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Banking News 28.02.2017

Bank Employees & Officers to

observe Nationwide Strike Today


The Economic Times

Published on February 28, 2017



Chennai, February 28 (IANS):  An umbrella body of nine bank unions has called a day-long strike on Tuesday to protest the government's "anti-people banking reforms" and to press for compensation to employees for extra work done on account of demonetisation and booking loan defaulters. The United Forum of Bank Unions (UFBU), comprising nine unions -  AIBEA, AIBOC, NCBE, AIBOA, BEFI, INBEF, INBOC, NOBW and NOBO - will observe the strike, AIBEA General Secretary C H Venkatachalam said in a statement here.


The strike will cover employees and officers in all public sector banks, including SBI, all old-generation private banks, foreign banks, regional rural banks and cooperative banks.  Venkatachalam told IANS that "The real menace affecting the Indian banking industry is the rise in bad loans and the number of wilful loan defaulters. Fixing accountability for bad loans and taking action against the bank officials and wilful defaulters are the need of the hour and not formation of a 'bad bank'."


The Economic Survey 2016-17 suggested establishment of a "Bad Bank" to deal with the non-performing assets (NPA) or the bad loan issue. According to Venkatachalam, the idea was nothing but transferring the bad loans from one government entity to another. "The unions have been fighting for more than two decades against the reform measures of the government as these are against the interests of the general public and labour-force in the country," the AIBEA said.


"Further, every effort is being made to outsource permanent jobs in the banking industry, which is fraught with risks," it added. He said around 10 lakh bankers -- ranging from officers to clerks -- belonging to the nine unions will join the strike. Venkatachalam said the strike call comes after all attempts to find a solution to the demands raised by the unions yielded no results.


The conciliation meeting before the Chief Labour Commissioner on February 21 failed to break the deadlock as the bank management body -- Indian Banks Association (IBA) -- did not agree to the union demands. Most state-run banks have informed customers that functioning of branches and offices will be hit if the strike is observed on Tuesday. Top private lenders -- ICICI Bank, HDFC Bank and Axis Bank -- are not part of the union and will continue to function normally but cheque clearances would not take place. Besides, cash transactions will also be hit and the ATMs are likely to be emptied early during the day.



From E-Group, Banking-News



Actual Bad Loans about Rs 20 Lakh

 Crore; Govt, Reserve Bank clueless:

Former RBI Deputy Governor K C Chakrabarty


Dinesh Unnikrishnan

The FirstPost Online

Published on February 27, 2017



Mumbai, February 27: Total chunk of problematic loans in the Indian banking sector, at this stage, is around Rs 20 lakh crore, much higher than what is reported by banks and estimated by the central bank and government, said K C Chakrabarty, former deputy governor of the Reserve Bank of India (RBI). Unless the actual chunk of bad loans is recognised first, bad loan resolution is nearly impossible, said the veteran banker-turned-central banker.


“I’ll put the figure around Rs 20 lakh crore. It is not correct to say that NPAs are only Rs 6 or 7 lakh crore. One should include all troubled loans including reported bad loans, restructured assets, written off loans and bad loans that are not yet recognised. Unless this portion is recognised first, there will be no solution to the bad loan problem,” said Chakrabarty, in an exclusive interaction with Firstpost, on Monday.


As on December, the total gross non-performing assets (NPAs) of 42-listed banks in India stood at Rs 7.3 lakh crore. There is no accurate estimate of the total restructured loans and the amount of loans written off by banks. But, according to government data, for the fiscal year ended March, 2016, Indian public sector banks wrote off Rs 59,547 crore, while in the three fiscal years prior to that (FY13, 14 and 15) banks had together written off Rs 1.14 lakh crore of loans.


High NPAs (non-performing assets) in the banking sector, especially in state-run banks, are a major concern for the Indian central bank. For the Narendra Modi-government, this is also a major political issue with the opposition parties accusing the administration for its inability to act early on large corporate loan defaulters such as Kingfisher Airline promoter Vijay Mallya, who left India in March last year to UK to avoid prosecution for defaulting Rs 9,000 crore loans and allegedly defrauding banks by diverting part of the funds.


According to Chakrabarty, who served as the deputy governor at RBI between 2009 and 2014, neither the government nor the central bank has got the grip of the problem. “For that, we require a clear understanding of reasons of our bad loan problem and taking corrective steps towards resolving the existing stock of NPAs/stressed assets. Unfortunately neither the banks, nor regulator and government and other policy makers have any in depth understanding of these issues,” said Chakrabarty.


Recently Viral Acharya, one of the RBI deputy governors had supported the idea of so-called "bad bank" to handle record sour assets in the nation's banks, saying it could help if "designed properly". Commenting on this proposal to create bad bank, Chakrabarty said the idea of bad bank in itself not a bad idea. “But creation of bad bank in itself will not solve the problem. Successful implementation of ideas underlying the concept of bad bank can only solve the problem,” the former deputy governor said.


Bad loan problems of Indian banks have worsened to such a level that at this stage 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. Among the lenders with highest level of gross bad loans are Indian Overseas Bank (22.42 per cent), State Bank of Patiala (19.33 percent), UCO Bank (17.18 percent), United Bank of India (15.98 percent), IDBI Bank (15.16 percent) and Bank of Maharashtra (15.08 percent).


Two major problems that have led to the current bad loan situation, Chakrabarty said, are the fact that banks have largely failed in the credit appraisal process and promoters refuse to have skin in the game. “Existing promoters have no say in the game. But they are not ready to leave their project. You are not bringing in new equity. We are all talking in the dark. It is total inaction,” Chakrabarty said.


Rajan’s bad loan clean-up a disappointment


According to the former deputy governor, the RBI’s bad loan clean-up project, initiated by the Reserve Bank under former governor Raghuram Rajan, has turned out to be an ineffective exercise given that the central bank continued to allow restructuring of loans under various names, Chakrabarty said.


“First thing is it came too late. Second thing is you are still doing the restructuring (under various names). When you are doing this sort of restructuring without classifying the loans as NPA, you are only prolonging the problem,” Chakrabarty said.


The only solution, Chakrabarty said, is to recognise the bad loans as early as possible. According to the veteran banker-turned-central banker, though he had flagged about the issue long back at RBI, the regulator didn’t admit the issue early and act.


“When I was there (in RBI), sometime in 2013, I had asked them to classify all bad loans as NPA as early as possible, but there was no action. That process is not complete even now,” Chakrabarty, whose tenure at RBI was mired in controversies on account of his outspoken nature, said. Prior to joining the central bank as deputy governor, Chakrabarty had headed large banks like Punjab National Bank in his career spanning over three decades.



From E-Group, Banking-News



Foreign regulators check on

health of Indian banks


Sugata Ghosh

The Economic Times

Published on February 28, 2017



Mumbai, February 27:  Amid mounting bad loans and dip in profits, financial services regulators of several countries where Indian banks operate have sought assurance from bank managements about the readiness of parents, shareholders to chip in capital when required.  Meeting senior officials of local banks and the Reserve Bank of India, officials of these financial market authorities emphasised the need to spot early signals of stress in loans books and make necessary provisions before it’s late.


More than a dozen Indian banks run branches abroad. “Regulatory bodies from UK, Hong Kong, China, UAE and other countries held separate meetings with large and mid-size banks this week to figure out how they are placed to remain well-capitalised and treat the special mention assets,” a senior banker told ET.


The exercise is part of the meeting hosted by RBI under the system of ‘regulatory college’. Each bank is required to make presentation before regulators of markets where they have branch operations; this is followed by joint discussions. “Even though Indian banks have little or no retail liability in these markets, the recent decline in asset quality of Indian lenders has understandably drawn the attention of many regulators,” said another bank.


The regulatory college meets at a time Indian banks are struggling to resolve sticky loans without drawing the glare of central investigative and vigilance agencies which, many bankers allege, have unleashed a witch hunt to vindicate political decisions. The accelerated provisioning rule that was put in place by former RBI governor Raghuram Rajan would call for an extra 25% provisioning on well over Rs 6 lakh crore loan by March 31, 2017.


The lurking fear in the industry is that if managements of banks, RBI, and the finance ministry fail to cobble together a remedy to deal with bad loans within the next few months, then banks will have to arrange capital to make additional 15% provisioning — over and above the 25% provisioning — in the coming financial year. “The worry, particularly with regard to public sector banks, is that they just don’t have the capital for this,” said the head of a corporate credit of a large bank.


The domestic banks which have overseas presence are SBI, BoB, PNB, ICICI, BoI, Axis, IDBI, HDFC, Canara, Syndicate, UCO, Indian, and IoB.  One of the intentions of the regulatory college mechanism is to facilitate market supervisors to exchange notes and minimise regulatory arbitrage.


Indeed, the comparatively harsher rules in Singapore had tempted some of Indian banks to move certain assets to their books in other business jurisdictions. Some of the regulators had earlier questioned the reluctance of Indian banks to lend to local businesses – as most Indian banks use foreign branches to extend credit facilities and arrange external commercial borrowings (or dollar loans) for Indian companies, as well as invest in instruments like foreign currency convertible bonds issued by corporates.



From E-Group, Banking-News



100 days after: No end to

long queues outside RBI


Surabhi, The Business Line

Published on February 28, 2017



New Delhi, February 27: “Kaam tamaam ho gaya hai !” (Work is at a standstill), is how Ved Prakash and his sister Kamala laughingly described their journey from Lucknow to the Reserve Bank of India, New Delhi for exchanging demonetised currency notes.


Prakash was accompanying his sister, who was staying with her son in Dubai during the 52-day period for swapping the old series Rs. 500 and Rs. 1,000 notes.


They are not alone. It’s been over 100 days since the government’s decision to demonetise high value currency notes on November 8, but the serpentine queues outside the RBI have not abated. On a daily basis, hundreds of people line up outside the RBI main office in Delhi to exchange defunct notes. Not all are lucky.


It’s almost reminiscent of the queues outside bank branches after Prime Minister Narendra Modi announced an almost immediate withdrawal of Rs. 500 and Rs. 1,000 currency notes. An exchange facility was available till December 30, 2016. Resident Indians who were abroad in the period can swap the notes till March 31, 2017 and NRIs can avail themselves of this facility up to June 30, 2017.


Though the RBI office only starts exchange of notes at 10 a.m., people start lining up at least two hours in advance. They come from all over the country as the facility is available at just five RBI branches. “I belong to Kerala, but am posted abroad, so I couldn’t get the notes exchanged. Now I have come back specifically for this purpose,” said Vijay Singh, an army officer.


A bunch of tourists from Australia have also been standing in the queue that moves only by a couple of feet every hour. They eventually leave to seek help from their High Commission.


Brisk business


Meanwhile, business along the pavement is doing well as chaat walas and fruit and ice cream sellers set up shop. An enterprising young man also made a makeshift stall on his motorbike and gives out free ‘Reliance Jio sim cards’ to those interested.


An RBI official at the main gate makes periodic announcements on the facility and lists out the required documents and limits for exchange. Many return on hearing the announcement as they don’t have the required documents or are simply not eligible for the exchange facility, while some start looking around for touts or guides who can help them fill up forms or even cut down the queue.


It’s unlikely that it will be a quick trip for any of the people in the line. Many applications get rejected by the RBI, some have incomplete documentation while some will not make it by time.


At 2:30 p.m., the RBI closes the facility for the day. Much of the crowd also leaves gradually while others sit around and plan what to do next. Most are unclear as to what to do with the demonetised currency.


On being contacted, the RBI referred to its FAQ circular that was updated on February 17. “We have no information to share beyond the FAQs at this point in time,” said an RBI spokesperson.



From E-Group, Banking-News



Random Reflections – 5

Bad Loans and Bad Bank


D T Franco Rajendra Dev (ngcfranco@gmail.com)

President, All India State Bank Officers Federation

Date: February 27, 2017



The economic survey presented by Dr. Aravind Subramaniam, Chief Economic Advisor talked about creation of a Public Sector Asset Rehabilitation Agency (PARA).  The new Deputy Governor of RBI who is a known votary of Privatisation, who has taken leave from New York University for 3 years and joined RBI has stated in an interview that there should be two bad banks one in the Private Sector and one in the Public Sector. 


The latest report on NPA Published in Business Standard states that India’s bad Loan Problem is getting worse. The gross non performing assets have reached Rs.6.2 Lakh Crores at the end of Q3 FY17, an increase of 56% over the previous years.  The Asset Reconstruction Companies have not made any significant headway. The name Bad Bank itself is bad.  It is nothing but a new avatar of ARCs.


Where are the Bad Loans?


In a written reply to the Parliament, the Minister of State for Finance has stated that there were 661 NPA accounts about 100 crores amounting to Rs.3.7 lakh crores from Public sector Banks as on March 31, 2016.  He also stated that NPA is high in infra structure, road, textiles, steel etc. 


In April 2016, RBI has stated that the top 10 Corporate NPAs amount to Rs. 56,000 Crores. Supreme Court has obtained list of defaulters owing more than Rs.500 crores from RBI.  But RBI has requested not to publish the list saying that it would dent the fiduciary relationship between RBI and the Banks and between the Banks and customers. 


A report of RBI as on March 2015 shows that 42.4% of the total advances of scheduled commercial banks are given to Private Corporates.  The same report shows that there are 11,000 accounts with a credit limit above Rs.100 crores which constitutes 36.9% of the total credit limit.  Credit limit above 25 crores to 31,965 borrowers constitute 15.9%.  Credit limit above 10 crores and below 25 crores to 41,826 borrowers constitute 6.7% of the credit limit.  That means 59.5% of the credits are above Rs.10 crores to just 84,791 borrowers.  On the contrary, only 0.5% is given to 20.7 million borrowers with credit limit less than Rs.20,000 and only 7.7% is less than Rs.2 lakhs limit given to 8,12,67,021 borrowers. The NPA in this segment is meagre. 


So let us understand for whom this bad bank is and for whom the right-offs are helping.  In a country with 127 crores population to catch less than 1 lakh borrowers we don’t have any power, because the Govt not only has the will but also supports these defaulters.  Bad Banks and ARCs elsewhere have helped the defaulters to sell of their loans at a cheaper rate and also buy back the assets at cheaper rate using another name. 


If the Govt and RBI are really serious let them implement the recommendations of the Parliamentary standing committee submitted on February 24, 2016. The summary of the recommendations are:


1.    Accountability of nominee Directors of RBI / Ministry on the Bank Boards as well as the CMDs / MDs of banks should also be annexed in the matter.


2.    The decisions taken to sanction loans in violation of norms/guidelines should also be enquired into, responsibility fixed, adequate penal action taken.


3.    Till such time a project is commissioned as per approved schedule, banks should not hasten to categorise such a project as NPA.


4.    The extent and the quality of the equity that the promoters are capable of infusing into a project, therefore, also needs to be factored in by a lender bank.


5.    The Government should make the necessary structural changes including revival of Development Financial Institutions (DFI) for long-term finance, especially for Infrastructure projects, which will go a long way in nipping the problem of NPAs in the bud.


6.    Urge the Government for allowing Infrastructure Finance Companies (IFCs) to purchase infrastructure projects turning into NPAs and keep them as Standard Assets, as this step would not only provide the much needed relief from stressed portfolio but also create an enabling environment for funding the infrastructure sector facing resource crunch. Besides, the IFCs should also be allowed to participate in equity. The Banks should have equity component built in the loan agreement itself. The Committee desire that the RBI should explore the possibility of developing a mechanism wherein there would be separate norms for NPA classification for infrastructure and non-infrastructure loans.


7.    Each bank must focus on their respective top 30 stressed Accounts involving those categorized as "wilful defaulters" and make their names public. Such a step will act as a deterrent for other promoters against wilful defaults.


8.    It will also enable banks to withstand pressure and interference from various quarters in dealing with the promoters for recoveries or sanctioning further loans. On the other hand, promoters will also be cautious before applying for loans. The Committee are of the view that when companies, which have undergone restructuring process for their stressed loans, should be made public, there cannot be any justification for maintaining secrecy on this count.


9.    RBI to monitor and follow it up with the banks and financial institutions on a regular basis till concrete outcomes materialise. Such a pro-active action by RBI will also enable it to review the guidelines, whenever required and plug loopholes, if any. As the Committee would not like the RBI to be a passive regulator, when major lapses occur in banks, it would be in the fitness of things if RBI exercises its regulatory powers vis-à-vis banks to take punitive action in cases of default and to enforce their guidelines. The Committee also believe that RBI as a regulator should have its regulatory role well delineated and thus not have its Director in the Board(s) of the Banks as part of their management, as conflict of interest may lead to avoidable laxity.


10. Forensic audit of such loans (restructured loans becoming bad debts) as well as willful defaults be immediately undertaken.


11. Appropriate system should be evolved and guidelines be prepared to take charge of assets and management of such failed CDR companies, while initiating action against such management. Further, disposal of the assets should be given priority.


12. Considering the non-efficacy of the CDR mechanism, the Committee believes that the RBI's scheme for Strategic Debt Restructuring (SDR), which empowers banks to take control of defaulting entity and its assets by converting loan into equity, may armour the banks with an additional tool to cope with their NPAs. A change in management must be made mandatory in such cases involving wilful default or sheer inability on the part of the promoters, where they have diverted funds and no redemption is possible. The Committee would however like to put a caveat here that the SDR mechanism should be used sparingly so that it does not become a smoke screen for large-scale write-offs. It is necessary that even after SDR, the penal consequences for a wilful defaulter should continue to operate.


13. Bulk of bad loans may be linked to firms that are struck with over-capacity and weak demand and are, therefore, simply unable to service their debt. The prolonged slowdown in the economy has eroded the market for distressed assets so much so that even Asset Reconstruction Companies (ARCs) have found it hard to off load them. The Committee would, however, still suggest that the RBI should consider such a dispensation that allows banks to absorb their write-off losses in a staggered manner, can help them restore their balance sheets to their normal health, while ridding the banking sector of its toxicity.


14. Time-bound disposal of cases thus becomes the need of the hour. A distinction now needs to be drawn between "wilful defaulters" and other defaulters in the procedures prescribed under the relevant Acts and accordingly, "wilfully defaulting" promoters must be dealt with sternly and promptly. Banks must be fully empowered to recover their dues promptly after necessary orders are passed by the Tribunal. The Committee would strongly recommend a thorough overhaul of the legal regime governing debt recovery, which may include stringent provisions to safeguard public money. Furthermore, there is a need for authentic and large Credit data base including posting the Credit Status of "wilful defaulters" in public domain.


(For full report refer www.prsindia.org  or  savepublicsector.com)


Out of these recommendations, not even one has been implemented so far.  Is the Govt not even accountable to the Parliament? Whom are we trying to cheat talking about bad banks in a bad taste? Who will provide capital for bad banks and it is going to help whom? It is high time, we wake up the Govt and talk about good governance and not bad banks.



From E-Group, Banking-News



Thanks to demonetisation,

India could lose growth crown



Published on February 27, 2017



Mumbai, February 27:  India could lose its title as the world's fastest expanding major economy when it reveals its growth figures for the October-December quarter on Tuesday. The release follows a demonetisation-led cash crunch that hit India's cash-heavy economy, but economists reckon that could be temporary. Economists in a Reuters poll expected that India's quarterly gross domestic product (GDP) grew at 6.4 percent annually — well below the July-September quarter's 7.3 percent pace. If the forecast is realized, India will also fall behind China, which grew 6.8 percent on-year in the October-December quarter.


"This data will be crucial as it captures the impact of the banknote ban introduced in early-November," according to economists at Singapore's DBS Bank. They believe the cash shortage likely disrupted logistics, production and supply of goods and services and affected sectors including automobiles, transportation, logistics, services and construction.  The fallout from demonetisation, however, is ebbing as much of the currency affected by the policy appears to be back in circulation. Reuters reported in January that the Reserve Bank of India (RBI) injected 9.2 trillion rupees ($135.21 billion) worth of new currency notes into the banking system to help replace the old notes that were banned in November.


According to Goldman Sachs, the RBI's pace of re-monetisation was quicker than what the investment bank had expected — they revised their timeline for the effects of the cash crunch to ebb on the economy to mid-January, from an prior forecast of early February.  Data also appeared to support the notion that consumption has begun to normalize and that the effects of demonetisation were waning, according to analysts at Morgan Stanley.  "We expect the impact on economic activity to normalize in the next one to two months," the analysts said, adding that consumption will likely resume its recovery path from the June quarter.  The Morgan Stanley analysts pointed to improved car sales in January, a key indicator for urban discretionary spending, and the narrowing pace of decline in sales of motorcycles, seen as a proxy for rural demand, as evidence of normalization in the Indian economy.


Local media reports said market leader Maruti Suzuki along with Hyundai, Tata Motors, Toyota and Nissan reported robust passenger vehicle sales growth in January. According to the Times of India, Maruti Suzuki saw its domestic sales rise 25.9 percent on-year.  More broadly, India's services PMI for January reached 48.7, which is up from a December print of 46.8. The manufacturing PMI in January was at 50.4 from 49.6 in December. PMI figures above 50 indicate an expansion in activities.


Private capital spending, however, remains a concern for India as companies and banks continue to struggle with bad debts and non-performing assets. "Private capex (capital expenditure) will remain somewhat weak given the trailing excess capacity and balance sheet issues in (public sector) banks and industrial sector," said the Morgan Stanley analysts. They predicted the private corporate capital expenditure will recover only as of 2018.


Last November, India unexpectedly announced all 500 and 1,000 rupee banknotes would be withdrawn from circulation, replaced by new 500 and 2,000 rupee denomination notes. The move caught most people off-guard and led to a massive shortage of cash, which market commentators said would lead to significant short-term pain in cash-heavy sectors such as real estate, construction, gold, gems and jewellery.



From E-Group, Banking-News



Demonetisation drive:

PM Narendra Modi’s claim of a

digital transaction jump lacks wings


Santosh Tiwari

The Financial Express

Published on February 28, 2017



The demonetisation of Rs 500-1000 notes has hardly altered the dominance of cash in the economy, and digital transactions have remained where they were. Prime minister Narendra Modi needs to pursue a government-supported plan to make digital transactions more convenient than cash, instead of claiming success when there is still little to show.


Prime Minister Narendra Modi said in his Mann-ki-Baat on Sunday that, “In the recent days, one can see a lot of emphasis being laid on Digi-Dhan. Gradually, people are shedding their hard currency mindset and moving towards digital currency. Digital transactions in India are witnessing a very rapid surge. The younger generation, in particular, is getting habituated to digital payments through its mobile handsets. I believe this to be a good portent”.


PM Modi is obviously indicating that the demonetisation of old Rs 500-1,000 notes announced on November 8, which continued till December 31, and the government efforts in the last two months to promote digital payments have started yielding good results.


Juxtapose his statement with the transaction data in the last few months and it can be easily seen that not much has changed on the ground.


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