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Banking News 23.02.2017

Worst is over on NPAs, but a few chunky

accounts remain: Arundhati Bhattacharya


Dinesh Unnikrishnan

The FirstPost Online

Published on February 22, 2017



Mumbai, February 22:  The worst is over for Indian banks as far as the NPA (non-performing assets) situation is concerned but a few large accounts remain sticky which are causing concern, said Arundhathi Bhattacharya, chairman of State Bank of India (SBI), India's largest lender by assets.


"Worst is over. A few chunky accounts remain which may or may not slip," Bhattacharya told Firstpost on Wednesday. "If no resolution happens, then provisioning burden will remain," Bhattacharya said.


SBI chairman's comments come shortly after Viral Acharya, one of the deputy governors at the Reserve Bank of India (RBI) said banks need to act with a sense of urgency to tackle the NPA problem.


"Only a bank that fears losing its deposit base or incurring the wrath of its shareholders is likely to recognise losses in a timely manner. But in many of our banks, such market discipline is simply not present at the moment," Acharya said in a recent speech delivered at an IBA event.


To dig out the hidden bad loans in the banking system, the RBI, in late 2015, had initiated a bad loan clean-up process under former governor, Raghuram Rajan. But, even this exercise has not really helped to resolve the bad loan problem except that the drive attracted public debate on the NPA problem, Acharya said.


"Though the AQR (asset quality review) has taken a massive stride forward in bringing the scale of the problem out in the open and stirring a public debate about it, relatively little has been achieved in resolving the underlying assets to which banks had lent," Acharya rued, adding similar was the fate of the several resolution mechanisms and frameworks offered by RBI as progress has been painfully slow.


Acharya highlighted that the roots of the present NPA problem lies in the breakneck lending during the heydays of 2009-12 period, when the economy was racing ahead, which left the companies laden with high levels of bank debt to such a level that their interest coverage ratio has fallen even below one with no capacity to raise funds for working capital and capex, and the original promoters' inclination to part no money but only sweat equity.


"Both stem from the structure of incentives at our banks and the fact that stressed assets have been an outcome of excessive bank lending, en masse, in a relatively short period from 2009 to 2012, and to a concentrated set of large firms in a number of sectors such as infra, power, telecom, metals (iron & steel, in particular), EPC, and textiles," he said.


As on date, Indian banks are sitting on a huge pile of NPAs. According to Capitaline data, total gross NPAs reported by 42 banks aggregated to Rs 7.32 lakh crore as of December end, as compared with Rs 4.51 lakh crore in the year-ago period and Rs 7.05 lakh crore in the September quarter, of which close to 88 percent is in the books of state-run banks. Of this total stock of bad loans, corporate loan defaults figure prominently.


A Firstpost analysis showed that at least 20 public sector banks (PSB) in India now have their gross non-performing assets (GNPAs) above 10 percent of their total advances, six of them above 15 percent and one bank has reported GNPA at 22.42 percent (Indian Overseas Bank).



From E-Group, Banking-News



Fake Rs 2000 notes of ‘Children Bank of

India’ dispensed from SBI ATM in Delhi


Shiv Sunny

The Hindustan Times

Published on February 23, 2017



New Delhi, February 22: At a time when many people are struggling to withdraw cash, a State Bank of India ATM in South Delhi’s Sangam Vihar dispensed fake Rs 2,000 notes. The notes, which could be passed off as genuine at first glance, are replete with errors and seem to be a prank at people’s expense.


The notes, dispensed on February 6, read ‘Children Bank of India’ in place of Reserve Bank of India and ‘Guaranteed by the Children’s Government’ in place of Guaranteed by the Central Government. ‘Churan lable’ in place of the latent image and a fake ‘PK’ logo instead of the bank’s seal, are among some of the other obvious deviations on the note.


Spot the Differences:


1.    Bharatiya Manoranjan Bank instead of Bharatiya Reserve Bank

2.    Serial number 000000

3.    Rupee sign missing

4.    Churan Lable instead of strip with leaf markings

5.    P.K. logo instead of RBI seal

6.    I promise to pay the barer two thousand ‘coupens’ (sic) instead of I promise to pay the bearer the sum of two thousand rupees

7.    Governor’s signature missing

8.    Churan Lable instead of the Ashok emblem

9.    Children Bank of India instead of Reserve Bank of India

10.       Guaranteed by the Children Government instead of Guaranteed by the Central Government


Confirming the development, a senior police officer said that the ATM first dispensed four such Rs 2,000 notes to a customer.


“We sent a sub-inspector to verify the allegations. He withdrew one Rs 2,000 note and that also turned out to be fake,” the officer said, adding that the other notes in the bundle were genuine.


The man left with the fake notes has been identified as Rohit, a customer care executive at a call centre located in South Delhi’s Chhattarpur. He had visited the SBI ATM at around 7.45pm on February 6 to withdraw Rs 8,000. “But all the four notes I withdrew were fake,” he alleged. Rohit noticed the deliberate mistakes on the notes like ‘promise to pay the bearer two thousand coupens’ (not Coupons) and ’Serial number 000000’ and immediately brought it to police’s notice after which a sub-inspector was sent to the ATM located at the T-Point of Tigri in Sangam Vihar.


The policeman was unable to find any other customer with a similar complaint, so he withdrew a note from the ATM. The note that was dispensed confirmed Rohit’s allegations.


Police said they are yet to identify the people behind this. A case of manufacturing documents resembling currency notes, using forged or counterfeit notes and of cheating has been registered at Sangam Vihar police station under IPC sections 489-b, 489-e and 420.


An SBI spokesman has said they will be sending a team to investigate the matter.



From E-Group, Banking-News



Fake Rs 2,000 notes: SBI suspects

involvement of miscreants, probe under way


The Press Trust of India

Published on February 22, 2017



New Delhi, February 22 (PTI): The State Bank of India has launched a probe into reports of fake Rs 2,000 rupee notes being dispensed by one of its ATMs in the national capital.


A man who had gone to withdraw money at an ATM in Sangam Vihar here allegedly ended up getting four notes of Rs 2,000 with "Children Bank Of India" written on them, police said on Wednesday.


Rohit Kumar, who works as a customer care executive at a call centre in Chhatarpur, had gone to withdraw cash from the State Bank of India (SBI) ATM in Sangam Vihar on February 6. He got four notes of Rs 2,000 which had "Churan label" written on them in place of the official watermark.


The notes also had "PK" written on them in place of the RBI stamp and the top left corner had "Bharatiya Manoranjan Bank" written instead of Reserve Bank of India.


After the victim approached the police, a sub-inspector was sent to the ATM to withdraw money and he also received a note that had "Children Bank Of India" written on it.


Following this, a case of cheating was registered and investigation has been taken up, said a senior police officer.


After scanning the footage from the ATM, police has managed to identify the last man who had filled cash in the machine.


The bank later issued a statement saying they have a robust system in place for monitoring the quality of notes and said all the details of the case have been shared with the police.


"This ATM has reportedly been sealed by Delhi Police for further investigation. The DVSS footage obtained from the ATM has been handed over to the police. Meanwhile, the bank is examining the notes in all other ATMs handled by the same custodians and replenishment agency," an SBI spokesperson said.


The spokesperson maintained that the possibility of fake notes from the bank's ATMs was very remote and they suspect the involvement of some miscreants with mischievous intent.


"All notes received by the bank and to be dispensed by it, either through its ATMs or its branches, are processed through the latest state-of-the-art 'Note Sorting Machines.'


"These machines are equipped with the templates of all legal tender in the country and any note not conforming to the security features is separated as 'Suspect Note' for further manual scrutiny. Thus, no fake note is likely to be dispensed through the bank's ATMs at any time," he added.


A case under sections 406 (Punishment for criminal breach of trust), 409 (Criminal breach of trust by public servant, or by banker, merchant or agent) and 420 (Cheating and dishonestly inducing delivery of property) of IPC was registered at Sangam Vihar police station.


Mohammed Isha, custodian of the Brinks India Pvt Ltd, who works for the SBI ATM has been zeroed in and his liability has been fixed by the bank as he was the custodian at the time of the incident, said a senior police officer.



From E-Group, Banking-News



Demonetisation to pull down

India’s GDP by 1% says IMF


The Economic Times

Published on February 23, 2017



Washington, February 22 (PTI): India's growth is projected to slow to 6.6 per cent in 2016-17 fiscal due to the strains that have emerged in the economy as a result of "temporary disruptions" caused by demonetisation, the IMF said today.


In its annual report, however, the International Monetary Fund (IMF) said demonetisation would have only short term impact on the economy and it would bounce back to its expected growth of more than eight per cent in the next few years.


The post-November 8, 2016 cash shortages and payment disruptions caused by the currency exchange initiative have undermined consumption and business activity, posing a new challenge to sustaining the growth momentum, the IMF said in its annual country report on India.


"Growth is projected to slow to 6.6 per cent in FY2016/17, then rebound to 7.2 per cent in FY2017/18, due to temporary disruptions, primarily to private consumption, caused by cash shortages," it said.


India's economy grew at 7.6 per cent in 2015-16.


Tailwinds from a favourable monsoon, low oil prices and continued progress in resolving supply-side bottlenecks, as well as robust consumer confidence, will support near-term growth as cash shortages ease, the IMF said.


The investment recovery is expected to remain modest and uneven across sectors, as deleveraging takes place and industrial capacity utilization picks up, the report said.


In their report, the IMF Directors supported the Indian efforts to clamp down on illicit financial flows, but noted "the strains that have emerged" from the currency exchange initiative.


"They called for action to quickly restore the availability of cash to avoid further payment disruptions and encouraged prudent monitoring of the potential side-effects of the initiative on financial stability and growth," the report said.


Noting India's strong economic performance of the past few years, the IMF Executive Directors commended New Delhi for its strong policy actions, including continued fiscal consolidation and an anti-inflationary monetary policy, which have underpinned macroeconomic stability.


As such, the IMF recommended continued vigilance to potential domestic and external shocks and urged the authorities to further advance economic and structural reforms to address supply bottlenecks, raise potential output, create jobs, and ensure inclusive growth.


The IMF feels that on the external side, despite the reduced imbalances and strengthened reserve buffers, the impact from global financial market volatility could be disruptive, including from US monetary policy normalization or weaker-than-expected global growth.


"In the absence of disruptive global financial volatility, slower growth in China, Europe and the United States would have only modest adverse spillovers to India, given weak trade linkages," the IMF said.


"A key domestic risk stems from the government's currency exchange initiative, where the near-term adverse economic impact of accompanying cash shortages remains difficult to gauge, while it may have a positive economic impact in the medium term," the report said.


Domestic risks also flow from a potential further deterioration of corporate and public bank balance sheets, as well as setbacks in the reform process, including in GST design and implementation, which could weigh on domestic demand-driven growth and undermine investor and consumer sentiment, it added.


"On the upside, larger than expected gains from GST and further structural reforms could lead to significantly stronger growth; while a sustained period of continued-low global energy prices would also be very beneficial to India," it said.


The IMF said progress on important economic and structural reforms over the last year has been impressive.


"Over the past year, big bang reforms, such as the legislation of a new bankruptcy code, formalisation of inflation targeting framework, and a milestone constitutional amendment enabling implementation of the pan-India Goods and Services Tax (GST), have taken place alongside continued steps implementing the gradualist reform agenda of the Bharatiya Janata Party (BJP)-led government of Prime Minister Narendra Modi," it said.


Notwithstanding its majority in the lower house of the national parliament, the BJP does not have control of the upper house, thus requiring consensus building for the passage of key legislation.


As a result, securing passage of the GST constitutional amendment spanned several parliamentary sessions and entailed compromise with regional parties, it said.


The Modi Government, it said, continues to work towards enhanced inclusive growth.


"The financial inclusion agenda has broadened over the past two years, evolving from providing greater access to bank accounts and financial services to introducing more remunerative savings vehicles to diminish the lustre of traditional gold-based savings," it said.


"The government's introduction of gold monetisation schemes can boost financial intermediation by channelling domestic gold holdings to gold savings accounts, although uptake thus far has been minimal," it added.



From E-Group, Banking-News



GDP growth in Q3 to slump at 5.8%

due to demonetisation: SBI Report


The Business Standard

Published on February 23, 2017



Mumbai, February 22 (IANS):  India's GDP growth is estimated to dip below 6 per cent in the third quarter and overall growth in 2016-17 is likely to be at 6.6 per cent due to demonetisation, though the economy would recover in long term with cash getting back into the system at a fast pace, a SBI report said on Wednesday.


"We expect GDP growth to be decisively lower than 6 per cent in Q3 at 5.8 per cent. In Q4 it could only make a gradual comeback to 6.4 per cent. We estimate FY17 growth at 6.6 per cent," said the State Bank of India (SBI) Ecowrap report.


"We believe demonetisation will have short-term negative impact on growth numbers though in the long-run growth will increase as formalisation of economy increases and remonetisation happens at a faster pace," said Soumya Kanti Ghosh, Chief Economic Adviser, Economic Research Department, SBI.


The Q3 estimates will be very critical as it covers the two month period of demonetisation and give us the glimpses of what happened in the economy during the months of November and December.


The good news is that 2017-18 growth could move up faster if demand comes back faster post remonetisation, he added.


Ghosh said that now the situation has almost normalised and close to 70 per cent of the extinguished currency will be remonetised by February-end.


The Central Statistical Organisation (CSO) had estimated GDP growth at 7.1 per cent in 2016-17 as compared to the growth rate of 7.9 per cent in 2015-16.


"If we go by current CSO estimate, the Q3 and Q4 GDP growth would be around 6.1 per cent and 7.8 per cent, respectively, which is quite impossible given the extent of liquidity shock that has led to a drastic consumer spending shock," Ghosh said.


The Reserve Bank of India (RBI) on the other hand estimated GVA (gross value added, which excludes taxes and subsidies) growth for 2016-17 at 6.9 per cent, as against its earlier estimate of 7.6 per cent. Of the 70 basis points (bps) reduction, it attributed 35 bps to demonetisation and the rest 35 bps to base effect.


The CSO is going to release Q3 F17 GDP estimate on February 28.



From E-Group, Banking-News



Bankers don't want a new NPA resolution plan

Implement the existing one properly to clean up the mess


Anup Roy & Abhijit Lele

The Business Standard

Published on February 23, 2017



Mumbai, February 23: The proposal, announced on Tuesday, to float two asset management companies to tackle bad debt in banks is not seen as a new idea. Instead, bankers and analysts say the system can’t afford yet another plan for this. Rather, the existing ones should be implemented speedily. If the new ideas, discussed by Reserve Bank of India deputy governor Viral Acharya, could be implemented with minor modifications and quickly enough, everyone will welcome it.


Acharya suggested two asset management companies be floated. A private one for resolution of sectors that have near-term economic value and a quasi-government one that will take care of long gestation projects.


Resolution plans should be prepared by experts and rating agencies should rate the restructured assets. If the resolution plan is not able to improve the rating, the plan should be discarded. Rating, said Acharya, would improve the attractiveness for buyers. Birendra Kumar, managing director of International Asset Reconstruction Company (IARC), said rating was a useful suggestion — it would bring the assets’ real health to the fore, giving prospective investors the qualitative input to decide.


Bankers said rating would provide a third-party view on the account taken for resolution or restructuring. Naresh Takkar, managing director, ICRA, said a rating for stressed cases would reassure those who came on board as an investor.


Two types of ratings would be useful. First, the recovery ratings, giving the expected value of recovery. Second, one on loan loss default, the estimate on severity of loss on the principal (of the loan). At present, the latter is done for infrastructure projects. On the idea of a separate agency to handle bad loans, Bankers said this had been discussed earlier – in the form of a 'bad (loans) bank' or a centralised Public Sector Asset Rehabilitation Agency as was proposed in this year's Economic Survey.


“We have spoken about this (similar plan) and many bits of pieces of these have been recommended by banks,” noted State Bank of India chief Arundhati Bhattacharya at the sidelines of the event here Acharya spoke. Certain proposals of the plan are definitely new, she conceded, such as a credit rating for the restructured assets and the part on bank recapitalisation.


Otherwise, “there is nothing much in the proposals that we already don’t know. It is a change of terminology or some change in technicalities. The hope is that the new deputy governor will start implementing some plan — either his or the old ones to resolve the issue of bad debt,” said the head of a Mumbai-based public sector bank, requesting anonymity.


RBI has introduced several schemes to tackle the bad debt issue at banks but not successfully. Corporate Debt Restructuring, Strategic Debt Restructuring, Scheme for Sustainable Structuring of Stressed Assets, etc, have not yielded the desired results.


RBI’s push for banks to sell bad loans to asset reconstruction companies (ARCs) have not been successful. Banks asked for steep prices to part with assets. And, the steep capital requirement set for ARCs meant the stressed assets market never really picked up. Bankers say it is time for action, not for devising one more plan.


“The time for discussion is over. Decide and move ahead. At present, a bigger concern is reviving the economy,” said another senior banker, who also did not wish to be named.


Economists say economic recovery by itself won’t solve the problem.


“Having put a fairly elaborate mechanism of recovery and with an insolvency code in place, it is time policymakers use the measures put in place to clean up the system. This is important because the binding constraint on growth is that we are still a bank-dependent economy,” said Gaurav Kapur, chief economist at IndusInd Bank.


Bankers say they should also be protected on lending decisions and on write-offs. “Bankers need some level of safety net that would protect them if a rational decision, taken at the time of sanctioning, goes wrong later on,” said Vimal Bhandari, managing director, IndoStar Capital Finance.



From E-Group, Banking-News



Friends in need: How credit bureaus

can help banks check NPAs


M V Nair

The Business Line

Published on February 23, 2017



According to the RBI, the gross NPA plus stressed-assets in India’s banking system accounts for 12.3 per cent of the sector’s total assets (September 2016). The number keeps growing every successive quarter, beating expectations of the banks’ management, rating agencies and equity markets.


Estimating the size of the bad debt in banking and its likely trajectory is not as intractable a problem as may be popularly perceived. This may be done using the commercial credit information in credit bureaus. As a third-party aggregator and synthesiser of information, well-established credit bureaus are uniquely placed to provide unbiased information and analytical insights which can add tremendous value to various stakeholders of banks.


Availability of credit information-driven insights and solutions have significantly contributed to driving growth in the retail credit segment, fuelling credit penetration and financial inclusion. Since 2011, Indian economy has been affected at various times by macro disturbances such as rising consumer price inflation, economic slowdown and moderating wage growth. But the retail credit portfolio has grown steadily keeping default rate on a tight leash. It may be reasonably assumed that had banks been as extensive users of a credit commercial bureau as they are of the consumer bureau the stress in banks’ commercial assets may have been lesser.


The issue of intractability of the NPA rate trajectory’ of an individual bank may be addressed if credit bureau information is used to analyse the assets at the time of development of financial statement in banks. To explain, a bank would know the performance of the loans in their books. However, while deciding on the true asset quality of their overall book or to designate specific loans as stressed a bank needs to know from bureau whether the loans which may be performing in the bank’s books may have been tagged as NPA by another bank or have those corporate borrowers been delaying on payment to other banks even if they have not yet been tagged NPA.


If performing loans on a bank’s books are found to be having payment issues with other lenders then this is clearly a warning for the bank. Ideally, such information must be used by the bank’s management so that they may assess the actual asset quality of the bank’s book. Depending on just the credit rating of the borrower may not provide the most updated and complete picture of the riskiness of the corporates. The actual most recent payment behaviour of a borrower across all lenders is available only in credit bureaus.


The 360-degree view of an asset that a credit bureau provides will enable the board of the bank to communicate with exchanges and markets with higher certainty and assurance. This simple easily accessible information add to the corporate governance efforts of the banks. For enhanced level of transparency some boards may consider sharing aspects of bureau-enabled portfolio review with all stakeholders. This will provide investors with a third-party validation of the banks NPA numbers.


Early warning systems on banking assets, diligent tracking of lending portfolio and proactive communication of evolving asset quality will go a long way in further enhancing the credibility of Indian banking system. And the good thing is the tools for the same are near at hand-with the Credit Bureaus.


The writer is Chairman, TransUnion CIBIL



 From E-Group, Banking-News



Collaborate and conquer


Editorial: The Business Line

Published on February 23, 2017


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