.
Bank Board Bureau/ 2016
The Hindu, February 29, 2016
Prime Minister Narendra Modi approved the setting up of the Bank Board Bureau with former Comptroller and Auditor-General of India Vinod Rai as its first Chairman.
The Bureau is mandated to play a critical role in reforming the troubled public sector banks by recommending appointments to leadership positions and boards in those banks and advise them on ways to raise funds and how to go ahead with mergers and acquisitions.
“With a view to improve the governance of public sector banks, the government had decided to set up an autonomous Bank Board Bureau. The bureau will recommend for selection the heads of public sector banks and financial institutions and help banks in developing strategies and capital raising plans,” the government said in a release.
The bureau was announced in August 2015 as part of the seven-point Indradhanush plan to revamp these banks. It will constantly engage with the boards of all 22 public sector banks to formulate appropriate strategies for their growth and development.
The bureau, led by Mr Rai, will select the heads of public sector banks (even from the private sector, if need be) and aid them in formulating strategies to raise additional capital. It will select and appoint non-executive chairmen and non-official directors.
The non-performing assets of public sector banks are estimated at almost Rs. 4 lakh crore, and they need to raise capital of Rs. 2.4 lakh crore by 2018 to conform to Basel-III capital requirement norms, according to the government.
While some questions have been raised on Mr. Rai's appointment as a CAG cannot hold a government office post-retirement, former senior civil servants say the role is advisory in nature and a part-time position. The government release said the appointments have been made for a period of two years.
The bureau will have three ex-officio members and three expert members, in addition to the Chairman.
Selection process of Managing Directors of public-sector banks
The Indian Express, May 30, 2016
George Mathew
The Bank Board Bureau (BBB), set up by the government in February 2016, has kicked off the selection process of managing directors and CEOs of public sector banks.
The body has conducted its maiden interviews for appointments of MDs & CEOs at three state-run banks and met as many 10 candidates who are currently serving as executive directors in various PSU banks, according to sources. One of the interviewees was earlier shunted out by the government from a large PSU bank in connection with a dubious loan to Atlas group, a Gulf-based jewellery chain.
CEOs’ salaries
2017
HIGHLIGHTS
SBI chief Arundhati Bhattacharya took home Rs 28.96 lakh in 2015-16.
In comparision, ICICI CEO Chanda Kochhar received a basic salary of Rs 2.66 crore in 2015-16.
Such high disparity in compensation impacts the motivation of public sector managers who have to fiercely compete with private sector peers.
SBI, one of the world's 50 largest banks, pays only a small fraction to its top management as compared to private sector players like ICICI Bank and HDFC Bank.
Former RBI governor Raghuram Rajan had flagged the low remuneration issue last August saying it makes difficult for state-owned banks to "attract top talent, especially a lateral entry".
SBI chairman Arundhati Bhattacharya took home Rs 28.96 lakh last fiscal, which is pittance when compared to remuneration of her counterparts in private banks receive, according to analysis of annual reports of various banks.
In comparison, ICICI Bank MD and CEO Chanda Kochhar received a basic salary of Rs 2.66 crore last fiscal besides Rs 2.2 crore performance bonus to be paid over the next few years. In addition, she received allowances and perquisites of over Rs 2.43 crore.
The total compensation received by Kochhar in FY17 stood at Rs 6.09 crore.
Similarly, Shikha Sharma, MD and CEO of Axis Bank, took home a basic salary of Rs 2.7 crore, and Rs 1.35 crore as variable pay, besides host of perks and allowances like Rs 90 lakh HRA.
Yes Bank MD and CEO Rana Kapoor, who also happens to be promoter of the bank, took home Rs 6.8 crore as salary in 2016-17.
HDFC Bank's managing director Aditya Puri saw his remuneration rise marginally to Rs 10 crore and exercised stock options worth over Rs 57 crore during the last fiscal.
Speaking about public sector banks at a banking conference in Mumbai, Rajan had said state-owned banks tended to overpay at the bottom but underpay their top executives.
He jokingly said he himself was underpaid and the disparity made it harder to attract talent from outside at the top level in public sector banks.
On the business front, SBI, after merger with its subsidiary banks, caters to 42.04 crore customers with a market share of 23.07 per cent and 21.16 per cent in deposits and advances, as opposed to 18.05 per cent and 17.02 per cent respectively, before the merger.
Punjab National Bank, the nearest rival of SBI among PSBs post merger, will have a market share of 5.96 per cent, and 7.04 per cent in deposits and advances.
Remuneration comprises various components, including basic salary, allowances and perquisite, PF, superannuation allowances, gratuity and performance bonus and payment of performance bonus is deferred over a multi-year period.
Not only such high disparity in compensation makes it difficult for the government to hire top managers laterally at public sector banks, as pointed out by Rajan, it also impacts the motivation of public sector managers who have to fiercely compete with their private sector peers.
Credit growth
2000-16
`At 5.1%, credit growth slide reaching a point of no return', Jan 06 2017: The Times of India
Growth of bank credit fell to a multi-decade low of 5.1% for the fortnight ended December 23, as drying up of demand in the last two months of the year saw businesses cutting down on borrowing. Data released by RBI showed that as of December 23, bank lending to busines ses, individuals and the farm sector stood at Rs 73.48 lakh crore, an increase of 5.1% over the same period of last year.Going by readily available RBI data, this is the slowest rate of growth since 2000.
SBI chief economist Soumya Kanti Ghosh went further to say that credit growth was actually the lowest in over 60 years -since 1954-55 -when it had slowed to 1.7%. A slowdown to 5.1% in De cember seems to indi cate that credit growth is reaching a point of no return in this financial year.While there is marginal growth year-on-year, on a yearto-date basis (from April 2016) credit has declined in many sectors,“ said SBI chief economist Soumya Kanti Ghosh.Year-on-year credit growth in the previous fortnight ended December 9 was also a low 5.76%.
D K Joshi, chief economist at Crisil, the country's leading credit rating agency , attributed the drop in credit growth to the disruption caused by demonetisation. “Otherwise there was no reason for credit growth to fall. The economy was looking up, there was the pay commission hike, there were good rains, and some interest rate cuts were being passed on to borrowers, which would have created more demand for credit,“ he said.
The second half of the year is when banks advance the bulk of their loans. A slow down at this time will hurt growth targets, said economists. “Demonetisation has hurt activity across all corners of the economy . Purchasing Managers Index (PMI) data shows that both manufacturing and services have contracted in December. The PMI order-to-inventory ratio suggests that upcoming manufacturing activity will also remain weak. Input prices have been rising, but have not yet been passed on to final prices, suggesting that corporate margins have worsened,“ said Pranjul Bhandari, chief economist, HSBC India in a report.
According to Jefferies In dia, an investment bank, credit growth could slip to 6% in FY17. “Deleveraging of corporate balance sheets, halt in fresh capex, and increased access to corporate bond market have led to a negative growth in banks' credit to corporates.Given that 56% of bank loans and 88% of non-performing assets are with large borrowers, they hold the key to bank credit growth pick-up and asset quality improvement,“ the research firm said in a report.
RBI numbers show that corporate loans are shrinking.Since end-September bank loans have shrunk by Rs 1.72 lakh crore (2.3%). The sectors which saw a slowdown or drop in credit include infrastructure, food processing, chemical and chemical products, all engineering, textiles and basic metal and metal products.
Although very little fresh investment was taking place even before demonetisation, there was a consumption push. Crisil's Joshi expects consumption-led growth to return because of “some of the measures likely in the Budget, lower interest rates and if we have good rains. The next fiscal year will see a pick-up. But it will not happen in the January-March quarter.“
The silver lining appears to be the gains to the government from demonetisation.“We continue to expect the Income Disclosure Scheme II to net around Rs 1 lakh crore of tax. At the same time, we have cut our estimate of RBI dividend from black cash money not returned to banks to Rs 50,000 crore from Rs 95,000 crore earlier with the bulk (of demonetized currencies) depositedexchanged,“ said Bank of America Merrill Lynch in a report.
2016-17: Lowest growth since 1953
Hit By Bad Loans, Sluggish Corporate Investments, DeMon
Growth in bank credit in FY17, at 5.1%, has turned out to be the slowest in over 60 years as state-owned banks burdened with bad loans struggled to find safe avenues to lend. The last time loans grew slower than this was in 1953-54 when bank credit growth had slowed down to 1.7%.
According to data released by the RBI, outstanding bank credit as on March 31, 2017 stood at Rs 78.82 lakh crore. A large part of the growth in lending has come in the last fortnight of the month when banks disbursed Rs 3.16 lakh crore. But even after this last-minute surge, loan growth for the whole year was 5.1% as against 10.3% last year.
Other than bad loans and corporate investment coming to a standstill, bank credit growth was also constrained by demonetisation. Between October and December 2016, bank credit contracted by 2.3% as against a 2.7% growth during the same period last year.
Besides bad loans, one of the biggest concerns for the RBI is managing the surplus liquidity with banks. While on the one hand banks are seeing lower credit growth, on the other their deposits continue to remain high, again thanks to demonetisation.
Banks have ended the year with an 11.8% growth in deposits, which now stand at more than Rs 108 lakh crore. Some bankers feel that the RBI is reluctant to intervene in the forex market as this would add to the surplus liquidity in the system.
According to a senior banker, of the total credit growth during the current fiscal, half has come from home loans and alarge part of the rest has been due to loans to the service sector. Most of the lenders are private banks and a few large private banks. Other than them, most public sector banks are likely to report flat credit growth for FY17.
One fallout of the slow down in credit is that banks will report a higher percentage of bad loans. Growth in credit helps to mask the level of bad loans. With bad loans at close to 10% of their total assets, many banks face a catch-22 situation. The RBI's prompt corrective action may make it difficult for banks to expand their balance sheet.The absence of fresh lending would, however, make it difficult for banks to generate revenues to clean up their books.
“With asset quality pressures, banks -especially the weaker public sector banks (PSBs) -have been reporting a continuous degrowth in their net interest income (NII) over the five consecutive quarters of Q3FY2016 to Q3FY2017, mainly on account of slower credit growth and reversal of interest income recognised on NPAs“ ratings agency ICRA said in a report.
Deposits
Share of households in FY16 deposits increases, govt's dips, December 27, 2016: The Times of India
Households contributed most to deposit growth in FY16, while deposits held by government agencies shrank according to data released by the Reserve Bank of India (RBI) on Monday . The latest numbers show that government and entities in the financial sector (banks in particular) brought down their deposits with other banks. However, individuals and corporate as increased their share of deposits.
Bank deposits in FY16 grew by 8.8%, or Rs 8.68 lakh crore, to Rs 98.41 lakh crore. Of this, growth in household deposits was 11%, or Rs 6.65 lakh crore.The overall deposit growth would have been higher but for 14% drop in state government deposits to Rs 3.82 lakh crore.Interbank deposits also fell 24.5% to Rs 2.71 lakh crore while corporate deposits jumped nearly 115% to Rs 10.65 lakh crore.
The RBI on Monday released the data on composition and institutional ownership pattern of deposits with sche Source: RBI duled commercial banks (SCBs) as on March 31, 2016. Households continue to own the majority of deposits with their share rising to 61.5% from 60.1% earlier. The government sector and the private corporate sector followed, contributing 12.8% and 10.8%, respectively. A majority (63.8%) of deposits were term deposits.
Frauds committed in banks
2013-16
Out of over 40,000 cases of fraudulent use reported in 2013-16, more than 70% had to do with credit cards. Net banking accounted for only a miniscule 1.3% of the cases
The Times of India
See graphic, ‘Banking frauds, 2013-16’
Hall of shame
SBI funds bomb-makers
The Times of India, Jun 20, 2016
Top bank in `Hall of Shame' for funding bomb-makers
SBI has been named in a “Hall of Shame“ list of 158 banking and financial institutions globally that have invested billions of dollars in companies making cluster bombs. SBI is the only Indian entity on the list, which includes JP Morgan, Barclays, Bank of America and Credit Suisse that invested over $28 billion in seven producers of cluster munitions between June 2012 and April 2016, according to Dutch campaign group PAX.PAX said the Convention on Cluster Munitions bans use, production of cluster munitions. This convention was signed by 94 countries. The maximum number of 74 banks are from the US, followed by China (29).
SBI has been included in the list because of its exposure to Orbital ATK, a USbased company specialising in space and rocket systems.
“SBI has made $87 million available to the companies on the red flag list since June 2012,“ PAX said. “ SBI always works in accordance with local laws and regulations,“ a bank spokesman said.
August 2017: SBI owes 27% of bad loans
SBI defaulters owe 27% of all PSU banks' bad loans, August 21, 2017: The Times of India
SBI accounts for over 27% of the total amount owed to public sector banks by wilful defaulters. As many as 1,762 wilful defaulters owed SBI Rs 25,104 crore as on March 31, putting pressure on its balance sheet. Punjab National Bank (PNB) is next on the list with 1,120 wilful defaulters having outstanding non-performing assets (NPAs), or bad loans, of Rs 12,278 crore.
Together, these two banks account for Rs 37,382 crore -or 40% -of the total outstanding loans of Rs 92,376 crore due to public sector banks by wilful defaulters, according to finance ministry data. This is more than 20% higher than Rs 76,685 crore at the end of the previous fiscal 2015-16.
At the same time, there has been close to 10% increase in the number of wilful defaulters on an annual basis. It increased to 8,915 at the end of March as against 8,167 in the previous fiscal. Out of 8,915 cases of wilful defaults, banks have filed FIR (first information report) in 1,914 cases with outstanding loans of Rs 32,484 crore.
During 2016-17, 27 public sector banks, including SBI and its five associates, had written off Rs 81,683 crore -the highest in the last five fiscals.
Jan Dhan
Abuse of its liberal terms leads to calls for strictness
The Jan Dhan [‘the common man’s wealth’] scheme is part of the NDA government's plan to provide banking facilities to the poor and encourage savings, and allows customers to open accounts with zero balance. Normal savings accounts involve conditions like an opening sum and minimum balance.
With more people using Jan Dhan accounts in the wake of the demonetisation drive, bankers are weighing the need to convert the accounts into normal savings bank accounts.
After concerns were raised about the reported misuse of Jan Dhan accounts amid the ongoing crackdown on black money, economic affairs secretary Shaktikanta Das announced on Tuesday a Rs 50,000 limit on annual cash deposits in the accounts, after which the source of funds would be verified.
Following the announcement, bankers are re-examining the threshold they set for converting Jan Dhan accounts into normal savings accounts. The earlier limit was Rs 1 lakh a year, which banks will now have to bring down to Rs 50,000.
“Jan Dhan accounts require minimum know-your-customer (KYC) documentation. If someone tries to deposit over Rs 50,000, or the earlier limit of Rs 1 lakh, we cannot send them back. We only ask for more KYC details and convert it into a full-fledged savings account with all the charges applicable,“ said Rakesh Sharma, chairman, Canara Bank. “We cannot deny any customer the right to deposit their own money,“ Sharma added.
Officials at SBI branches in Tirunelveli and Nellore said that they had spotted about a dozen cases of deposits beyond Rs 1lakh in Jan Dhan accounts. “We asked the customers to fulfil KYC requirements and then accepted the deposits. We believed these unorganised workers, retail vendors and petty shop owners were genuine customers. Then again, even if they were to deposit Rs 2 lakh, and that was their income, it is well within their taxable limit,“ said an SBI official.
“...It is important to remember that Jan Dhan accounts are primarily for financial inclusion. And if there are customers who want to deposit more money , they can when they fulfil our conditions,“ said K Venkataraman, CEO, Karur Vysya Bank.
Jan DhanYojana
Vague RBI guidelines allow banks to cap free transactions
Crores of Pradhan Mantri Jan Dhan Yojana (PMJDY) account-holders risk either having their accounts frozen or having charges imposed if they exceed four debit transactions in a month. Vague wording of the Reserve Bank of India's guidelines on basic savings bank deposit accounts (BSBDA), which include PMJDY accounts, has led to banks conjuring up ways to cap free transactions.
The norms applicable to PMJDY accounts are those that are prescribed for the BSBDA by the RBI. The BSBDA was earlier known as a `no-frills' banking account-a service under which banks were to provide free basic banking facilities without any minimum balance requirement. Almost every bank today is violating the RBI's norms because of the unclear wording.
The frailties in the BSBDA have been highlighted in a report by Ashish Das, professor at the Indian Institute of Technology, Bombay .The report shows how banks are freezing transactions, imposing minimum balance requirement or levying charges when a customer exceeds the prescribed four free with drawals. State Bank of India, which has more than 9.9 crore PMJDY accounts, has chosen to freeze all debits once the free transaction limit are exhausted. A bank official said that customers can do more transactions by converting their accounts into regular savings accounts.Axis Bank is informing customers how the account will turn into a regular savings account when the limits are breached. ICICI Bank had earlier imposed charges but subsequently refunded them. HDFC Bank has said that transactions beyond four are chargeable.
To complicate matters, instead of speaking about withdrawals or ATM withdrawals, the guidelines desc ribe withdrawals as all debit transactions. This includes money going out of the account in any form; either by cash withdrawal at ATMs, at branches or through electronic fund transfers or debit card uses. The RBI definition of withdrawal is so wide, it also includes standing instructions for money going out towards EMI payments.
While the RBI has said that banks should allow at least four withdrawals in a month, it has also said that no charges can be imposed on these accounts. Banks are unsure of what to do beyond four withdrawals but do not want to provide an unlimited deposit and withdrawal facility for free. Each bank has decided to interpret this norm to safeguard its own interest.
There are over 54 crore BSBDA accounts in the country . These include the 22.4 crore PMJDY account holders with Rupay debit cards.The accounts were opened under the promise of zero charges.
“RBI's guidelines have kept the banks in difficulty and in a state of confusion, forcing many to become noncompliant of the regulations consciously or unconsciously, detriment to the interest of the depositors and the general public,“ said Das.
Since it is unreasonable to expect banks to provide unlimited free transactions in a basic account, the IIT report suggests some alternatives. One suggestion is that banks should be allowed to retain the account's status as a BSBDA while imposing reasonable charges beyond the mandated thresholds on cash transactions and certain value added services.Another suggestion is that to encourage use of debit cards and electronic payments, these should be allowed without any limits. To prevent the account from being misused, the report recommends that there should be a floor on the amount of cash deposits that can be made.
Laws, judgements
Bank guarantee can save property from attachment
The Times of India, Mar 02 2016
Lubna Kably
If there's a dispute over taxes, there's now a way for a company to prevent its property being attached. It can give a bank guarantee to the tax officer to prevent property, such as a factory, from being attached during the course of a tax assessment.
The Budget proposals provide that a tax official can revoke an order for provisional attachment of the property if the taxpayer furnishes a bank guarantee equal to the fair market value of the property, or of an amount sufficient to protect the interests of the revenue authorities. Within 15 days of receipt of the bank guarantee, or within 45 days if the case has been referred to a valuation officer, the order for attaching the property is to be revoked. This proposal will come in force from June 1, 2016.
Business entities operating in India, often find that their property, such as an office or a factory building, is attached by the tax authorities during the course of assessment. For instance, operations froze at Nokia's manufacturing facility near Chennai after it was attached by tax authorities in 2013. More recently, when Vodafone received a fresh tax demand of Rs 14,200 crore, the notice also said that Vodafone's assets in India could be seized if the disputed demand was not paid.
A high-level committee led by Justice Easwar had pointed out that tax officials have the power to provisionally attach a taxpayer's assets, with the permission of higher level authorities, if it was necessary to protect the interests of the tax de partment. Such attachment is supposed to be temporary -six to 24 months. However, in many cases, the taxpayer files a writ, or approaches the Authority for Advance Ruling and obtains a stay on regular assessment. This prolongs the duration of the assessment and the property remains attached causing disruption in business operations.The Budget proposals have taken the recommendations of this committee into consideration.
“The move enabling taxpayers to furnish a bank guarantee will help business houses to continue with their operations. It is a businessfriendly proposal,“ says Gautam Nayak, tax partner, CNK & Associates.
Loans
The top lenders
2017
SBI, ICICI Bank Are The First Two Lenders
The RBI on Monday added HDFC Bank to the list of systemically important banks, or banks that are considered too big to fail.The other banks on the list are the two largest lenders -SBI and ICICI Bank. Since 2015, the central bank has been identifying banks whose failure would impact the whole financial system.These banks are subject to more rigorous regulation and capital requirement.(The Times of India Sept 2017)
Loans: Bad loans
5 business houses alone owe PSU banks Rs. 1.4 lakh crore
The Times of India, May 06 2016
Adani Group Has Debt Of Rs. 72,000 Crore'
Raising the issue of corporate loans in Rajya Sabha, JD(U) member Pavan Verma said the Adani group had a debt of Rs 72,000 crore -an amount equal to the total debt of farmers in the country. Verma said corporate houses owed about Rs 5 lakh crore to PSU banks and particularly referred to the Adani group, alleging that the company got “unimaginable“ favours. Raising the issue during zero hour, he contended that PSU banks were influenced to give loans to people who were not able to repay them.
“PSU banks are owed abo ut Rs 5 lakh crore by corporate houses and of this, roughly Rs 1.4 lakh crore are owed by just five companies, which include Lanco, GVK, Suzlon Energy , Hindustan Construction Company and a certain company called the Adani group and Adani Power,“ he said.
“I want a reply from the government, are they aware of this or are they not. And if they are aware, what are they doing in this matter. One company owes as much as all the farmers of India,“ he further said.
The amount owed by this group both in terms of its long-term and short-term debt was around Rs 72,000 crore, Verma said, claiming to be quoting from reports. He added that on Wednesday , it was mentioned that the entire amount owed by farmers as crop loans was Rs 72,000 crore.
“I don't know what is the relationship of this government with this business house. I don't even know if they know them, but the owner of this group (Gautam) Adani is seen everywhere the prime minister has gone, every country , China, the UK, the US, Europe, Japan,“ Verma said.
“This company has been given favours which are unimaginable. In Gujarat, their SEZ was approved in spite of the high court's strictures,“ he added.
When deputy chairman P J Kurien warned Verma against making allegations, the JD(U) member said, “I am giving you factual account. It is a high court judgment. It was left to the state government.The UPA government had not approved it and when this government came to power, it was approved.“
Verma said it did not matter if Adani group had the ability to pay this amount, but in the last 2-3 years, the company's net worth had gone up by 85%.
25% of Rs 8 lakh crore bad debt is from just 12 accounts
HIGHLIGHTS
Just 12 accounts responsible for 25% of all NPAs with banks
Lenders will be asked to initiate insolvency proceedings to recover the dues
The RBI today identified 12 accounts each having more than Rs 5,000 crore of outstanding loans and accounting for 25 per cent of total NPAs of banks for immediate referral for resolution under the bankruptcy law.
Without naming the defaulters, the Reserve Bank said the lenders will be asked to initiate insolvency proceedings to recover the dues. The banking sector is saddled with non-performing assets (NPAs) worth over Rs 8 lakh crore, of which Rs 6 lakh crore is with public sector banks (PSBs). The Internal Advisory Committee (IAC), the central bank said, has arrived at an objective, non-discretionary criterion for referring accounts for resolution under the Insolvency and Bankruptcy Code (IBC).
"In particular, the IAC recommended for IBC reference of all accounts with fund and non-fund based outstanding amount greater than Rs 5,000 crore, with 60 per cent or more classified as non-performing by banks as of March 31, 2016," the RBI said in a statement. The IAC noted that under the recommended criterion, 12 accounts with about 25 per cent of the current gross NPAs of the banking system would qualify for immediate reference under IBC, it said.
The apex bank, based on the recommendations of the IAC, will accordingly be issuing directions to banks to file for insolvency proceedings under the IBC in the identified accounts.
Such cases will be accorded priority by the National Company Law Tribunal (NCLT).
2014: loans to coal sector…
… and scrapping of coal block allotments
Power sector bad loans may rise
Mumbai:
TIMES NEWS NETWORK
The Times of India Sep 25 2014
The Supreme Court verdict scrapping all but four coal block allotments has added to the bad loan headache of the banking industry .
Although bank exposure to coal mining sector is estimated to be below Rs 20,000 crore, the biggest fear is that coalfuelled power plants may stop producing power and default on loans. Bank exposure to power companies is around Rs 5.16 lakh crore and accounts for 9% of their loans. A large chunk of these depend on coal.
Shares of leading public sector banks dipped sharply on Monday over fears that their bad loans would rise following the Supreme Court order.
Bank of India and Canara Bank, which have large exposures to the power segment (relative to their loan book) fell 5.6% and 5%, respectively , to Rs 263 and Rs 358. Punjab National Bank, which is estimated to have the largest exposure to coal mining, fell 4.3% to Rs 927. The State Bank of India, one of the largest lenders to power in absolute terms, saw its share price fall 2.7% to Rs 2,487. Even without the coal block cancellation, several power projects and steel companies are under stress and are undergoing restructuring. Stoppage of fuel to these projects could tip them into the non-performing assets category , considering that imported coal is four times as expensive as domestic coal. Reacting to the SC order, SBI chairman Arundhati Bhattacharya said, “We believe that uncertainty is possibly the worst enemy of growth. We are glad that this is over with the SC verdict on coal blocks allocation. We now look forward for a quick plan of action for ensuring that coal supplies are not disrupted and, thereafter, a swift and transparent bidding process for reallocation.“
According to IDBI Bank chairman MS Raghavan, the bank has an exposure of close to Rs 2,000 core to the companies affected by the Supreme Court order. The bank is still assessing the impact of the verdict.
In the private sector, ICICI Bank has loans to power and steel companies that are dependent on coal supply . Earlier in an interview to TOI, Chanda Kochhar, MD & CEO of ICICI Bank, had said it was important to ensure that back-end projects that depend on coal keep producing. “The government has been talking about finding ways of reallocating coal. As long as coal is produced and power and steel plants get it, that ensures the viability of the power project; where it is allocated, who owns it and who mines it is not the primary thing. Banks had mainly extended assistance to either power or iron and steel projects,“ Kochhar had said. While deciding to cancel all but four coal blocks allotted since 1993, The Supreme Court brushed aside Coal Producers Association's (CPA) estimate that Rs 9 lakh crore linked to them would come to naught.
The CPA, through senior advocate K K Venugopal, had said that loans worth Rs 2.5 lakh advanced by banks and financial institutions would become non-performing assets. It had said that SBI has an exposure of up to Rs 78,263 crore.
Venugopal had said that apart from huge losses to other PSU banks like PNB and Union Bank, public sector entities like Rural Electricity Corporation and PFC would experi ence an even higher exposure than banks. The financial implication narrated by CPA covered many other aspects.“Huge investments up to about Rs 2.9 lakh crore have been made in 157 coal blocks as on December 2012, investments in the end-use plants have been made to the extent of about Rs 4 lakh crore, which employ 10 lakh people,“ CPA had said.
The CPA had warned of many other adverse effects -the country's dependence on coal as a primary source of fuel for up to 60% for power generation might result in inflationary trends; 28,000 mw of power capacity would be affected due to de-allocation; closure of coal mines would result in an estimated loss of Rs 4.4 lakh crore in terms of loss of royalty , cess, direct and indirect taxes; coal imports would go up even more in financial year 2016-17 to the extent of Rs 1.4 lakh crore.
A bench of Chief Justice R MLodha and Justices Madan B Lokur and Kurian Joseph cited arguments of attorney general Mukul Rohatgi to counter adverse economic fallout predicted by CPA. “It was submitted by the AG that all aspects, including the economic implications or fallout of the cancellation of coal block allotments and the possible adverse impact that it may have on other socio-economic factors, have been taken into consideration and it is only after that the affidavit has been filed by the Union of India,“ the bench said.
Priority sector more creditworthy than corporates/ 2016
Priority sector loans, long seen as a socialist burden on banks, have turned out to be more credit worthy than advances to large corporates. During April-December 2016, banks had written off loans worth Rs 35,587 crore to large industries as against write-offs of Rs 32,445 crore of advances in the priority sector.
Also, banks could recover only Rs 16,717 crore from large industries who are in default as against Rs 25,070 crore from the priority sector.
An RBI response to a Right to Information (RTI) filing shows that inability to make timely recoveries from large businesses is forcing banks to take a huge hit on their earnings. Banks had written off Rs 68,032 crore of bad loans in the first nine months of FY17 -close to 97% of total write-offs in the whole of FY16. Given that the fourth quarter writeoffs in FY17 had been significant, the total write-offs in the last three years have crossed Rs 2 lakh crore.
CARE Ratings chief economist Madan Sabnavis said, “After the asset quality review norms were put in place by the RBI, bad loans and provisioning have risen steeply . As banks started realising a part of these bad lo ans cannot be recovered, they also started writing off more to clean their balance sheets.“ He added the situation is a result of bad lending decisions and governance issues among banks, which was supported by the “system“.
In the first nine months of FY2017, scheduled commercial banks (SCBs) wrote off Rs 35,587 core worth of loans to large industries, compared to Rs 6,628 crore written off by lenders to farm loans, Rs 8,106 crore toward MSME loans and Rs 17,711 crore wrote off to the other priority sectors.
A loan write-off does not mean that the borrower goes scot free as all recovery proceedings continue. A balance sheet write-off indicates that even if the borrower does not repay , the bank has set aside own funds to repay depositors. Similarly , the farm loan waiver announcement by state governments is not included in `write-offs' by banks. “The loan is always there in the books. They are just moved from sub-standard to standard when the government waives and makes good the loan outstanding. Only that amount of the agriculture loan is written off which is not made good by the government,“ said a senior public sector banker in charge of priority sector banking.
Loans and Defaulters
Wilful defaulters:38% rise, 2012- 2015
The Times of India, May 04 2016
The number of wilful defaulters, who have not repaid their loans to public sector banks despite having the ability to do so, shot up by 38% to 7,686 at the end of December 2015, compared to 5,554 in December 2012, with lenders finally starting to issue the tag amid rising bad debt plaguing the Indian economy.
The amount involved in these cases has shot up 2.4 times to Rs 66,190 crore, compared to around Rs 27,750 crore three years ago, the government informed Parliament.
Bankers, however, war ned that some of the banks may still have kept a few firms and their promoters out of the net. “Banks have not done a complete exercise to identify all wilful defaulters in line with RBI guidelines,“ said Deepak Narang, a former executive director of United Bank of India. No one certifies that all the wilful defaulters have been identified. There has been an increase in recent years but not all accounts have been identified,“ Narang said.
He furnished the exam ples of Indian Overseas Bank and United Bank, where the numbers of such defaulters have come down. “How is that possible when the NPA in the system is rising and banks are reporting losses?“ RBI rules require banks to declare a borrower `wilful defaulter' if it has defaulted in repayment despite having the capacity to honour the obligation. Similarly , a defaulter who has diverted or siphoned off the funds, or has disposed off fixed assets or immovable property , can be given the tag.“The default to be categorised as wilful must be intentional, deliberate and calculated,“ the guidelines say .
Under pressure from RBI to act against defaulters, banks have begun to crack the whip only in recent months.As a result, lenders such as PNB have seen a massive spurt in the number of wilful defaulters -from 71 to 904 in three years (see graphic). In value terms too, PNB tops the list in terms of the growth rate with the amount involved jumping from Rs 199 crore at the end of December 2012 to almost Rs 11,000 crore at the end of 2015. Indian Bank and Andhra Bank (over 7times each).
SBI and its associates, which account for nearly a quarter of banking business, are at top of the pile in terms of amount involved but their share is around 28%, compared to 35% at the Dec-end of 2012, indicating that nationalised banks have only now begun to take exercise seriously .
Riot defaulters exempt
The Times of India, May 03 2016
Defaults can't bar Guj riot-hit from special loans: HC
The Gujarat high court has held in a case that a bank cannot deny loan under special policy for 2002riot affected because the applicant had defaulted in payments earlier. The HC has asked the state government and Bank of India to extend loan to a 2002-riot affected trader from Bhavnagar, Usman Ghani Aadhiya, who had defaulted in an earlier loan from the same bank. The bank was refusing to pay him a fresh loan after riots on the ground of his earlier default.
Aadhiya had suffered damage of Rs 5.1lakh to his business in the riots and was thus entitled to a loan at 4% flat interest from a bank according to policy.The HC said it was not permissible for the bank to exclude him from extending the loan because he falls in the category of the riots affected.
Loan defaulters’ rights
The Times of India, Apr 18 2016
PREETI KULKARNI
Five rights loan defaulters should know of
If you have defaulted on loan repayment and the bank wants to repossess your assets, all is not lost
If you have defaulted on a loan, the rules do not give the lender a complete walko ver. Keep the following points in mind if you find yourself in such a situation.
Right to ample notice
A default does not strip you of your rights.Banks have to follow process and give you time to repay dues before repossessing your assets to realise the arrears. Typically, banks initiate such proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Secu-rity Interests (Sarfaesi) Act. If the borrower's account is classified as a non-performing asset, where repayment is overdue by 90 days, the lender has to first issue a 60-day notice.
“If the borrower fails to repay within the notice period, the bank can go ahead with sale of assets. However, in order to sell, the bank has to serve another 30-day public notice mentioning the details of the sale,“ says banking and management consultant V.N.Kulkarni.
Right to ensure fair value
The lender starts the process of auctioning your property to recover dues if you fail to clear what you owe or respond during the 60-day notice period. However, before doing so, they will have to issue another notice specifying the fair value of the secured asset as assessed by the banks' valuers, along with details like reserve price, date and time of auction. “The borrower can object if the property is undervalued. He can justify his objection by conveying any better offer that he may have so that the bank can make a decision,“ says Kulkarni. In other words, you can look for prospective buyers on your own and introduce them to the lender if you think that the property can yield a better price.
Realise balance proceeds
Do not write off your asset mentally the moment it is repossessed. Keep track of the auc tion process. Lenders are required to refund any balance after recovering the dues, which s a real possibility given that property pric es can shoot up beyond the owed amount After recovering the dues and expenses of conducting the auction, the bank has to re und the remaining amount to the borrower as the money belongs to him,“ says Kulkarni
Right to be heard
During the notice period, you can make your representation to the authorised officer and put forth your objections to the repossession notice. “The officer has to reply within seven days, giving valid reasons if he rejects the representation and objections raised by the borrower,“ says Kulkarni.
Frauds below Rs 1L not to be reported to police: CVC
Don't report frauds below Rs 1L to police, CVC asks banks, The Times of India, Jun 17 2017
The Central Vigilance Commission (CVC) has asked public sector banks not to report frauds below Rs one lakh to local police, unless their staff is involved in such crimes. Earlier banks were mandated to report fraud of above Rs 10,000 and below Rs 1 lakh to police.
The decision was taken by the CVC in consultation with the Reserve Bank of India (RBI), taking into account the practical difficulties faced by public sector banks in reporting such categories of cases.
It has been decided that only if staff of the bank is involved in the fraud cases of below Rs 1 lakh and above Rs 10,000, would such cases need to be reported or complaint filed with local police station by the bank branch concerned, the commission said in a directive to chiefs of all the banks.
The cases of frauds of upto Rs one lakh and not below Rs 10,000 are to be scrutinised by banks officials concerned for further necessary action, a senior CVC official said.
As of September 30, 2016, the Non-Performing Assets (NPAs) declared by various scheduled commercial banks stood at a whopping Rs 6,65,864 crore, according to an official data. The NPAs of the country's largest lender State Bank of India is Rs 97,356 crore, followed by Rs 54,640 crore of Punjab National Bank and Rs 44,040 crore of Bank of India, it said. Bank of Baroda has NPAs of Rs 35,467 crore, Canara Bank Rs 31,466 crore, Indian Overseas Bank Rs 31,073 crore, Union Bank of India Rs 27,891crore.
Loans: Education loans
Education loan specialists grow faster
Mayur Shetty|Edu loans attract specialist lenders|Jul 12 2017: The Times of India (Delhi)
Edu loans attract specialist lenders
Mumbai
Pvt Players Positive On Growing Biz Education loans advanced by banks have grown by a measly 2.7% in FY17--half as much as the average growth rate of all loans.But that's only half the story .Specialist lenders are growing rapidly and private players are looking at this segment. Education loan specialists like HDFC Credila and Avanse have seen growth rates ranging from 40% to 70% in disbursements even as new age lenders like InCred Finance are eyeing the sector. Ajay Bohora, co-founder and CEO of HDFC Credila, says it's clear there is great demand. The shift in government focus to primary schooling has resulted in private in stitutions filling the gap in tertiary education. Secondly , in India and globally , cost of attendance (fees and other expenses) for tertiary education has been rising faster than inflation which is taking it out of reach of the middle class. HDFC Credila has disbursed Rs 1,300 crore of loans in FY17, which is slightly lower than the Rs 1,800 crore increase in the education loan portfolio of banks.
Bankers say they have pulled back from education loans because bad loans are high(7-8%). This is particularly true for the sub-Rs 4 lakh category where banks do not demand any security.
According to a senior PSU bank official, the reasons for the defaults are two-fold. One, engineering and management institutions have mushroomed but the quality of education has not been up to the mark. Two, many students relocate after graduation and their loans turn into NPAs.
“A lot of education loans are probably camouflaged as personal loans or loans against property ,“ said Prashant Bhonsle who heads the education loan vertical at InCred Finance. According to Bhonsle, students are rushed for time and at many banks it is faster to get a personal loan or a loan against property .The downside is that the interest paid cannot be claimed as deduction under Section 80E of the I-T Act. Also, repayment of such loans begins immediately , unlike education loans where there is a repay ment holiday . Also, education loans have tenures ranging from one to 12 years depending on course duration.
According to Rajnish Kumar, MD, State Bank of India, the outlook for education loans has improved with the government introducing a credit guarantee scheme for borrowings up to Rs 7.5 lakh in 2015. “The recovery problems that we faced in the south are now behind us and we will be growing the portfolio,“ said Kumar.
The ground reality is that unsecured education loans are a viable business only in segments where employment is certain. As a result, only those who qualify for top management or engineering institutes can expect to cover fees through bank financing without collateral. For others, a loan above Rs 7 lakh would invariably require property as collateral from parents.
Private lenders are positive as they have the skills and they can be selective.“Appraising a loan application is not easy because there are over 700 universities in India--some, like the University of Pune, have over 600 affiliated colleges, with each having 20-30 courses--and for credit assessment it's important to know the employment opportunities for each course,“ said Bohora.
It is not just finance companies, even lenders like Axis Bank, which was earlier a small player in education loans, has now created a new vertical for this product and is planning to grow. “We have grown 100%, although on a small base, and we see potential in this business,“ said Rajiv Anand, head of retail at Axis Bank. However, the bank is focusing on higher education in premier institutions like IIMs where both employment opportunities and fees are high. “The advantage for us is that we have good banking relationships with several trusts and educational institutions which makes it easier to partner with them for education loans,“ said Anand.
2017: Defaults highest in govt designed education loans
Mayur Shetty, Defaults highest in govt-designed education loans, Aug 30, 2017: The Times of India
The government-designed education loan scheme, which accounted for half of all education loans five years ago, now amounts to only a fifth. The scheme provides for loans up to Rs 4 lakh without collateral.
Banks are withdrawing from this segment, which is seeing the highest level of defaults. A study by TransUnion Cibil shows that defaults in education loans are lowest (below 1%) on big ticket loans of over Rs 15 lakh, which are typically taken for post-graduate MBA programmes in reputed institutes.
TOI had earlier reported how lenders were shifting focus on high-value loans as defaults in the sub-Rs 4 lakh category rose. The reasons cited by banks are now borne out by the data released by Cibil, which shows that the industry has experienced a default ratio of 8.1% on loans below Rs 4 lakh. Incidentally, most of these smaller-ticket education loans were disbursed by public sector banks.
According to Harshala Chandorkar, chief operating officer of TransUnion CIBIL the pattern of defaults raises the question whether the market is lagging in creating new job opportunities for those graduating from category II and III academic institutions.
"While delinquencies may be still better than the overall ratio of non-performing assets of many banks, the defaults are much higher than in other personal loan segments whether it is home loans, consumer durable loans, or even credit card outstanding," she said. Incidentally, the defaults that are now being experienced by banks are in respect of defaults witnessed on loans disbursed a few years earlier as education loans contain a moratorium, giving them time until they start earning to repay the loan.
TransUnion CIBIL research also indicate that since 2012, the number of new education loans disbursed annually has been showing flat to negative growth. The overall amount of loans disbursed has been showing a steady positive growth. This growth is driven by a marked shift towards loans of ticket size over Rs 15 lakh, which currently amount to over half the loan amount disbursed.
Loans: Home Loans
Home loan closure checklist
The Times of India, Apr 18 2016
Home loan closure checklist
1 Refer to the `list of documents to submit' when making the application for a loan, and make sure that all the original documents are recovered.
2 Ensure that the documents are complete and received in good condition, in the pre sense of a bank official, before signing the acknowledgement.
3 Take an NOC from the lender, specifying the address of the property against which the loan was taken, name of the borrower and the loan account number.
4 Request the lender to inform CIBIL re garding the closure of the loan account.
The process should take about 30 days from the date of loan closure.
5 Ensure that any lien is removed after the clo sure of the loan. An existing lien will create problems during the sale of the property.
Home loan growth slows, affordable segment rises
Even as housing credit growth moderated to 16% in 2016-17 as against 19% in 2015-16, the affordable housing segment holds promise, according to rating agency ICRA report.
The report said that lowering of interest rates and various government initiatives -Prime Minister Awas Yojana (PMAY), according infrastructure status, to boost affordable housing will increase the demand for the segment, which may see credit growth of up to 30%. As against an overall growth of 16% in the housing loan sector, total disbursal of credit in the affordable segment grew at 28% to Rs 1.2 lakh crore in 2016-17.
Despite moderation, the 16% credit growth in housing loan sector is still a bright spot in the economy if one sees it in the backdrop of growth in the non-food credit of entire banking sector which is languishing at 8.7% in 2016-17 as against 10.9% in 2015-16.
“While the slowdown was across both HFCs and banks, the decline in the pace of growth of banks was higher declining from 19% in 2015-16 to 16% in 2016-17 -largely because they were operationally tied up in second half of 2016-17 on account of demonetization,“ according to the report. Housing finance companies' (HFCs) loan portfolio also dipped to 18% in 2016-17 from 19% in the previous year.
Loans: Policy repo rate
2014-17
Following the [August 2017] announcement, the policy repo rate -the rate at which RBI lends to banks -stands reduced to 6.0% from 6.25%, the lowest since November 2010. Consequently , the reverse repo rate -the rate at which RBI borrows from banks -stands adjusted to 5.75%
From The Times of India
See graphic, 'Rate cuts, 2014-17'
Loan/ debt resolution
The NDTV case
Terming Any Loan Settlement As Criminal Raises Concerns
Private sector bankers say that if NDTV's loan settlement with ICICI Bank is termed criminal, it could hit resolution of bad debts. The concerns follow the Central Bureau of Investigation (CBI) alleging that ICICI Bank officials may have caused wrongful gains to NDTV promoters by agreeing to cut the interest rate to settle the loan.
“Settlement of any stressed loan involves some sacrifice by the banker. Often this is done to protect the loan amount since stand-off might result in loss of the principal well,“ said a banker who didn't want to be identified. If this sacrifice were to be construed as wrongful loss to the bank and a gain to the borrower, loan resolutions would not be possible, he added.
Multinational banks in India have been able to clean up their balance sheet the fastest as they have taken large haircuts in loans that were in default. The government is pushing for settlement of close to Rs 4 lakh crore of bad debt owed by top 50 borrowers which account for over 40% of the banking sector's bad loans.
Banks are likely to make a representation to the government and the RBI through the Indian Banks Association on commercial decisions being questioned. This is the second instance of CBI action against a commercial decision, the first being the arrest of senior officials of IDBI Bank on charges of improper loan sanctioning to Kingfisher Airlines.
The CBI, in a statement on Tuesday , said that the investigation did not pertain to loan default but to the interest relief. “ICICI Bank took the entire shareholding of the promoters in NDTV (nearly 61%) as collateral and then accepted prepayment of the loan by reducing the interest rate from 19% p.a. to nearly 9.5 % p.a. and as a consequence thereof, causing a wrongful loss of Rs 48 crore to ICICI Bank and a corresponding wrongful gain to the promoters of NDTV ,“ the agency said.
In May 2017, the government passed an ordinance authorising the RBI to issue directions to banks to initiate insolvency resolution process under the provisions of Insolvency and Bankruptcy Code (IBC), 2016. This new legislation was aimed at breaking the logjam in the banking industry over banks' inability to resolve over Rs 7 lakh crore of bad loans.
A key feature of this legislation was creation of oversight committees to ratify decision taken by bankers. Having a panel in place is expected to shield bankers from action by investigating agencies who may later look into loan recasts.
However, the government has said that there will not be any blanket protection for bankers. Also proposals have to be referred to the oversight panels by banks.
Locker facility
Banks have no liability for loss of valuables in lockers: RBI
Banks have no liability for loss of valuables in lockers: RBI , Jun 25, 2017: The Times of India
HIGHLIGHTS
Banks say that "the relationship they have with customers with regard to lockers is that of lessee (landlord) and lessor (tenant)".
In such a relationship, the lessor is responsible for his or her valuables kept in the locker which is owned by the bank.
NEW DELHI: Do not expect any compensation for theft or burglary of valuables in safe deposit boxes of public sector banks as the locker hiring agreement absolves them of all liability.
This bitter truth was disclosed in an RTI response by the Reserve Bank of India (RBI) and 19 PSU banks.
Stung by the revelation, the lawyer who had sought information under the transparency law has now moved the Competition Commission of India (CCI) alleging "cartelisation" and "anti-competitive practices" by the banks in respect of the locker service.
He has informed the CCI that the RTI response from the RBI has said it has not issued any specific direction in this regard or prescribed any parameters to assess the loss suffered by a customer.
Even under the RTI response, all public sectors banks have washed their hands of any responsibility.
According to the information availed by the lawyer, the unanimous reason given by the 19 banks, including Bank of India, Oriental Bank of Commerce, Punjab National Bank, UCO and Canara, among others, is that "the relationship they have with customers with regard to lockers is that of lessee (landlord) and lessor (tenant)".
The banks have contended that in such a relationship, the lessor is responsible for his or her valuables kept in the locker which is owned by the bank.
Some banks, in their locker hiring agreements, have made it clear that any item stored in the locker is at the customer's own risk and he or she may, in their own interest, insure the valuables.
The common feature of all locker hiring agreements states, "As per safe deposit memorandum of hiring locker, the bank will not be responsible for any loss or damage of the contents kept in the safe deposit vault as a result of any act of war or civil disorder or theft or burglary and the contents will be kept by the hirer at his or her sole risk and responsibility.
"While the bank will exercise all such normal precautions, it does not accept any liability or responsibility for any loss or damage whatsoever sustained to items deposited with it. Accordingly, hirers are advised in their own interest to insure any item of value deposited in a safe deposit locker in the bank," they have said.
Aggrieved by the responses, the lawyer — Kush Kalra — raised questions before the CCI — why not just keep the valuables at home after insuring them, instead of paying rent to the bank for a locker when it is not going to take any responsibility for the contents.
He alleged that all these banks, also including State Bank of India, Indian Overseas Bank, Syndicate Bank, Allahabad Bank and others, have formed a "cartel" to indulge in such "anti-competitive" practices.
He further alleged that the bank by forming an association or cartel are "trying to limit the improvement of services which is directly affecting the competition in the market and interests of the consumer".
The lawyer has sought a probe under the Competition Act into the allegation of cartelisation by the banks in respect of the locker service.
Losses
2015: Crisis in the Banking sector
The Hindu, February 13, 2016
Banks, it is often said, are the fulcrum of a robust economy. Healthy banks are an essential prerequisite for placing the economy on a higher growth orbit. The banking scene in India, however, presents an absolutely scary picture. A combination of factors ranging from poor credit appraisal to political interference and mismanagement by borrowers have conspired to push the banking industry into a messy cobweb. Bank after bank, especially the government-owned, has come out with poor third-quarter results. The stressed assets (comprising gross non-performing assets plus written-off assets and restructured assets) account for 14.1 per cent of total bank loans as of September 2015, up from 13.6 per cent in March 2015. For public sector banks, the stressed assets were in the vicinity of 17 per cent at the end of September, while the figure for private sector banks stood at 6.7 per cent. The rising stress level, or increase in bad loans, has yielded a twin fallout — of declining profitability at banks and poor credit disbursal. The double effect is already telling on the economy in various ways. For long, banks have either managed to, or rather been allowed to, keep the stress invisible, giving the outside world very little clue as to the happenings inside the industry.
The Reserve Bank of India under Raghuram Rajan’s stewardship, however, has decided to clean up banks’ books rather than letting them camouflage the real picture. “There are two polar approaches to loan stress,” he said at the CII Banking Summit in Mumbai this week. “One is to apply band-aids to keep the loan current, and hope that time and growth will set the project back on track. Sometimes this works. But most of the time, the low growth that precipitated the stress persists. The fresh lending intended to keep the original loan current grows. Facing large and potentially un-payable debt, the promoter loses interest, does little to fix existing problems, and the project goes into further losses.” Indeed, legacy problems should be given a burial, and should not be allowed to persist. So hinting, Dr. Rajan articulated the need for surgical action to retrieve the health of the industry.
Forcing banks to recognise a problem is one thing, and finding a viable long-term solution to it is quite another. That requires not just holistic thinking but an out-of-the-box approach as well, especially in the evolving global context. A meaningful fix can happen only if banks are given functional autonomy at various levels. Restricted freedom inevitably leads to a blame game, making it even more difficult to fix responsibility. The concept of arm’s- length relationship especially needs to be clearly defined and implemented in letter and spirit in the banking industry. It is not just about how much money the Central government will freshly pump into stressed banks. The litmus test for the government lies in its ability, and capacity, to let go of control. The banking system indeed needs a change in the way it is managed.
Loss in scams: 2011-15
Mar 27 2015
In four years, Rs 25 banks lost Rs 12k cr to fraudsters
Chethan Kumar
Twenty-five nationalized banks have lost Rs 12,620 crore to frauds in the last four financial years, according to documents obtained from the finance ministry. Of these, Rs 2,060.75 crore were lost by five banks headquartered in Karnataka alone -Canara Bank, Vijaya Bank, Corporation Bank, Syndicate Bank and State Bank of Mysore. The documents revealed that there have been 4,845 cases of bank frauds over this period. Finance ministry sources said in most cases bank staff either connive with the fraudsters or are negligent.
The latest instance surfaced on Wednesday when the CBI registered a case against an Ahmedabad-based telecom company and its directors following a joint complaint from State Bank of India, Vijaya Bank and Canara Bank. “It is alleged that expressing urgency , the company promoter got Rs 40.4 crore released from the three banks even though some documentation was pending. He disappeared after seeking time until August 31, 2013, to repay the loan,“ the CBI said in a statement.
Among the documents the promoter submitted were letters of credit (LCs), which turned out to be fake. A term loan of Rs 86 crore was also released to this firm, which too was allegedly siphoned off. There is an estimated total loss of Rs 126.4 crore to the banks.
In another case, the CBI on Thursday arrested a former managing director of a Bhopal-based private firm, who was absconding in a case relating to alleged loss of Rs 3.63 crore to State Bank of Indore.He conspired with bank officials to obtain credit facilities on the basis of fake collateral during 2003-2004.
Q4/ 2016: High losses
The Times of India, May 19 2016
PNB Q4 loss highest by an Indian bank
Following a RBI-driven clean-up programme, PNB joins scores of other lenders which have reported losses, including Corporation Bank, which reported a loss of Rs 511 crore for the March quarter. The Delhi-headquartered lender had reported a steep fall in profit during the October-December quarter but had avoided loss that several other players, in cluding Bank of Baroda and Bank of India, registered.With annual loss a shade under Rs 4,000 crore, PNB lags Bank of Baroda, which has been in the red for two straight quarters.
So far in January-March quarter, public sector banks have together reported losses of around Rs 14,000 crore.
On the positive side, there are fewer restructured loans that are turning into NPAs, which are loans that remain unpaid for 90 days. But, banks have to deal with a huge pile of bad debt which doubled to Rs 55,818 crore at the end of March from the level a year ago.
Indian banks have seen their NPAs surge as companies in several sectors such as steel and textiles have witnessed pressure of imports, especially from China. In the infrastructure space, several corporate groups are facing stress as projects have not taken off due to regulatory factors. Although the government has been trying to resolve these cases, there has been limited success. In addition, several companies are still dealing with over-capacity as rural demand remains weak.
Money lost to theft and fraud
Between April 2013 and November 2016, the country's top 51 banks lost Rs 485 crore to theft.
More than 24 lakh people, or roughly 22% of Delhi's population, could have withdrawn Rs 2,000 using this much cash. Documents obtained from the Union finance ministry show that Rs 212 crore was lost to 2,492 cases of robbery , theft and burglary at ATMs. Another Rs 156 crore and Rs 74 crore were lost to credit card and debit card cloning, respectively , while Rs 42 crore was lost to netbanking fraud.
The number of thefts from ATM kiosks has been increasing every year. In 2015-16, 922 cases of theft totalling Rs 78.6 crore were reported, an increase from 698 cases (totalling Rs 51.7 crore) in the previous year.There were 596 cases (totalling Rs 34.34 crore) in 2013-14. The first quarter of 2016-17 has wit nessed 276 cases involving a theft of Rs 48.3 crore.
A major factor for the rising number is that the ecosystem lacks experts to deal with ATM thefts and other cases of technology-related fraud in the financial sector.
“Not all banks have forensic or technology experts.Plus, there is no coordination.Banks must make use of experts from Nasscom and the Centre, while police across the country need to get updated,“ said IPS officer P Harishekaran. Between 2013-14 and the second quarter of 2016-17, there have been 30,259 cases of credit card cloning costing Rs 156 crore. There were 12,033 cases of debit card cloning costing Rs 74 crore in the period.Another Rs 42 crore was lost in 559 cases of netbanking fraud in the same period.
“Police can only conduct post-theft investigation; the onus on prevention is completely on the banks, and there needs to be special risk-management teams and experts working round the clock to protect data,“ cyber expert Mirza Faizan Asad said. Experts also point out that dependence on foreign equipment should be reduced, and the banking sector should procure Indian products to be ensure data safety.
2014
Nationalised and private banks, total bank deposits
19 nationalized lenders' combined m-cap less than HDFC Bank's Rs 2.64L cr
Mayur Shetty The Times of India Feb 03 2015
Investors Lose Interest In PSBs As Bad Loans Rise
The 19 nationalized banks in India account for almost half of the total bank deposits in the country as against private banks, which together have an 18.7% share. However, the surge in bad loans among public sector banks (PSBs) and the technology gap they have vis-à-vis their private peers has resulted in these lenders losing investor interest. As a result, the Rs 2.39 crore combined market capitalization of the nationalized banks is less than the Rs 2.64 lakh crore market capitalization of HDFC Bank the most valuable pri vate lender.
The nationalized banks exclude market leader, SBI which has a market cap of Rs 2.43 lakh crore. But even if the market capitalization of the 19 nationalized banks and the SBI were to be added together, it would still be less than the combined market capitalization of HDFC Bank and ICICI Bank as per Friday's closing prices. In cidentally, SBI is the only public sector lender with a market cap of over Rs 1 lakh crore. The next public sector bank is Bank of Baroda, which is a distant second in the public sector with a market capitalization of Rs 46,985 crore.
While the nationalized banks are being shunned by investors, the new generation private banks have been hit ting new highs on the back of new initiatives, which include digital technology . Besides HDFC Bank and ICICI Bank, two other private lenders have crossed the Rs 1 lakh crore mark. Kotak Mahindra Bank, which has been rallying after its recent inorganic initiatives -acquisition of ING Vysya and a deal to pick up stake in MCX -was worth Rs 1.02 lakh crore on Friday.
What the valuations mean is that the markets are discounting the market share of public sector banks in loans, their real estate assets worth thousands of crores and their customer base which accounts for almost the entire working class population of the country. Analysts say the main reason for despondency in PSU bank stocks is their disproportionate share in bad loans.
Here is what research firm Emkay Global Financial Services said about Bank of Baroda – a better performing public sector bank. “We expect the weak asset quality to persist.
While capitalization is better than peers, weak return ratios coupled with higher Basel III requirement will pose a challenge in the medium term unless there is sharp recovery. Also, capital infusion by the government, if below book value, would contain RoE improvement.”
Most NBFCs don't seek bank licence
Chennai: Several non-banking finance companies, including the Shriram Group, have stayed away from applying for a differentiated banking licence, as a January 1 clarification issued from the RBI forbids both NBFC and bank's co-existence.
The first set of guidelines dated November 27, 2014 for a differentiated bank licence, there was no explicit exclusion for NBFCs to co-exist along with these banks. The only inference was with respect to guidelines which dealt with financial and non-financial activity of the promoters, which was expected to be ring-fenced. These restrictions, according to sources in Shriram Group, vitiates the level-playing field between banks and NBFCs and also between existing banks and new ones, since the existing banks in several promoter groups like HSBC, HDFC, Federal Bank, Kotak are operating their NBFCs.
2014: Deutsche is no. 1
The Times of India Dec 22, 2014
Reeba Zachariah & Boby Kurian
Deutsche Bank has emerged as India's top dealmaker by fees earned during 2014. The European giant grossed $31 million in investment banking revenue, moving up from the fifth position it held in the previous calendar, according to Dealogic data.Wall Street biggie Citigroup retained the second position collecting $27 million in a year when i-banking fees declined nearly 13% from $398 million to $347 million.
Deutsche, which had a good run in equity and debt market deals, has an 8.9% share. Citigroup, ahead in M&A deals, staked claim to 7.7% share of the fee pool. The overall i-banking revenue slipped despite a pickup in the capital market activity as many private investments and certain M&A deals in emerging sectors like consumer internet were struck without advisers.
Standard Chartered Bank, with $25 million and 7.3% share, came third -up from sixth place last time -after advising M&A deals such as United Spirits' divestment of Whyte & Mackay , sale of Neotel by Tata Communications and Wilmar's stake purchase in Shree Renuka Sugars. Credit Suisse and JP Morgan were neck and neck, clocking $20 million in fees with 5.7% share each, while Axis Bank came in sixth with 4.5% share.
The big bankers said the street activity was set for a boost in the New Year. “As in vestment picks up, the requirement for new money and desire to access new capital pools will increase, which could trigger supply of issuances,“ said Amit Bordia, MD & head of corporate finance, Deutsche Bank.
I-banking fee charts are important, and closely monitored, as they usually set the tone for bonus payouts announced in January after the Christmas-New Year holidays. Within the total wallet, debt instruments brought in the highest revenue at $156 million followed by M&A with $112 million and equity capital issuances $78 million.
“2014 saw a pickup in capital market activity, especially qualified institutional placements and M&A transactions, in the latter half. This resulted in a concomitant increase in fee pool, moderated down by the fact that some deals have not had advisers,” said T V Raghunath, MD & CEO, Kotak Investment Banking. M&A and equity market deals increased to $47 billion and $11 billion respectively in the current calendar from $32 billion and nearly $10 billion in 2013.
Debt market deals, however, declined from almost $58 billion to $40 billion. The traditional i-banking fees do not count syndicated lending revenue, in which State Bank of India (SBI) has a lion's share with $83 million in earnings.
But, according to bankers, their bonus payouts were getting de-linked from fees earned in recent years. “Unlike the region, where marquee deals will dictate bonus numbers -no such luck in India. Neither league table rankings nor being one of the top fee generators will have any material effect on year-end numbers, which will be flat to down with the occasional outliers,” said Sourabh Chattopadhyay , partner, Wellesley Partners, a Hong Kong-based recruitment firm focused on financial services sector.
China, for instance, saw its i- banking revenue top $5 billion 2014.
2015: 3 Indian banks in top 5
The Times of India Jan 11 2016
Reeba Zachariah & Boby Kurian
TNN
The merger advisory units of Axis Bank, Kotak Mahindra Bank and ICICI Bank have made it to the list of top five dealmakers by fees earned during 2015, a Dealogic report has revealed. This marks the return of Indian tigers, overtaken by American and European investment banks since mid-2000s.
Axis rose from No. 4 in 2014 to No. 2, grossing $25 million in investment banking revenue and garnering nearly 8% of the total fee pool last year. Kotak Mahindra, which didn't even figure in the top 10 list of 2014, came third with earnings of $17 million. ICICI, with $15 million in revenue, moved three ranks up from 2014 to bag the fifth spot last year.
JM Financial had topped Bloomberg's merger and acquisition (M&A) chart by the size of the deals advised during the previous calendar year.
The investment banking revenue compiled by Dealogic comprises fees earned from M&A advisory , debt deals and equity transactions. Despite the strong showing by domestic dealmakers, Citigroup earned most fees, which was pegged at $32 million last year. Citi, with 10% share of the fee pool, was active in technology and consumer internet deals as startups gathered heft and deals got bigger, attracting the attention of foreign investment banks.
The total wallet of India's investment banking industry shrunk to $329 million last calendar compared to $408 million in 2014. M&A brought the highest revenue of $137 million, followed by $100 million fetched by debt deals and $92 million by equity issuances.
“Domestic banks have far superior execution capabilities and ear to the ground, reflecting on the performance of every deal this year and have hence beaten foreign banks,“ said Dharmesh Mehta, MD & CEO, Axis Capital, the M&A advisory arm of Axis Bank.
Besides Citi, the only other foreign bank in the top five list was JP Morgan, which jumped from the sixth position in 2014 to the fourth, garnering $15 million in fees last year. 2014's topper Deutsche Bank tumbled to the eighth position.
Sourabh Chattopadhyay , country head, Wellesley Partners, a Hong Kong-based placement firm focused on the financial services industry , said, “The underlying stories from last year's performance by foreign banks include Citigroup's re-emergence to the top, the continuing capital market success of Morgan Stanley and Credit Suisse's performance despite losing key senior members. There is measured optimism for 2016 as selective upgrading has picked up“.
The ownership structure in private banks/ 2017
At a time when PSU banks in India need about Rs 2 lakh crore for recapitalisation to tackle rising nonperforming assets (NPAs), Kotak Bank alone may sell shares worth a similar amount. This is because the RBI has asked promoters Uday Kotak and family to cut their stake from the current level of 32% in the country's third largest private sector lender to 15% by March 2020.
The Rs 2-lakh-crore amount is more than the current market cap of ICICI Bank, which is the third largest bank in the country after HDFC Bank and SBI respectively . It is also more than the market cap of eight top PSU banks (except SBI) put together.
A report by proxy advisory firm SES pointed out that given the situation at Kotak Bank, it's high time the banking regula tor looks at ownership structure in private banks. Otherwise, like ICICI Bank and HDFC Bank, foreign funds will hold a majority in Kotak Bank also.
If the bank issues shares to dilute the promoters' stake to the level stipulated by the RBI, it would need to issue about 210 crore shares over the next three years, but the same should be done in tranches. The report said that if the bank increases the share price by 5% in each tranche it sells, the total funds required would be about Rs 2.20 lakh crore.
“After such an issue, the bank will have the highest net worth in the country's banking system and will lose its sheen unless it grows by leaps and bounds and overtakes leaders like SBI and HDFC Bank in terms of business, which does not appear to be a practical target,“ it noted. “Therefore, such a step will cause performance metrics to become weak and at the end not only both investors and promoters will lose, but all stakeholders will lose as the bank will not be the same as it is today ,“ it said.
The report also pointed out that it's only the foreign funds that can have the money power to buy such large chunks of shares and, hence, their share in Kotak Bank is sure to rise. Currently , foreign funds hold 42.1% in HDFC Bank, while they hold nearly 47% in ICICI Bank and almost 39% in Kotak Bank.
Non-performing assets (NPAs)
2016: 16 banks breach the threshold
NET NPAs: HOW THEY STACK UP, April 15, 2017: The Times of India
Sixteen banks have net non-performing asset (NPA) ratios that breach the thresholds which place them on RBI's watch list under the prompt corrective action (PCA) plan. If they do not improve their net NPA ratios in the March 2017 results, the central bank will place restrictions on activities. One bank has breached the thresholds set for return on assets. However, on tier-1 capital, most banks are within the regulatory requirement.
Credit growth, sector-wise: 2016-17
Mayur Shetty, Home loans biggest driver of credit growth, May 2, 2017: The Times of India
Grow 16% Over Five Years As Loans To Corp Slow To 6.7%
Over the last five years home loans have recorded the highest compounded annual growth rate (CAGR) of over 16% and now account for over 12% of all bank credit.Overall credit to industry during the same period has slowed to single digits at 6.7% after a negative growth this year.Though the share of loans to industry in March 2017 were still hight at 37.5%.
According to data on sector credit released by the RBI, bank credit to industry as on March 31, 2017 stood at Rs 26.77 lakh crore which is 2% lower than outstanding bank credit of Rs 27.30 lakh crore as on end-March 2016. This has resulted in the slowest growth in bank credit in decades.
The main driver of bank credit in 2016-17 has been home loans which stood at Rs 8.60 lakh crore, 15% higher than Rs 7.46 lakh crore as on endMarch 2016. The share of housing which was 9.26% on March 2012 has been rising over the years. The last time bank credit to housing was in double digits was in 2009, when the government introduced special schemes to boost demand in the wake of the global financial crisis. “Between FY12-FY16 bank credit registered double digit growth, barring in FY15 when credit grew by 9%. However, growth in bank credit slowed to 5% in FY17. The slowdown has mainly been on account of banks stressed with bad loans, stagnant corporate investment environment and some migra tion to the debt market,“ said Madan Sabnavis, chief economist, CARE Ratings.
The slowdown in lending to industry is largely because of PSBs which have reduced their exposure to corporates.After home loans, credit card outstandings are the fastest growing segment which have grown at a CAGR of 20% over the last five years. However, they account for less than 1% of bank credit and are one of the smallest components of lending to the personal segment -smaller than education and auto loans.
Time-bound NPA resolution tough under bankruptcy code
The RBI's big bang announcement directing banks to proceed against 12 borrowers under the Insolvency and Bankruptcy Code (IBC) has raised expectations of an early resolution. But experts say the new law is unlikely to be a magic wand to immediately cleanse balance sheets of banks, adding that legal tangles and lack of infrastructure for executing bankruptcies may emerge as impediments to early resolution of bad debts.
Borrowers have already been able to stymie lenders in the National Company Law Appellate Tribunal (NCLAT). Also, in one of the early cases filed by ICICI Bank, the National Company Law Tribunal (NCLT) fined the lender Rs 50,000 for inflating the claim against the defaulter. In another case, the appellate body overturned a ruling by the NCLT and declared the appointment of an interim resolution professional as illegal. In light of this experience, industry watchers say that prospects for either a resolution in 180 days (extendable by 90 days) or recovery through liquidation looks challenging.
“One needs to evaluate if the necessary infrastructure for executing such a mandate is available and prepared to manage these 12 cases. The entire ecosystem, including insolvency professionals, tribunals, banking and investors, is still building capacity and capabilities,“ said Ashish Chhawchharia, partner at Grant Thornton Advisory . Given the strict timelines under the code, it will take considerable efforts from all stakeholders to reach desirable solutions, he added.
Insolvency professionals step in after bankruptcy is initiated and manage the process until resolution. According to bankers, there are not enough insolvency professionals in the country to keep up with defaults. The RBI has not made the list of 12 borrowers public, but the names are already doing the rounds in banking circles and news reports (see graphic).
According to Karthik Sri nivasan, group head (financial sector ratings), ICRA, a key imponderable is the extent to which these decisions could be challenged in the courts, thus delaying the process. ICICI Bank had registered the maiden case with the IBC in midJanuary against Innoventive Industries, which has approached both the Bombay high court and NCALT on grounds that the principles of natural justice were violated since the company was not given adequate notice. “The outcome of the first case filed under IBC can be expected later this month or early next month, which will also provide clarity on kind of resolution agreements reached between different counter-parties,“ said Srinivasan.
The other concern is the relief that needs to be provided to businesses to make them viable enough to be sold. “Even the large stressed companies need a 30-80% reduction in interest burden to fully cover interest at current profitability . There fore, stress resolution will need additional provisioning and capital. ICICI Bank is the only corporate lender that appears comfortable on capital,“ said Ashish Gupta and Kush Shah of Credit Suisse in a research report.
While banks now have the power to sell off assets, offloading several steel plants at the same time might lead to a crash in valuations. “If there is alarge number of assets put up immediately for liquidation, mostly in the next one year, only a few may get closer to a realisable value while the rest may have to be liquidated at very high discounts,“ said M B Mahesh of Kotak Institutional Equities Research in a report. The option available to banks would be to temporarily take over the company by converting debt to equity .
May 2017: “Written-off” assets by banks
Just A Technical Exercise To Clean Up Accounts, Says RBI
All scheduled commercial banks (SCBs) wrote off Rs 2,25,180 crore cumulatively in the five-year period ended March 2016, the Reserve Bank of India (RBI) said in an RTI reply filed by TOI. SCBs represent all public sector banks, private sector banks, foreign banks, regional rural banks and some co-operative banks.These represent over 95% of the formal credit given out by all financial institutions in the country. “This could be the highest ever write-off in a fiveyear period in absolute terms as are the total stressed assets in the banking system,“ said Abhishek Bhattacharya, director and co-head for financial institution India Ratings.
Banks and the RBI have often stated that these write-offs are just technical in nature and an exercise to clean up the balance sheets. They have further argued that banks continue to retain the right to recovery from these written-off accounts. “Writing off of non-performing assets (NPAs) is a regular exercise conducted by banks to clean up their balance sheets. A substantial portion of this write off is, however, technical in nature. It is primarily aimed at cleansing the balance sheet and achieving taxation efficiency . In `technically written off' accounts, loans are written off from the books at the head office, without foregoing the right to recovery . Further, write-offs are `generally' carried out against accumulated provisions made for such loans. Once recovered, the provisions made for those loans flow back into the profit and loss account of banks,“ the RBI said in a clarification to a media report, based on an RTI reply in February 2016.
Be that as it may , the recovery from written-off accounts constitute only a tiny fraction of the overall written-off accounts, available data shows. In the financial year 2014-15, banks could recover only 11.85% (Rs 6,968 crore) of the written-off accounts in that year and 13.8% (Rs 9,717 crore) of the written-off accounts in FY 2015-16. The data for previous three years is not available with the RBI, it said.“The information on recovery from written-off accounts from FY 2011-12 to 2013-14 is not available with us,“ the RBI said in its RTI reply.
Though the amount from recovered loans in FY15 and FY16 might not pertain to that financial year alone, the numbers show the actual recovery to be only a tiny fraction of the total amount written-off and also to be a long protracted process.
In each of these five years, loans written off showed an increasing trend -at an average addition of over Rs 12,000 crore each ye ar. The worst year was FY15, when banks cumulatively wrote off Rs 16,550 crore more than the previous year. Banks reduce written-off loan accounts from their overall nonperforming assets. Adding the same back, the actual gross NPAs at banks could look a lot worse every subsequent year than it already does.
Written-off loans accounted for 11-16% of overall bad loans of the bank in each of those years (see table). Since 2011, banks started lending heavily to large corporates and, according to analysts, the problem suddenly became a lot bigger as “corporate leveraged built up“. The traditional tools of recovery like debt recovery tribunals, and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002, have become blunt in the face of such huge bad loans from large corporate accounts.
“Newer mechanisms are needed to deal with these big loans and they have to be dealt with on a going-concern basis. The usual recovery mechanism will not work,“ said Bhattacharya. He added, “Recovery will take time and won't happen in hurry .“
RBI to expand oversight committee
RBI steamrolls resolution of bad debt, expands oversight panel, May 23, 2017: The Times of India
Asks Bank Boards To Empower Execs To Tackle Bad Loans
The RBI has said that minority lenders who stymie a decision by majority lenders on bad debt resolution will face enforcement action. The central bank has also directed boards of banks to empower executives to take decisions to address bad loans.
The RBI has said that it will expand its current two-member oversight committee with a large number of members to endorse proposals for resolution of bad debt from banks. The large number of members brought into the oversight committee will man various benches to clear proposals from banks. The expansion of the oversight committee is aimed at providing protection to executive decisions by banks to take haircuts on loans to bring them back on track.
Currently , the two-member oversight committee has a very limited role. “While the current members will continue in the reconstituted oversight committee, names of a few more will be announced soon,“ the RBI said.The RBI clarified that a corrective action plan could include flexible restructuring as well as a strategic debt recast -a scheme where banks acquire stake and find new owners for defaulting business. It would also include the more recent Scheme for Sustainable Structuring of Stressed Assets (S4A). Under the S4A scheme, banks identify how much of a stressed debt is sustainable and provide relief by converting debt to equity.
The RBI has said that rating agencies would have a major role to play in the new scheme of things. However, to prevent rating-shopping or any conflict of interest, the RBI has said that it is exploring the feasibility of rating assignments being determined by the RBI itself and pay for from a fund to be created out of contribution from the banks and the central bank.
In an attempt to ensure that multiple lenders in a consortium are able to move ahead on resolving bad debt, the RBI said that consent required for approval of a proposal was changed to 60% of lenders by value instead of 75% earlier. In terms of numbers of lenders, at least 50% will have to continue to agree. Minority lenders who do not agree must either exit by bringing in a new lender or adhere to the decision of the Joint Lenders Forum (JLF). All lenders have to implement the decision of JLF without any additional conditionality .
Ombudsman
2017: ‘misselling’ made punishable
For 1st time, RBI makes banks accountable for misselling, June 24, 2017: The Times of India
Ombudsman's Ambit To Cover Mobile Banking Complaints
Banks for the first time have been made accountable for misselling third-party products like insurance policies or mutual fund schemes. Customers can also file complaints against banks for problems with mobile and digital banking services.
The RBI said that it has widened the scope of its Banking Ombudsman Scheme 2006 to include deficiencies arising out of sale of third-party investment products by lenders. Under the amended scheme, a customer would also be able to lodge a complaint against banks for non-adherence to the RBI instructions with regard to mobile or electronic banking services.
Following the amendment, the pecuniary jurisdiction of the ombudsman to pass an award has been doub led from Rs 10 lakh to Rs 20 lakh. The ombudsman has been empowered to award compensation not exceeding Rs 1 lakh for loss of time, expenses incurred and also harassment and mental anguish suffered by the complainant. There is also an option for customers to go in for appeal in respects to closed complaints which was not available earlier.
Until now, if the buyer of an insurance policy or mutual fund was missold she had to seek redressal from the insu rance company or the mutual fund. This was a departure from global practices. For instance, last year in UK four of the biggest banks, Barclays, HSBC, Lloyds and RBS, faced large fines for misspelling payment protection insurance.
There are 20 ombudsmen in India, each with a territorial jurisdiction. Aggrieved customers can lodge their complaints with the ombudsman either through an email or a post. However, before filing a complaint with the ombudsman the customer has to approach the grievance redressal department of the bank and wait 30 days for a response. Unlike the courts, no fees are required to be paid.However, the ombudsman can refuse to hear a complaint if it is time-barred or already heard in some other court. In FY16, the office of banking ombudsman received 1.03 lakh complaints.
Technology
Mobile banking transactions
The Economic Times, Mar 22, 2016
Mayur Shetty
Top 5 banks generate 92% of mobile banking value
Mobile banking penetration in India is concentrated among customers of five banks. According to data released by the Reserve Bank of India, the top five banks account for more than 92% of the entire value of mobile banking transactions in the country.
State Bank of India leads the pack with 36% market share, followed by ICICI Bank (21.5%), HDFC Bank (17.8%), Axis Bank (12.8%) and Kotak Bank (4.7%). These banks have managed to increase the number of mobile transactions by being proactive in development of mobile apps and making mobile banking feature-rich.
According to Deepak Sharma, head of digital banking at Kotak Mahindra Bank, his customers are leapfrogging to mobile banking directly from branch banking without using the browser. "Around 35% of our online banking customers are coming in from their mobile phones without having used net banking," he said. As against its market share of 1.4% of deposits, the bank has over 4.5% share of mobile banking. He said that online has already become the primary channel for most of the customers in the bank.
"Overall, 60% of fixed deposits have moved online. But if you look at only retail, nearly 80% of FDs are opened online," said Sharma. He added that it was largely bu sinesses that were obtaining fixed deposits in the branch.
"In terms of number of logins, mobile banking had overtaken net banking more than six months ago. Now mobile banking is ahead of net banking in terms of transactions as well," said Sharma. He said that the fastest growing segment is online recharge, which is driving transactions.
"We are now getting more and more categories online, like bill pay and IPO subscription. We are also seeing systematic investment plans (SIPs) gaining traction. We feel that any simple product that is easy to start, liquidate and monitor will pick up online," said Sharma.
In terms of volumes, the top five banks account for more than 85% of all mobile banking transactions. While the banks are the same as the toppers in transaction value, the rankings and consequent market shares vary slightly for volumes.State Bank of India again led the pack with a 38.5% market share, followed by ICICI Bank at 17.7%, Axis (15.3%), HDFC Bank (9.9%) and Kotak Bank (4.3%).
Banking robot
Rachel Chitra | TNN | Nov 11, 2016,Lakshmi, country’s first banking robot, makes debut in Chennai
CHENNAI: Endearing, interactive and superfast with data, India's first banking robot Lakshmi made her debut on Thursday in the city. Launched by the Kumbakonam-based City Union Bank, the artificial intelligence powered robot will be the first on-site bank helper.
Top private lender HDFC Bank, which is also experimenting with robots to answer customer queries, is testing its humanoid at its innovation lab. Lakshmi, which took more than six months to develop, can answer intelligently on more than 125 subjects.
Want to know your account balance? Interest rates on home loans? Deferred payments or possible charges to be incurred on fixed deposit closure? Lakshmi can answer it all. "Apart from answering generic questions, we have also programmed it to connect to the core banking solution. If a customer wants to know his bank account details or transaction history, the robot can flash the answer on its display," said N Kamakodi, MD and CEO, City Union Bank.
Sensitive financial information like account details are displayed discreetly on the robot's screen and not voiced. "Lakshmi only talks out loud on generic subjects. If you visited our branch with your girlfriend, she won't embarrass you by showing your low account balance," joked its CEO.
Lakshmi, who currently speaks in English, gestures, turns around and engages in a very life-like manner in conversations. Unlike most robots her speech is not formal, but more relaxed and casual. "Since its artificial intelligence, the robot is constantly learning from customers - the more interactions it has with customers the better it gets," said a bank executive.
And what if a question stumps Lakshmi? "She then asks you to get in touch with the branch manager. But at the back-end, we will be collecting all the questions she was unable to answer and equip her with better data sets, so she can service customers. Today she can give real time updates of foreign exchange movement, current interest rates at banks for different asset classes like personal, educational, two-wheeler and home loans, possible charges on withdrawals or deposits. But going forward, she might be able to more than that," said its assembler Vijay V Shah of Coimbatore-based Vishnu Engineering.
Cash deposit machines (CDMs)
Mayur Shetty, Cash deposit machines not to work for 6 weeks, Nov 21 2016 : The Times of India
Unlike ATMs, which can be recalibrated, CDMs, which identify and separate currency , are “taught“ to detect counterfeit notes by presenting different kinds of fakes. This may take several weeks, or even months.
To promote self-service and make available all banking services around the clock, banks have been installing CDMs and pass book printers in e-banking kiosks, in addition to ATMs. CDMs are distinct from ATMs that also accept cash deposits in envelopes, although they are operated in the same manner using a debit card. The advantage of a CDM is that all successful transactions are immediately credited to the customer's account.
According to Navroze Dastur, India MD & CEO of ATM maker NCR, ATM manufacturers require six weeks to tune the CDMs to accept new high-denomination notes and to identify fakes.
CDMs can count the notes, verify denomination, quality and authenticity and do everything that a bank teller can. “Before the CDMs starts accepting new currency , the developers need to come to India and programme the machines to identify the new notes. The bigger challenge is getting the machine to learn wat is a fake note,“ said Sunil Udupa, MD, Securens Systems, which offers ATM services to banks. Helping the machine identify fake currency notes requires samples of fake notes which are currently not there for the new notes, said Udupa.
There are close to 30,000 cash deposit machines in the country and they have made life easier for banks in accepting bulk deposits. These machines have been imported from international manufacturers -Wincor Nixdorf, NCR, Diebold and OKI. Their engineers will need to come and reset the machines. Until they are reconfigured, the machines can be used only for the Rs 50 and Rs 100 notes, which continue to be legal tender.
In the one week after the demonestisation of Re500 and Re1000 notes (on Nov 9 2016), SBI saw 45 lakh transactions at its 6,000 CDMs between November 10 and November 16, helping Rs 7,384 crore to be deposited. The total value of transactions in CDMs has been more than the Rs 3,565 crore the bank has seen in its ATM network.
See also
And the list is growing…
Banking, India: II (government data)
Banking, India: I
