Banking News Estd. 20-4-1946 23 FEBRUARY, 2016

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NEWS BULLETIN from

ALL INDIA BANK EMPLOYEES’ ASSOCIATION

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Cut Govt stake in public sector banks to below 51% to fight NPAs, says Arundhati Bhattacharya MUMBAI: By Sangita Mehta & Pratik Bhakta, ET Bureau | Feb 22, 2016,

Finance Minister Arun Jaitley may be worried about how to manage bank capitalisation and fiscal prudence over the next few years. But the State Bank of India chairman Arundhati Bhattacharya has a solution: when the recapitalisation roadmap is finalised, it could provide for government stake falling below 51%, a plan that Atal Behari Vajpayee government proposed. The plan coming from the chief of the biggest bank in the country reveals how difficult it could be without access to raising funds from the market, which the current laws do not permit since government holding in most banks is already close to 51%. "For the banking sector, we should look for a clear roadmap for recapitalisation, with provision for ownership reduction below 51%,'' Arundhati Bhattacharya, chairman of SBI told ET Markets Pre-Budget meet on the Union Budget. With the government under pressure to stick to its fiscal deficit target of 3.9% of the gross domestic product this fiscal and

3.5% for next, it may not find enough resources to capitalise the banks adequately. If the government changes laws which permit its holding to go below 51%, banks could raise funds selling shares to investors. The soaring bad loan problems of banks were not self inflicted wounds of the industry, but were mostly due to factors that are beyond its control. "Very many things that were promised did not happen," said Bhattacharya. "Gas was supposed to be available abundantly, it did not happen. We are supposed to be getting all approvals within short periods of time, which did not happen. Mining was closed down because the law enforcement agencies could not ensure it was being done legally. Surely, the banks were not responsible for that. Mines were allocated and cancelled; licences accorded and taken away; rupee as a currency depreciated. The world went into a tail spin because of quantitative easing being rolled back and interest rates shot up. I don't know how many of these are the making of banks." Indeed, the state run banks are likely to turn a new leaf with the changes effected, including the splitting of the board and the executive functions. "If you look at the kind of people getting nominated on the board, they are people of eminent capability and they make very good contributions," she said. "In SBI, we have always had the benefit of a good board. Now, even in other PSBs, the current nominations are of very good people with an excellent track record of execution. I am sure that over a period of time this will show up in the working of these banks.

AIBEA STRONGLY OPPOSES THIS SUGGESTION: REDUCTION OF GOVT. CAPITAL TO LESS THAN 51% AND PRIVATISATION OF BANKS IS NO PANECEA. THE REAL PROBLEM IS THE BULGING BAD LOANS AND PRIVATE CORPORATES ARE THE MAIN CULPRITS. CRIMINAL ACTION SHOULD BE TAKEN AGAINST THESE DEFAULTRS AND DUES RECOVERED. HOW CAN WE HAND OVER OUR BANKS TO THE VERY SAME PRIVATE SECTOR WHO ARE THE DELINQUENTS ?

Write-offs a scam, small loans rarely in it, says former RBI Deputy Governor By: George Mathew and Khushboo Narayan | February 11, 2016 INDIAN EXPRESS According to a former government official, some banks write off accounts to sell them to asset reconstruction companies (ARCs) at lower prices and make easy money out of it. (Reuters)

Former Reserve Bank Deputy Governor Dr K C Chakrabarty says technical write-offs by banks is a “scam” and should be stopped. “Technical write-offs by Indian banks are inequitable and should be stopped. It is a big scam. Small loans are rarely written off, most of them are big loans,” London-based Chakrabarty, who handled the supervision department of the RBI from 2009 to 2014, told The Indian Express. Public sector banks have written off Rs 1,14,000 crore in the last three years, as reported in The Indian Express on February 8, based on a response by the Reserve Bank of India to an RTI application. Banks are planning to write off more bad loans in the current year, and this could be Rs 52,227 crore, similar to the quantum written off in 2014-15. There’s a reason for the eagerness on the part of banks to write off loans though a loan is technically the bank’s asset. “It benefits banks in terms of tax liability,” M Narendra, former chairman and MD of Indian Overseas Bank, said. The other benefit is that the bad loan no longer stays in the bank’s books. The write-off instruction comes from the head office. “Technical or prudential write-off is the amount of non-performing loans which are outstanding in the books of the branches, but have been written off (fully or partially) at the head office level. Amount of technical write-off should be certified by statutory auditors,” says the RBI’s master circular on income recognition and asset classification. “Banks should either make full provision as per the guidelines or write off such advances and claim such tax benefits as are applicable, by evolving appropriate methodology in consultation with their auditors/tax consultants.

Recoveries made in such accounts should be offered for tax purposes as per rules,” the RBI says. Narendra said, “Write-off happens when a loan becomes non-recoverable or dead asset. It’s done after making 100 per cent provisioning. The bank continues its recovery measures even after the write-off.” Non-performing assets (NPAs) reflect poorly on the bank and they are eager to write it off or remove it from the balance sheet and reduce the tax liability. According to a former government official, some banks write off accounts to sell them to asset reconstruction companies (ARCs) at lower prices and make easy money out of it. Banks don’t want to take on the tedious recovery process. Selling the assets to ARCs is a quick-fix solution for banks. “In some cases, bank officials cut sweet deals with the promoter of defaulting companies to write off loans,” the official said. “There’s lack of vision to manage the NPA accounts among bank managements. There’s also lack of direction on the part of the Reserve Bank. What’s happening in PSU banks doesn’t get noticed. The attitude of borrowers is also changing on the issue of repayment. Many of them inflate the cost of the project. Valuers empanelled with the banks also go by that valuation,” Ramnath Pradeep, former chairman and MD of Corporation Bank, said. “I have seen some of the banks in a consortium writing off loans while others don’t do it. There’s no uniformity in their approach.” If it is the head office of a bank that approves write-offs, loans are sanctioned by a credit approval committee comprising the chairman, executive directors and the general managers of a bank. This mechanism was put in place through a 2012 directive by the Finance Ministry. These committees can approve credit proposals up to Rs 400 crore in the case of Category A banks and Rs 250 crore in the case of other PSU banks. If the loan proposal is above this limit, it has to be vetted by the board committee. Often, the board clears the proposal put across by the management without much discussion. Small PSU banks blindly follow the decisions of bigger banks without going for any due diligence on their own, a government source said. Boards of public sector banks have senior officials from the government as well as the RBI on their boards. “The irony of NPAs of PSU banks is that they have happened right under the nose of RBI officers who are on the boards of

PSU banks. Thus, in a way the RBI becomes directly responsible for the banks’ decisions on credits that became NPAs,” K K Srinivasan, former Member (Life) of the Insurance Regulatory Development Authority of India, said. For instance, Financial Services Secretary Anjuly Chib Duggal and Reserve Bank Deputy Governor Dr Urjit R Patel are on the SBI board. Rajesh Aggarwal, Joint Secretary in the Department of Financial Services, is a Director on the board of Punjab National Bank. B P Kanungo, who was Regional Director of the RBI in Kolkata, is also on the board of PNB. In Bank of India, Anna Roy, Joint Secretary in the Department of Financial Services, is the government nominee while S S Barik, Regional Director of RBI, North Eastern States, is the RBI nominee on the board. Alok Pande, Director in the Department of Financial Services, and Nirmal Chand, Regional Director of RBI, Thiruvananthapuram, are on the board of Indian Overseas Bank. “A regulator should not be a part of the apex business decision-making body (board of directors) of regulated entities. This position needs to be rectified if the RBI is to be absolved of the responsibility of NPAs of PSU banks,” Srinivasan said. This will require the RBI to withdraw its nominees from 27 PSU bank boards.

Kingfisher House to be auctioned soon; lenders preparing to invite bids

MANJU AB | Fri, 12 Feb 2016-07:40am , Mumbai , dna

The Kingfisher House in Mumbai, the headquarters of Vijaya Mallya's once high-profile airline Kingfisher Airlines, will be auctioned shortly. The lenders, who have taken posession of the property, are expected to invite bids from potential buyers in a couple of days. This will be the first headway that bankers will have in the long-standing battle with the 'king of good times', being fought through various courts by a consortium of 17 banks led by the State Bank of India (SBI). Lenders expect to get around Rs 100 crore from the sale as the real-estate market continues to be down. A banker, who is privy to the dealings in the account, said: "We will be auctioning the property and will shortly issue advertisements inviting bids for the property. We expect to recover a sizeable amount of money from the sale." Real-estate officials said the Mumbai's domestic airport, is collateral left with the banks similar market value of around

17,000-sq ft property at Vile Parle, near likely to fetch over Rs 100 crore. The other is the Kingfisher Villa in Goa, which has a Rs 100 crore.

After the income-tax department went to court staking claims to part of the money recovered, the court had ruled last year that the tax department's claims should also be considered. So bankers and I-T officials formed a committee to preside over the sale of the property. At a time when bad loans are biting into the profitability of lenders, a big recovery from a corporate account is certainly a positive development for banks which are aggressively pursuing defaulters, particularly the big defaulters who have the clout and the money power to put hurdles on banks' efforts. In 2014, the airline, after a court ruling, said in a statement that it handed over possession of its property, Kingfisher House, to SBICAP Trustee, a security trustee for the consortium of Kingfisher lenders. The lenders recovered over Rs 600 crore from the sale of United Spirits shares pledged with them. In January 2014, the Bombay High Court admitted a winding-up petition filed by the SBI-led consortium of lenders, which claimed dues of Rs 6,200 crore. The petition had sought liquidation of the airline. Its debt had touched Rs 7,500 crore by 2012.

Even as the airline business continued to guzzle cash, Kingfisher had bought out Air Deccan before the downfall began. It suddenly became unprofitable to run the airline and the operations came to a halt in October 2012 while its flying permit was cancelled in December that year. Among the big lenders to Kingfisher are SBI (Rs 1,400 crore), PNB (Rs 700 crore), Bank of Baroda (Rs 500 crore) and ICICI Bank (Rs 450 crore, which was later sold to SREI Infrastructure).

SBI-led lenders mull recast of Alok Industries MANJU AB | Mon, 25 Jan 2016-06:30am , Mumbai ,

dna

Banks allege fund diversion to real estate from its core activity of textiles, scout for investor for non-cotton business; 25 lenders have Rs 13,000 crore exposure to the company Bankers have alleged that Alok Industries diverted money to real estate investment from its core business activity -- textiles. Led by State Bank of India (SBI), the lenders are now planning to restructure the company by separating the cotton and non-cotton units. After this, the banks would scout for a strategic investor for the non-cotton business of the company. The company said in a response to an email query by dna, "We currently have an embargo on media interaction and hence cannot comment on anything. We will expect you to take due caution however to ensure that the story contains no distorted facts." Bankers said high value real estate purchases and exits from these investments at a loss resulted in the stress in repayments. Instead of using it for the core textile business, the company diverted money for real estate investments in Mumbai and Silvassa. Over 25 lenders have total outstanding dues of over Rs 13,000 crore. The company, which had bought office space in Peninsular Business Park building in Mumbai in 2007, had subsequently sold it at a loss. A land parcel in Silvassa, the capital of Dadra and Nagar Haveli, which it had acquired earlier, was also sold at a loss.

Last week, Alok Industries informed the stock exchange, "The company has been informed by its lead bank, State Bank of India (SBI)...vide their letter dated 18 January 2016 that as decided by the joint lenders' forum (JLF) at their meetings held on November 23, 2015 and December 11, 2015, strategic debt restructuring (SDR) has been invoked on the company with the reference date being November 27." Under the SDR norms laid down by the Reserve Bank of India, banks can convert part of their debt into majority equity in a firm which has defaulted on its payments. In the September quarter, the company reported standalone net loss of Rs.242.20 crore compared with a net profit of Rs 45.36 crore in the same quarter a year ago. Net sales for the quarter were Rs.3,167.91 crore, down 15.4% from Rs.3,744.84 crore a year ago. The company is promoted by Ashok B Jiwrajka (2.54%) who heads it as executive director, managing director Dilip B Jiwrajka (2.5%), joint managing director Surendra B Jiwrajka (2.6%) and Alok Knit Exports (27.79%). So far, banks have invoked SDRs in 15 loan accounts where the total loans stand at about Rs 83,100 crore, Religare Institutional Research estimated in a January 4 report. Religare analysts expect another Rs 63,900 crore worth of loans to enter the SDR process in the next 12-24 months.

GTL Infrastructure Ltd turns up for one-time settlement with banks MANJU AB | Mon, 22 Feb 2016-07:40am , Mumbai ,

dna

The group is negotiating with banks for settlement of Rs 6,800 crore debt by selling off the group companies – GTL Infrastructure Ltd and Chennai Network Infrastructure Ltd Manoj Tirodkar-promoted Global Group is taking steps to settle its debt with the Indian lenders. The group is negotiating with banks for a one-time settlement of Rs 6,800 crore debt by selling off the group companies.

Global Group's portfolio of telecom companies include infrastructure services firm GTL Ltd and shared passive telecom infrastructure companies -- GTL Infrastructure Ltd and Chennai Network Infrastructure Ltd (CNIL). The group owes banks around Rs 12,000 crore. Manoj Tirodkar, chairman of Global Group, did not respond to text messages sent to him. A senior banker said, "The company has come for a one-time settlement with banks, and the lenders are examining the proposal. The company says they have got a foreign investor willing to buy out the companies, GTL Infra and Chennai Networks." Way back in 2011, the group and its lenders agreed on a plan to restructure the Rs 8,000 crore debt of both the companies -- GTL Infra and Chennai Networks. But the plan fell through with bankers having no consensus on how the debt should be restructured under the corporate debt restructuring scheme. Bankers say the group was a victim of circumstances in the telecom sector that was plagued with scams and cancellations of licences of its customers. Banks, which have been writing off loans or classifying them NPAs, believe that the one-time settlement and the willingness to sell off non-core assets is a positive sign as promoters take up the onus to settle loans with banks. The total non-performing loans of the banking system at the end of the quarter ended December 31, 2015 stood at Rs 4.36 lakh crore. The total stress assets in the system are pegged at over Rs 7 lakh crore. The acquisition of Chennai Network Infrastructure, which had 17,000 mobile towers from Aircel in a Rs 8,400 crore transaction, burdened the company with a huge debt. This was followed by another plan to buy 50,000 towers from Reliance Communications. The company's wanted to lease out mobile towers, a plan that floundered leading to squeezed cash flows. The Reliance Communications deal was the first to fall and the Aircel deal also got stuck with the telecom services provider losing licences after the Supreme Court struck down the 122 permits. "All these external factors impacted the company and it was difficult for it to repay the debt," said another banker also privy to the discussions that the company is having with bankers.

AIBEA This day – 23rd FEBRUARY 1923

Com. V M Devi, veteran leader, Maha Gujarat Bank Employees’ Association from Bank of India date of birth.

1949

Formation of Maha Gujarat Bank Employees Association, Ahmedabad.

1989

5th Bipartite understandings finalized.

2010

Strike in United bank of India against Capital Dilution

ON 14TH MARCH, 2016

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