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Banking News 30.01.2017

Demonetisation crisis may push back Asset

Quality Review (AQR) exercise by few months


The Business Standard

Published on January 30, 2017



Lenders recognised over Rs 1 lakh crore

of bad assets in the December quarter


New Delhi, January 29 (PTI): The Reserve Bank is expected to extend the deadline for asset quality review (AQR) of lenders by a few months because of the unusual situation in the financial sector following demonetisation, bankers said.


The cleaning up exercise that is required should be done properly, they said.


A senior bank official said lenders may require few more months for proper implementation of AQR as most of their staff was busy with demonetisation for two months.


Besides, RBI has extended the 90-day breather from getting accounts classified under non-performing asset (NPA) category for loans up to Rs 1 crore. This dispensation is applicable to dues payable between November 1 and December 31.


This will also come in the way of AQR for which RBI had set a deadline of March 2017, said the official.


Government had in November demonetised high-value notes, which accounted for 86 per cent of the entire currency in circulation.


RBI had embarked on the AQR exercise from December 2015 and asked banks to recognise some top defaulting accounts as NPAs and providing for them. It has had a debilitating impact on banks' numbers and their stocks.


The move resulted in a spike in bad assets with lenders recognising over Rs 1 lakh crore of bad assets in the December quarter alone.


Almost all the major lenders in the system have reported a sharp increase in asset quality stress and heightened provisioning as a result of the AQR, under which banks have been reportedly asked to recognise stressed accounts by March end.


According to another bank official, it is up to RBI to take a final call on AQR deadline based on their assessment but asset quality of banks would remain under stress for the next two quarters.


Some of the lenders like Canara Bank, Axis Bank, State Bank of Bikaner and Jaipur, State Bank of Mysore, IDFC Bank have reported an increase in NPAs during the quarter ended December 2016.


Public Sector Banks have seen nearly Rs 80,000 crore increase in gross non-performing assets (GNPAs) in the three months ended September 2016. Their GNPAs rose to Rs 6,30,323 crore as against Rs 5,50,346 crore by June-end.


As of June 30, 2016, the number of NPA accounts above Rs 50 crore were 2,071 with an outstanding amount of Rs 3,88,919 crore.



From E-Group, Banking-News



RBI rejects EC plea for raising cash

withdrawal limit for poll candidates


The Mint

Published on January 30, 2017



The Election Commission had requested RBI to enhance the cash withdrawal limit to Rs. 2 lakh from Rs. 24,000 per week to meet their campaign expenditure


New Delhi, January 29 (PTI): The Reserve Bank of India (RBI) has rejected the request of the Election Commission to enhance the weekly cash withdrawal limit, imposed after demonetisation, for those contesting Assembly elections in five states, prompting an angry reaction from the poll panel.


The Commission had on Wednesday requested RBI to enhance the withdrawal limit of candidates to Rs. 2 lakh from Rs. 24,000 per week imposed post demonetisation as the nominees would find it difficult to meet their campaign expenditure.


But RBI said that it was not possible for it to hike the limit at this stage. An apparently peeved Commission has now written back to RBI governor Urjit Patel expressing “serious concern about the cursory manner in which the issue has been dealt with”.


“...(It) appears that the RBI has not realised the gravity of the situation...It is reiterated that it is the constitutional mandate of the Commission to conduct free and fair elections and to provide level-playing field to all candidates...in order to facilitate proper conduct of elections, it is imperative that directions issued by the Commission are complied with,” the poll panel said.


It urged the central bank to reconsider the proposal. On Wednesday, the Commission had told RBI that it has been apprised of the problems candidates were facing due to withdrawal limits imposed after the note ban.


It said the returning officer of the constituency would issue certificate that the person was a candidate in the fray and the contestant be allowed to withdraw Rs2 lakh cash per week from the bank account opened especially to meet poll expenses.


The EC said the facility be extended till 11 March, the day of counting. Candidates are bound to open an election account for meeting poll-related expenditure which is monitored by the EC. The Commission said that with a weekly withdrawal limit of Rs24,000, a candidate would be able to withdraw Rs96,000 in cash during the election process which lasts three to four weeks.


It reminded the central bank that as per law, candidates contesting Assembly polls in Uttar Pradesh, Uttarakhand and Punjab can spend Rs28 lakh each for electioneering. The limit in Goa and Manipur is Rs20 lakh each. The poll panel said despite paying amounts through cheques, candidates still need hard cash for petty expenses. Also the issue is further adversely effected in rural areas where banking facilities are negligible.



From E-Group, Banking-News



Inadequate imports of paper for new

currency notes may have led to cash crunch


Asit Ranjan Mishra, The Mint

Published on January 30, 2017



The govt imported 15,000 tonnes of currency note paper during the April-October period, only 61.5% of what it imported in the previous full fiscal year


New Delhi, January 29:  India did not significantly raise imports of paper used to print currency notes ahead of the shock announcement on 8 November to scrap 86% of currency in circulation, one of the reasons that may have contributed to the cash crunch and long queues before banks.


The government imported 15,000 tonnes of currency note-paper during the April-October period, only 61.5% of what it imported in the previous full fiscal year, commerce ministry data showed.


However, imports of currency paper during the April-October period were 15.2% more than what the government had imported in the same seven-month period in the previous year.


The import data of currency note paper shows government was not well-prepared to carry out the demonetisation exercise, said Pronab Sen, a former chief statistician of India.


“The import volume was at best meant to prepare for a normal planned monetary expansion after four years of marginal increase in money supply under governor Raghuram Rajan,” he added. “Importing currency papers for demonetisation would have taken the volume altogether to a different level.”


Many aspects of the currency swap are still shrouded in secrecy.


The Reserve Bank of India (RBI) and the government have still not disclosed how much of the Rs15.4 trillion worth of old high-value notes has returned to the central bank.


After RBI last month said that Rs12.44 trillion of old currency were deposited in banks by 10 December, the finance ministry disputed the figure, citing possible double-counting and calling for the data to be sanitized. RBI has not released data after the finance ministry’s objection.


The annual requirement of Cylinder Watermarked Bank Note, another name for currency notes, in India is approximately 25,000 tonnes, according to the finance ministry’s 2015-16 annual report.


India imports most of the paper it uses to print currency notes. Italy (5,363.3 tonnes) and Switzerland (4,246.1 tonnes) are the top two suppliers of papers for Indian banknotes in the current fiscal year.


A major chunk of the currency note paper worth Rs930.6 crore was imported from eight countries, mostly through the Chennai and Kolkata ports.


India has also started the process of producing currency note papers indigenously with the establishment of Security Paper Mill at Hoshangabad, Madhya Pradesh, and Bank Note Paper Mill India Pvt. Ltd in Mysuru, Karnataka.


Once fully functional, the two establishments will have a combined annual capacity of 18,000 tonnes, the finance ministry told Parliament in a statement on 29 May 2015.


According to the latest RBI data, the currency in circulation as on 20 January stood at Rs9.9 trillion, against Rs18 trillion on 4 November.


Currency notes in India are printed by Security Printing and Minting Corp. of India Ltd (SPMCIL) under the finance ministry and by Bharatiya Reserve Bank Note Mudran Pvt. Ltd (BRBNMPL), an RBI unit. SPMCIL has two currency presses at Dewas, Madhya Pradesh, and Nashik, Maharashtra, while BRBNMPL manages two presses—one at Mysuru and the other at Salboni in West Bengal.



From E-Group, Banking-News



Vijay Mallya-IDBI bank CMD holiday meeting

led to hasty sanction of Rs 350 crore loan: ED


The Economic Times

Published on January 30, 2017



New Delhi, January 29 (PTI): Two initial tranches of loan worth Rs 350 crore were hastily disbursed by IDBI bank to Kingfisher Airlines after a "holiday" meeting between liquor baron Vijay Mallya and the then bank CMD as both organisations "criminally conspired" to clear the entire deal despite weak financials of the airline, the ED has said.


The total loan sanctioned and disbursed by IDBI was Rs 860.92 crore. The agency, probing the case for money laundering charges, has said its investigation found that the processes deployed to structure and restructure the loan by the bank to the now-defunct airline were planned to be defrauded and that Mallya and Kingfisher Airlines (KFA) had "no intent" to repay it.


"PMLA investigation indicates that the marketable value and quality of the collateral security offered by Ms KAL (KFA) and its promoters was not assessed. There is a complete lack of due diligence on the part of the bank coupled with the fact that undue haste was shown while disbursing the initial two tranches of loan amounting to Rs 350 crore.


"It is apparent that the said loans were disbursed post meeting of Mallya with the then CMD (Yogesh Aggarwal) of the bank on a holiday. It does not need an eagles' eye to decipher the cause of immediate disbursement of the loan amount of Rs 150 crore on October 7, 2009, and Rs 200 crore on November 4, 2009," the Enforcement Directorate (ED) probe report, accessed by PTI, said.


The CBI recently arrested Aggarwal and eight others in this case.


The report added this specific transaction, where "substantial amounts" were sanctioned to KFA, on an ad-hoc basis and without due diligence points to the "existence of a deep-rooted criminal conspiracy between the bank officials and the promoters of KAL (KFA)".


The agency, in its report, has appended the statement of the Aggarwal given to ED on March 23 last year wherein he told the Investigating Officer (IO) of the case that in October 2009, Mallya made a telephonic call to his office and requested for an "urgent meeting the very next day".


"As the next day was a holiday, it was pointed out to him... and he could meet at a later day. However, he (Mallya) informed that he was leaving Mumbai next day evening and as the matter was urgent, he would be grateful if he could meet the next day despite it being a holiday to which he (Aggarwal) agreed," the ex-CMD said, adding Mallya did meet him the next day along with a former MD and current advisor to the bank and an Executive Director of IDBI.


"Mallya informed that Ms KAL (KFA) was in a severe crunch and needed funds urgently to keep flying," Aggarwal said in his statement.


The report further goes into the disbursal of these two tranches of loans saying when this happened "Ms KFA was having negative financials and negative net-worth and being a new client did not satisfy the conditions/norms stipulated in the corporate loan policy of the bank".


"However, without due deliberations and without following the standard procedure for sanctioning and disbursal of loan, short term loan was immediately sanctioned by the bank in an undue haste," it said.


The ED probe also found that the considered brand valuation of the KFA, taken as a collateral by the bank for loan security in the said case, was not a sound decision.


"Investigation revealed that KFA brand was accepted as collateral security and the valuation for Kingfisher brand as accepted by the bank as Rs 3,400 crore without independent verification," it said, adding the firm that did the brand valuation had submitted three different amounts of this estimate between 2008-12.


"Thus, it indicates how volatile is this (brand value) intangible fictitious asset and needs to be evaluated frequently, particularly in aviation sector which itself is very unpredictable and was going through a very rough phase and brand valuation was wholly based on projections provided by Ms KFA. Hence, it would not be prudent to accept brand value of 2008, while considering loan sanction in 2009," it said.


ED said its "money trail analysis revealed that out of the total loan of Rs 860.92 crore, sanctioned and disbursed by IDBI, Rs 423 crore has been remitted out of India. The said payments were shown to be made towards aircraft rental leasing and maintenance, servicing and spare parts."


The investigations conducted so far, it said, found KFA along with IDBI bank officials "criminally conspired to obtain funds to the tune of Rs 860.92 crore despite weak financials, negative net-worth, non-compliance of corporate credit policy of new client, non-quality collateral security and low credit rating of the borrower, out of which Rs 807.82 crore of principal amount remains unpaid."


ED had registered a criminal case in this deal last year under the provisions of the Prevention of Money Laundering Act (PMLA) and has attached assets to the tune of Rs 9,661 crore till now.



From E-Group, Banking-News



Aadhaar number printed on

paper perfectly valid: UIDAI


The Hindu

Published on January 30, 2017



New Delhi, January 29: The Unique Identification Authority of India (UIDAI) has cautioned people about sharing their personal information with unauthorised agencies for printing Aadhaar numbers on a plastic card, while stressing that the Aadhaar letter, with its cutaway portion or the downloaded version, on an ordinary paper is “perfectly valid.”


Several agencies charge anywhere between ₹50 and ₹200, or more, for printing Aadhaar on a plastic card in the name of smart card.


“The Aadhaar card or the downloaded Aadhaar card printed on ordinary paper is perfectly valid for all uses. If a person has a paper Aadhaar printout, there is absolutely no need to get his/her Aadhaar card laminated or obtain a plastic Aadhaar card or so-called smart Aadhaar card by paying money. There is no concept such as smart or plastic Aadhaar card,” Dr. Ajay Bhushan Pandey, CEO of UIDAI, said in a statement.


The UIDAI has also warned unauthorised agencies that “collecting such information or unauthorised printing of Aadhaar card or aiding such persons in any manner amounts to a criminal offence punishable with imprisonment under the IPC and, also, Chapter VI of The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016.”


The UIDAI further said that if someone loses the Aadhaar printout, they could download it for free from the website.


“The printout of the downloaded Aadhaar card, even in black and white form, is as valid as the original Aadhaar card sent by UIDAI,” it added.



From E-Group, Banking-News



Renouncing cash


Editorial: The Business Line

Published on January 30, 2017



The Centre must ensure cheaper

digital transaction costs to facilitate this shift


The chief ministers’ committee on digital payments has rightly emphasised that the Government has to lead the way, provide direction and take policy decisions to steer India towards becoming a less-cash economy. Some of the suggestions of the panel led by Andhra Pradesh chief minister N Chandrababu Naidu in its interim report to Prime Minister Narendra Modi last week are certainly implementable. Measures suggested include reintroduction of the controversial banking cash transactions tax (BCTT), fiscal incentives to consumers and merchants for digital transactions, a cap on cash payments for large transactions, lowering of the merchant discount rate, rollout of an Aadhaar-enabled payment system, switching to digital payments for all government-provided services and introduction of contact-less payments for transit in metro cities. The committee has also suggested a subsidy of Rs. 1,000 to non-income tax assessees and small merchants for smartphones. While some of the measures are not only feasible but necessary, others need to be modified. For instance, fiscal incentives such as the tax refund up to a certain proportion of annual income for consumers using digital payment proposed by the committee may be too complicated to implement, while the proposed smartphone subsidy is prone to leakage and abuse. In any case, the Centre needs to move swiftly with easy-to-implement measures to ensure that neo-converts — and those forced by the cash shortage after demonetisation — to digital payments do not return to cash transactions as the norm.


However, the Centre needs to take a calibrated approach towards restricting the use of cash, to avoid another shock to growth in an economy where millions of small businesses deal in cash. An enabling infrastructure needs to be in place before disincentives such as the BCTT are introduced. While the Parthasarathi Shome Committee on tax reforms in November 2014 had suggested it as an effective measure to track unaccounted money, since it creates a trail of cash withdrawals, the UPA government, which introduced it in 2005, was persuaded to withdraw it in 2009. Any bid to reintroduce it needs to factor in the genuine issues faced by both individuals and small businesses.


Digital payment systems cannot grow without a robust and stable digital infrastructure, high-speed and stable data connectivity to the last mile, and data security. The Naidu committee has rightly emphasised the need to strengthen and expand connectivity and hardware infrastructure as well as interoperable payment platforms. For better adoption of electronic payments, digital transactions cannot be much more expensive than cash. The focus will have to be on reducing transaction costs through technological innovation, greater volumes and a sharing of savings generated from dealing with less cash. Finally, moving to a largely cashless economy requires a massive attitudinal change. This cannot be achieved overnight, or through fiat. Improving financial literacy, especially among the rural population and the poor, is the need of the hour.



From E-Group, Banking-News



Rs 7,400 crore debt: SBI looks to Supreme Court

to recover loans from Jindal Steel and Power


Indu Bhan

The Financial Express

Published on January 30, 2017



New Delhi, January 30: In another attempt to recover its outstanding dues of Rs 7,400 crore, a consortium of eight banks, led by State Bank of India (SBI) has urged the Supreme Court to implead it as a party in the mining case related to Jindal Steel and Power (JSPL), saying any direction to refuse permission to the firm to lift and transport iron ore lying at its long time supplier Sarda Mines Private Ltd (SMPL) plant in the Keonjhar district of Orissa will bleak its chances of recovery.


This is not the first time SBI has approached the SC to help it recover money from defaulters. Earlier this month, a SBI-led consortium of 12 PSU banks had sought intervention in the Aircel-Maxis case, saying it apprehended that if the telcom company was restrained from earning revenue by using the 2G spectrum, all the lenders would be severely affected due to non-payment of their outstanding dues to the tune of Rs 20,000 crore.


The consortium of 17 banks led by SBI has also sought recovery of over Rs 9,000-crore dues from Kingfisher Airlines. All the pleas are pending in the SC.


The present case relates to processed iron ore stocks lying at the dispatch point of SMPL for onward delivery to JSPL. The mining department in March 2014 had directed SMPL to stop all mining activities on the ground that its environment clearance had expired. And on this basis, the department had refused to give transit permit to JSPL for transportation of procured and processed iron ore.


The SBI-led consortium’s application is coming up for hearing on Monday.


The Odisha government has challenged the high court’s April 2016 order that allowed JSPL to lift 12 million tonne of iron ore from Sarda Mines, whose mine is currently non-operational for want of clearances. The HC had also directed the state government to issue necessary orders for lifting and transport of iron ore from the mines.


The state government has told the apex court that transporting of extracted ore would also count as mining, and this could not be allowed as the mining operations have been suspended. Besides, there may be irregularities in the deal between the two companies, as Sarda Mines is selling iron ore to JSPL way below the market rate.


However, JSPL has claimed that lifting already extracted iron ore is not a mining-related activity.


Seeking intervention in the case pending before the apex court, the lenders said that of the Rs 7,400-crore working capital limit sanctioned by them, JSPL had paid in advance around Rs 2,000 crore to SMPL for procuring 12.21 million tonne of iron ore fines and 29,000 iron ore lumps (approximate).



From E-Group, Banking-News



Wary SBI may play safe with troubled borrowers


Sugata Ghosh,

The Economic Times

Published on January 30, 2017



Mumbai, January 29:  The arrest of former bankers who had approved loans to Vijay Mallya’s Kingfisher Airlines will hold back India’s largest lender State Bank of India (SBI) from throwing a lifeline to a troubled company and proactively rejigging loans to give a business house a second chance.


In the course of meetings that followed last week’s high-profile arrests by the Central Bureau of Investigation, the state-owned high-street bank has chosen to let future restructuring of corporate loans be decided through proceedings under the bankruptcy code.


Banks often come together to lower interest charge, convert debt into equity, and stretch loan repayment period to help borrowers tide over difficult times and deal with failed businesses.


But with bankers who had approved loans to Kingfisher being taken into custody, bank employees want to ring fence themselves against actions taken by government enforcement agencies probing loan defaults and alleged money laundering by Mallya.


“A public, transparent process of loan restructuring, approved by the National Company Law Tribunal (NCLT), cannot be questioned. It may not be the best solution, but we don’t have too many choices,” said an SBI official. NCLT passes orders for insolvency resolution after a creditor initiates proceedings under the bankruptcy law.


A few days ago senior officials of the bank met partners of a leading law firm in Mumbai to explore the option of invoking the bankruptcy code for some of the large stressed loan accounts.


“Not all banks, particularly some of the private lenders, may agree with SBI. But banks will soon meet to discuss the way forward for the industry in the aftermath of the arrests,” said another banker.


Among other things, dealing with stressed borrowers and mode of loan restructuring is likely to crop up when bank chief executives meet on February 1 as managing committee members of the Indian Banks’ Association, a bank lobby. Under the bankruptcy code, a loan restructuring plan is prepared by an ‘insolvency practitioner’ — whose appointment has to be cleared by NCLT — in consultation with banks.


Within 180 days of NCLT passing an ‘insolvency resolution order’, the practitioner takes possession of the assets of the defaulting company, takes over the management, runs it as a going concern, and collects data from the company and banks to formulate the restructuring plan which becomes operational after three-fourth of the banks agree. If the plan is rejected, NCLT orders liquidation of the company and the insolvency practitioner is appointed as the liquidator. According to regulations, the secured creditors can take possession of the pledged and mortgaged assets to sell them and recover a part of their dues.


“A bankruptcy proceeding is perceived as an avenue to force a truant borrower to fall in line, though it’s not the best way for banks to salvage most of their money,” said a senior lawyer. Lenders know that the seemingly powerful law is not entirely free of hurdles.


Indeed, one of the borrowing companies recently moved the high court to challenge the bankruptcy law that allows a lender to kick off the bankruptcy process (by filing a petition for insolvency resolution before NCLT) without serving a notice on the borrower.


But it appears the immediate priority for many banks is to take refuge in the new law to shield their reputation and raise a wall of immunity against actions of law enforcement agencies. More so, with the arrest of former IDBI chairman Yogesh Aggarwal and four other officials coming just days after a DRT ruled in favour of SBI-led lenders’ consortium for recovering more than Rs 6,200 crore from Mallya.



From E-Group, Banking-News



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