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Banking News 22.02.2017

Conciliatory talks yield no result: Bank staff

to go ahead with strike on February 28


K R Srivats, The Business Line

Published on February 22, 2017



The unions had, among other things, demanded

“legitimate compensation” for the extra hours of

work performed during the demonetisation period


New Delhi, February 21: The all-India bank strike called for February 28 stands as the conciliatory talks between bank unions and the Indian Banks’ Association (IBA) yielded no result here on Tuesday.


The United Forum of Bank Unions — the umbrella body of nine bank unions — has, therefore, decided to proceed with the proposed strike on February 28, CH Venkatachalam, General Secretary, All India Bank Employees Association, told BusinessLine.


The unions had, among other things, demanded “legitimate compensation” for employees and officers for the extra hours of work performed during the demonetisation period. They also sought immediate introduction of five-day banking.



From E-Group, Banking-News



Public Accounts Committee Calls Heads of

Public Sector Banks to Discuss Bad Loans


The Press Trust of India

Published on February 21, 2017



New Delhi, February 21 (PTI):  Concerned over mounting bad loans, the Public Accounts Committee (PAC) has called the heads of public sector banks to explain issues relating to NPAs, including the loans given to Vijay Mallya-led firms. "To begin with, the panel has called CEOs of Indian Bank and Indian Overseas Bank at its meeting in Chennai on February 27," its Chairman and senior Congress leader K V Thomas told PTI.


Besides, representatives of the Finance Ministry will also be present at the discussion over issue of bad debts in the public institutions. The PAC will be holding such meeting separately with other lenders on the rising NPAs, which has become a major source of concern for the public sector banks, Thomas said. The PAC is learnt to have already dispatched a questionnaire to the heads of banks to seek details about bad debts and major defaulters. 


The questions asked are on quantum of the bad debts, the reasons for increase in such loans, steps taken to recover them and also the factors delaying the recovery. As on September 30, 2016 gross NPAs of public sector banks rose to Rs. 6.3 lakh crore as against Rs. 5.5 lakh crore at the end of the June quarter. This works out to an increase of Rs. 79,977 crore on quarter on quarter basis.


A consortium of 17 lenders to Kingfisher, including the State Bank, have struggled to recover close to Rs. 6,000 crore loan given to the defunct Kingfisher Airlines. The liquor baron quietly flew to London in March last year, chased by banks as well as investigating agencies over allegations of financial fraud. To recover some of the money, the SBI has tried to auction Mallya's property. Among the assets pledged as collateral is the flamboyant businessman's luxurious Kingfisher villa in Goa, which the bank has yet to find a buyer for.


Recently, former top officials of IDBI Bank were arrested by CBI in connection with Kingfisher Airlines case, putting bankers to become extra cautious resulting in slowdown in processing of loan proposals.


During the meeting on February 27, the PAC will also undertake performance review of import and export trade facilitation through Customs Port and Special Economic Zones where representatives of Revenue Department will also be present. Besides, it will also discuss performance audit on assessment of assessees in pharmaceuticals sector for the year ended March 2014.



From E-Group, Banking-News



India must urgently resolve bad debt

at lenders - RBI deputy governor


Suvashree Choudhury and Rafael Nam

The Reuters

Published on February 21, 2017



Mumbai, February 21 (Reuters):  Reserve Bank of India (RBI) Deputy Governor Viral Acharya said India needs to urgently address the large amounts of bad debt held by its lenders, outlining potential solutions including the creation of public or private agencies to buy the soured loans.


Acharya, in his first speech since taking up his post in January, said India had so far failed to tackle the banks' bad debt problem through a piecemeal approach that had given "all discretion" to lenders.


Instead, India's government and the RBI need more ambitious solutions to clean up more than $130 billion in soured loans held by the lenders, or risk repeating the economic stagnation suffered by Japan in the 1990s or the current financial troubles in Italy, Acharya told a gathering of bankers.


The speech marked the most detailed public remarks on banks given by an RBI official since the departure of Governor Raghuram Rajan last September. He had also strongly advocated cleaning up the bad debt held by Indian lenders to revive an economy suffering from a lack of private investments.


"I believe we are at a crossroads and have an important choice to make," Acharya said.


"We simply don't, as a society, have any excuse or moral liberty to let the banking sector wounds fester and result in amputation of healthier parts of the economy."


Possible Solutions


Acharya later told reporters the RBI had not yet decided on specific measures for lenders or discussed the current proposals with government or bank officials.


Among the potential solutions suggested by Acharya were the creation of private asset management companies, or private equity type companies, that would raise private funds and help buy up and restructure the bad debt, forcing haircuts by banks and creditors if necessary.


Banks would first need to identify their 50 largest stressed exposures by Dec. 31, 2017 and the rest by mid-year 2018, Acharya proposed.


Under a second model proposed by Acharya, India's government could create a national asset management company, or a "quasi-government" entity, in charge of buying up and restructuring debt in debt-laden sectors such as power.


This entity could hold bad assets, raise debt to pay off banks, although with haircuts, and bring in private managers to turn around the assets, Acharya suggested.


The deputy governor did not give specific financial projections on how much either model could restructure or raise.


Acharya also said the government would need to inject more funds into state-run lenders, though he did not provide an estimated amount, adding that it would have to attach strict performance conditions.


He also said banks needed urgently to consider ways to raise funds, including private capital raising, asset sales and mergers.


"Time is of the essence if we are to restore corporate investment and job creation," he said.



From E-Group, Banking-News



SBI pitches for separate telecom

spectrum for financial services


The Business Line

Published on February 22, 2017



Mumbai, February 21: Arundhati Bhattacharya, Chairman of State Bank of India, has called for earmarking telecom spectrum separately for the financial services sector so that issues such as transactions being timed out due to lack of bandwidth are effectively addressed.


Speaking at a panel discussion organised by the Indian Banks’ Association, Bhattacharya said telecom companies have a different aim: carry voice, data, make profits, and even have their own payments banks. So, for them, carrying financial transactions through their telecom network is not a priority, she said.


She asked: “Is it possible to have a separate spectrum only for financial transactions?” A separate network only for financial transactions. Security (of transactions) could be also done better. If we want financial transactions to be simple, easy and convenient, this is probably one way of doing it?”


She observed that there were cases of card transactions, where SMS alerts about the transaction being executed were received by the customer 24 hours after the transaction had been done.


“Ever since demonetisation was announced and digital transactions had spiked, the infrastructure itself, that is, the spectrum on which all these transactions are done, wasn’t sufficient to carry them...”


She observed that transacting digitally had be convenient enough to be adopted by people. “That is not happening because the infrastructure doesn’t seem to be there,” she said.



From E-Group, Banking-News



What to Trust on Demonetisation:

Official Data or Grim Reports in Media?


Arun Kumar, The Mainstream

Published on February 21, 2017



There is confusion as to how the economy is doing under the impact of demonetisation. The Index of Industrial Production rose by 5.7 per cent in November as compared to the decline of 1.8 per cent in October. This was unexpected and has given relief to the government which has been reeling under daily reports of industries and businesses floundering since November 8, when demonetisation was announced by Prime Minister Narendra Modi.


However, a report by the State Bank of India, based on a survey in Maharashtra in early January, suggested a sharp decline in business in Mumbai and Pune. Earlier, the All India Manufacturers’ Organisation projected a drop in employment of 60 per cent and loss in revenue of 55 per cent before March 2017. Another Chamber of Commerce and Industry had shown that in different categories, between 80 per cent and 50 per cent of the enterprises surveyed reported a sharp drop in their business. The biggest fall in services and manufacturing in three years was noticed in Nikkei India Manufacturing Purchasing Managers’ Index or PMI data for December. Credit growth has been the lowest in 60 years.


Reports of distress among farmers have been appearing in the media. Farmers have not been able to get a remunerative price for their perishables like vegetables and have even given them away free or fed them to cattle or thrown them on the roads in protest. The government reports, however, show a seven per cent rise in acreage under rabi crops (sown in winter, in this period after demonetisation was announced) and a rise in the offtake of fertilisers. The implication is that agriculture would not suffer a decline in spite of the hardships in rural areas due to the demonetisation-induced shortage of cash for carrying on farm operations.


The government has presented data to show that tax collection is rising and not falling. Direct tax collection rose by 12 per cent and indirect tax collection rose by 25 per cent in the April-December period in comparison with the same period last year. However, in the first three months, tax collection rose even faster, direct taxes by 25 per cent and indirect taxes by 31 per cent. The Value Added Tax collections by the States showed an increase of 18 per cent in November and for 17 States in December they rose by nine per cent. Does this imply that demonetisation did not affect production and sales, belying expectations of adverse impact of demonetisation?


But what about the anecdotal evidence appearing daily in the media showing a decline in industry after industry—automobiles, jewellery, plantations, construction, real estate, fast-moving consumer goods, health-care and so on. The decline seems to be not only in the unorganised sector but also the organised sector. The unorganised sector has reported massive retrenchment of workers and reports suggest that the unemployed workers are going back to their villages since they are unable to survive in the urban areas. This has increased distress in the rural areas since these people used to send money home to support their family. Now, they are adding to the burden on the family. There are reports of a sharp rise in employment sought under Mahatma Gandhi National Rural Employment Guarantee Scheme.


Who is right?


So, where is the catch? Is the official data or the anecdotal evidence daily being reported in the media correct?


Demonetisation immediately hit the unorganised sector and later the organised sector. So, in November, the unorganised sector’s production was hit and it led to unemployment there. This affected demand in the organised sector and led to an increase in inventories as sales fell. Indeed companies like GAIL were reported to be looking for additional warehousing to stock the unsold inventory of some of its products. So, production may not have immediately declined in the organised sector. This would have happened in the latter part of November.


The Index of Industrial Production reflects the organised sector performance. It is also often revised as more accurate data comes in with a time lag. Revisions can be large, especially when there is a sharp change in the economy, something that demonetisation triggered. So, we will have to wait for the correct data for November to come. Further, this data may not be representative of what is happening to the industrial sector because it does not directly capture the unorganised sector data and that can cause a substantial revision later on.


The unorganised sector data are not directly captured in the Index because in many sectors it is assumed to be a proportion of the organised sector production. So, if the organised sector production does not show a fall, the data would not show a decline in the unorganised sector, even if actually there is a decline. So, demonetisation has led to a rupture between the two sectors and the Index does not capture that. Reports from hosiery and machine business in Ludhiana suggest that even in January business was down by 50 per cent. This is a much sharper fall than in the organised sector.


The unorganised sector’s production is about 40 per cent of the total. Assume that the non-agriculture component of this sector declined only by 50 per cent over two months and then recovered to its October level, that is, had zero growth for the balance of the financial year. Further, if the organised sector is assumed to be stagnant rather than showing a decline, the rate of growth of the economy would drop sharply from seven per cent before November to about two per cent for the year as a whole.


However, reports suggest that even the organised sector has taken a hit since not only demand from the unorganised sector has declined but even better-off sections of consumers have postponed discretionary demand. Thus, after the inventory build-up in November, it would have cut production starting December. This is what the fall in demand for automobiles and other goods suggests. If this sector is assumed to only decline by 10 per cent over the four months from December, the rate of growth of the economy would become zero for the year. If the unorganised sector does not stay flat at the pre-November figure after December but is less depressed (say, by 20 per cent), then the rate of growth would turn negative. How negative is hard to estimate at present with the limited data available.


Correct comparisons


Agriculture sowing should not be compared with last year’s sowing but that in 2013-14, when the monsoon was normal. Compared to that, there is no rise. Further, there are reports that there was delay in sowing and applying inputs which would imply a decline in productivity compared to the past.


Tax collection could be higher for many reasons, and also perhaps because people used the old notes to pay taxes and arrears, like in the case of property tax. In the next quarter, there could be deceleration; one needs to wait. In the case of VAT, traders showed higher sales to recycle their cash holdings. This would also lead to higher direct tax collections. In brief, while sales may have fallen for different reasons, tax paid may have increased in the quarter for unrelated reasons, but this may not continue in the next quarter.


Stock markets initially declined but of late have gone up. The foreign investors have pulled out about Rs 70,000 crores not only due to the uncertainty introduced by demonetisation but also because of the rise in interest rates in the US. So, why has the market risen? It is not because the uncertainty has ended but because the financial institutions have intervened just as they do at the time of the Budget to boost sentiment. But how long can they sustain the market in the face of a lack of investment by individuals and foreign institutional investors pulling out?


Thus, positive data presented by the govern-ment needs to be reinterpreted to take demonetisation into account. And it could take a year for official data to reflect the reality.


Demonetisation was a big shock to the economy and the government itself admitted that there would be pain. Ground reports seem to suggest that the pain persists. Should limited and preliminary data be allowed to trump reality on the ground?


The author is a retired Professor of Economics,

Jawaharlal Nehru University, New Delhi.



From E-Group, Banking-News



You can still deposit your old notes: 8 things to know

about Pradhan Mantri Garib Kalyan Deposit Scheme


Navneet Dubey

The Financial Express

Published on February 22, 2017



New Delhi, February 21: If you have failed to deposit some of your old currency notes for any reason, then you can still deposit those notes till March 31 this year. In fact, during the demonetisation phase, the Government of India had introduced ‘Pradhan Mantri Garib Kalyan Deposit Scheme (PMGKDS)’. The Finance Ministry had said that this will give an opportunity to all those people who have not disclosed their income yet. They can now use their old currency notes to pay off their penalty under Pradhan Mantri Garib Kalyan Yojana, a black money declaration scheme to help the poor people of the society, adhering to tax laws.


This scheme shall be applicable to every declarant under the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016.


Here are the details of “Pradhan Mantri Garib Kalyan Deposit Scheme”:


1. Eligibility for Deposits


The deposits under this Scheme shall be made from the 17th day of December, 2016 till 31st of March, 2017, by any person who declared undisclosed income under sub-section (1) of section 199C of the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016.


2. Form of deposits


The deposits will be held at the credit of the declarant in Bonds Ledger Account maintained with the Reserve Bank of India. A certificate of holding shall be issued to the declarant in Form I. The Reserve Bank of India shall transfer the deposit received under this Scheme into the designated Reserve Fund in the Public account of the Government of India.


3. Authorised banks


(a) Application for the deposit in the form of Bonds Ledger Account shall be received by any banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (hereinafter referred to as Authorised Banks).


(b) The Authorised Bank shall electronically furnish the details of deposit made in Form V to the Department of Revenue, Ministry of Finance, Government of India not later than next working day to enable the Department to verify the information of the deposit before accepting the declaration.


(c) The authorised bank shall upload the details of deposit into Reserve Bank of India’s Core Banking Solution ‘e-Kuber’.


(d) The Reserve Bank of India and Authorised Bank shall maintain the confidentiality of the data received in this regard.


4. Subscription and Mode of investment in the Bonds Ledger Account


(a) The deposits shall be accepted at all the authorised banks.


(b) The deposits shall be made in multiples of rupees one hundred.


(c) The deposit by a declarant shall not be less than twenty-five per cent of the undisclosed income declared under sub-section (1) of section 199C of the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016.


(d) The entire deposit shall be made, in a single payment, before filing declaration under sub-section (1) of section 199C ibid.


(e) The deposit shall be made in the form of cash or draft or cheque drawn in favour of the authorised bank accepting such deposit or by electronic transfer.


The effective date of opening of the Bonds Ledger Account shall be the date of tender of cash or the date of realisation of draft or cheque or transfer through electronic transfer.


5. Applications


(a) An application for the deposit under this Scheme shall be made in Form II clearly indicating the amount, full name, Permanent Account Number (hereinafter referred to as “PAN”), Bank Account details (for receiving redemption proceeds), and address of the declarant. Provided that if the declarant does not hold a PAN, he shall apply for a PAN and provide the details of such PAN application along with acknowledgement number.


6. Nomination


(a) A sole holder or a sole surviving holder of a Bonds Ledger Account, being an individual, may nominate in Form III, one or more persons who shall be entitled to the Bonds Ledger Account and the payment thereon in the event of his death.


(b) Where any amount is payable to two or more nominees and either or any of them dies before such payment becomes due, the title to the Bonds Ledger Account shall vest in the surviving nominee or nominees and the amount being due thereon shall be paid accordingly. In the event of the nominee or nominees predeceasing the holder, the holder may make a fresh nomination.


(c) A nomination made by a holder of Bond Ledger Account may be varied by a fresh nomination, or may be cancelled by giving notice in writing to the Authorised Bank in Form IV.


(d) Every nomination and every cancellation or variation shall be registered at the Reserve Bank of India through the authorised bank and shall be effective from the date of such registration.


(e) If the nominee is a minor, the holder of Bonds Ledger Account may appoint any person to receive the Bonds Ledger Account or the amount due in the event of his death.


7. Transferability & Interest


The transferability of the Bonds Ledger Account shall be limited to nominee or to the legal heir of an individual holder, in the event of his death. The deposits shall not bear any interest.


8. Tradability against Bonds & Repayment


The Bonds Ledger Account shall not be tradable. The Bond Ledger Account shall be repayable on the expiration of four years from the date of deposit and redemption of such Bond Ledger Account before its maturity date shall not be allowed.



From E-Group, Banking-News



Explain the bad debt mess: Govt

 pulls up bankers for NPA woes


Anup Roy

The Business Standard

Published on February 22, 2017



Mumbai, February 21:  The bad debt woes of public sector banks (PSBs) are not limited to gloomy numbers on books now. PSBs have started facing the music as the government is summoning them to explain why the mess occurred in the first place.


The jury is out on who is responsible for the current non-performing asset (NPA) pile up, which stood at over Rs 6 lakh crore by the end of December 2016. Further, estimates suggest that the total stressed assets, put in various baskets of technicalities, is at least 12.5 per cent of the total loans, or about Rs 9.5 lakh crore of the total loans in the system.


This figure, however, does not include ever-greening, or even those accounts that have been kept under artificial life support through various schemes of the Reserve Bank of India (RBI), which allows banks to rejig a loan but without reflecting it in the restructure book as the account becomes standard. A loose term used by the banking industry in such a case is ‘restructured standard’, which means stressed companies have been restructured and the interest on such loans are coming just before the end of the 91-day window, after which an account becomes NPA.


According to a Credit Suisse estimate, the gross bad debt of Indian banks is 9.5 per cent.


"In addition to the 9.5 per cent gross NPAs, Indian banks have 4-8 per cent of loans parked in various stress classifications (restructured/SDR but standard) and as most of these forbearances expire over the next 12-18 months, it will keep corporate NPA addition elevated," Credit Suisse said.


The aggregate numbers, thanks to the myriad of schemes, might never come out. Even after a 'deep surgery' like the asset quality review (AQR) of banks, which was supposed to uncover all the dirt under the carpet, Indian banks have continued to pile up more bad debt. What it shows is that Indian banks have mastered the art of what former RBI governor Raghuram Rajan described as the use of tools to not resolve a problem, “but also perversely, to avoid it".


Even after AQR and other measures, Indian banks appear to continue throwing good money after bad.


Credit Suisse said in the report that 37 per cent of the loans were given in the past 12 quarters, or three years, to companies that had interest coverage (IC) ratio of less than one. This clearly takes away the alibi of bankers that loans are not performing due to the economy. The economic slowdown had started much before 2013 but banks continued to pour money into sick firms.


The ratio being less than one indicates that the companies are not even fit enough to service their interest cost. In a one-year period, these firms, with IC of less than one, saw their earnings before tax and other deductions fall by 10 per cent.


What is surprising is that 67 per cent of the loans given to the power sector are to those companies with an IC of less than one. For the telecom sector, 45 per cent of loans have gone to companies with an IC of less than one.


As loans age, their credit cost also increases and the companies’ interest coverage ratio worsens further.


The government, recently, arrested senior bankers, including former chairman of IDBI Bank. On Monday, 10 chiefs of PSBs met the finance minister to stop this witch-hunt.


Still, the bankers have not been able to answer clearly why this huge spike in bad debt occurred. Further, blaming the economy no longer seems like a tenable option.


Therefore, when the Public Accounts Committee (PAC) of Parliament grills the CEOs of Indian Overseas Bank and Indian Bank on February 27 about why their gross bad debt has surged way above 20 per cent, the bankers will find it difficult to answer.


RBI, in 2013, had restricted Kolkata-based United Bank of India from extending loans after the bank reported a huge surge in bad debts and drop in capital.



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