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Banking News 24.02.16

 

 

Banking News: February 24, 2016

 

Here is an endeavour to bring you in one folder all banking related unedited news/columns/articles/opinions/analysis etc appearing in major business dailies The compiler assumes no responsibility for the authenticity and reliability of the news. Readers are requested to go through the official instructions before acting upon any news articles and views appearing herein.

 

Compiled by: Anup Sen

 Salt Lake City, Kolkata 700 064

 

 From E-Group, Banking-News

 

 

Foreign Institutional Investment (FII) cap in

State-run Banks may increase to 49 per cent

 

Manojit Saha, The Hindu

Published on February 24, 2016

 

 

Mumbai, February 23: The government is considering a proposal to increase the cap on foreign institutional investment in public sector banks to 49 per cent from 20 per cent.

 

The move comes at a time public sector banks need equity capital while their stocks have taken a hammering after reporting huge losses in the third quarter due to a sharp rise in non-performing assets, banking industry sources said.

 

According to present regulations, a single non-banking institution cannot hold more than 10 per cent in a bank while one bank can hold maximum 5 per cent stake in another bank. These stipulations, however, may continue.

 

The public sector banks will need to raise tier-I capital as their capital positions have depleted due to higher provisioning for bad loans. While the government has committed Rs.70,000 crore capital infusion in four years (starting from this financial year) that amount may be inadequate, several rating agencies had pointed out.

 

Earlier, the government had estimated an amount of Rs.2.8 lakh crore as capital infusion for the public sector banks by 2018.

 

Public sector banks are constraint to raise equity capital from the markets as most of them are trading at a significant discount to their book value. For example, price to book value of State Bank of India is 0.68, while that is Canara Bank’s is 0.23, and Bank of India’s 0.17.

 

“Valuations of public sector banks are subdued. Increase in FII cap will certainly attract portfolio investment if the cap is raised,” said a senior banker from a public sector bank. Profitability of public sector will come under pressure in the Jan-March quarter as bad loans will further rise.

 

Most public sector banks reported weak earnings in Q3 after Reserve Bank of India (RBI), found in its asset quality review (AQR) that certain accounts needs higher provisioning and asked the lenders to classify those accounts as non-performing and gave the lenders two quarters – Q3 & Q4 – to complete the task. Most banks have classified 50 per cent of the RBI identified accounts in Q3 and remaining will be identified in Q4, which will result in further rise in NPAs.

 

Apart from provisioning for bad loans, public sector banks will also require capital to comply with the Basel-III norms.

 

The one of the biggest hurdle to increase the foreign shareholding cap in public sector banks was Reserve Bank of India, which was not in favour of higher limit due to concerns over stability. “If the government finally increase the cap, then this will mean the central bank has changed its mind,” said a banker.

 

 

 From E-Group, Banking-News

 

 

Bankers to strike on Monday for

reinstating Dhanalaxmi Bank officer

 

The Moneylife Online

Published on February 24, 2016

 

 

Chennai, February 23: The All India Bank Officers Confederation (AIBOC) on Monday said it would go on nation-wide strike on February 29 to demand the reinstatement of an official in the Kerala-based Dhanalaxmi Bank.

 

The bank had terminated the services of P.V.Mohanan, general secretary, Dhanlaxmi Bank Officers Organisation without given any reason, AIBOC said on Monday.

 

In a statement issued here, the AIBOC said Mohanan was terminated without any enquiry and alleged this was because he had brought out publicly certain irregularities by a bank board member.

 

After a series of agitation by the employees, an agreement was arrived to maintain the status quo as prevailed before the termination of Mohanan, AIBOC said.

 

"But reinstatement was not ensured by the management. Hence All India Bank Officers' Confederation decided to go on all India strike covering all the banks in the country on February 29," the statement said.

 

 

 From E-Group, Banking-News

 

 

Anti-corruption law for private banks too: SC

 

The Hindustan Times

Published on February 24, 2016

 

 

New Delhi, February 24: In a judgment having far reaching implications for private banks, the Supreme Court on Tuesday ruled that their chairpersons, directors and officers are public servants and can be prosecuted for corruption under the anti-corruption law.

 

A bench of Justice Ranjan Gogoi and Justice PC Pant held all officials of a private bank operating under the license issued by the Reserve Bank of India would be defined as public servants under the Prevention of Corruption Act, a law meant to prosecute government employees caught indulging in a corrupt practice.

 

The court held bank employees, whether private or government, discharge a public duty and are therefore amenable to the jurisdiction of the special law aimed to stem corruption.

 

“Discharge of duties in which the state, the public or the community at large has an interest has been brought within the ambit of the expression ‘public duty’. Performance of such public duty by a person who is holding an office which requires or authorise him to perform such duty is the sine qua non of the definition of the public servant contained in Section 2 (c) (viii) of the PC Act,” the bench held.

 

The court allowed CBI’s appeal to prosecute two former officials of Global Trust Bank Ltd (a private bank before its amalgamation with the Oriental Bank of Commerce) who had allegedly cleared credit facilities for a private company in violation of rules.

 

CBI had appealed against the Delhi and Bombay high court verdicts quashing the agency’s charge sheet against Ramesh Gelli (then chairman of GBT) and Sridhar Subasri (then executive director) stating the two could not be prosecuted under the Prevention of Corruption Act because they were private bank officials and not public employees.

 

The court further held that the Banking Regulation Act (BR), 1949, cannot be left meaningless and requires harmonious construction. Section 46A of the BR Act says bank of ficials are deemed to be public officials.

 

This definition was, however, for the purposes of prosecuting corrupt employees under various sections of the Indian Penal Code (IPC).

 

But, when the IPC provisions dealing with corruption were repealed to bring in a stringent anti-graft law in 1988, there was no corresponding insertion in the BR Act. Terming this omission as “unintended” on the part of the legislature, the court said it cannot lose sight of the fact that the objective of the antigraft law is to expand the definition of “public servant.”

 

“For banking business what cannot be forgotten is Section 46A of Banking Regulation Act, 1949, and merely for the reason that the IPC provisions have been repealed by the PC Act, 1988, relevance of Section 46A of Banking Regulation Act, 1949, is not lost,” the bench said.

 

 

From E-Group, Banking-News

 

 

Wilful defaulters: A menace to private lenders too

 

Radhika Merwin, The Business Line

Published on February 24, 2016

 

 

Mumbai, February 23: News of state-owned Punjab National Bank declaring about 900 borrowers wilful defaulters made headlines on Tuesday. But it is not just public sector banks that are plagued by large wilful defaulters on loans.

 

Data submitted so far by banks to the Credit Information Bureau of (India) (CIBIL) show that private banks too are grappling with such freeloaders. As of December 2015, the top wilful defaulter among those with outstanding loan balances of over ₹25 lakh (where suits have been filed) was Beta Naphthol, which owes Kotak Mahindra Bank about ₹950 crore. This is about a third of the bank’s bad loans as of December 2015.

 

Of the top 10 wilful defaulters, three were borrowers of Kotak Bank, while one — Deccan Chronicle — owed Axis Bank a little over ₹400 crore. Winsome Diamonds & Jewellery, and Forever Precious were other top defaulters that owed ₹900 crore and ₹747 crore, respectively, to Punjab National Bank.

 

What is it?

 

The RBI lays down four scenarios under which a person or company can be declared a wilful defaulter. One, the borrower fails to meet his dues even if he has the ability to pay. Two, the borrower has diverted the money from the intended purpose. Three, the money is siphoned off and used by the borrower for purposes which are unrelated to his operations. And, four, the borrower, without knowledge of the bank that lent him the money, sells the asset that he bought with the loan funds.

 

Banks are required to submit the list of wilful defaulters with outstanding loan balances of over ₹25 lakh (where suits have been filed) to credit information companies such as CIBIL.

 

In many cases, such borrowers have defaulted across banks. For instance, Zoom Developers is named a wilful defaulter by State Bank of Patiala, Andhra Bank, PNB, Indian Bank, OBC, Karnataka Bank, State Bank of Bikaner & Jaipur and Federal Bank. The company owes these banks about ₹1,200 crore as of December 2015 (some banks are yet to submit their data for the quarter).

 

Winsome Diamonds is another company that owes about ₹2,000 crore to several banks. Listed company REI Agro too has loan outstanding of over ₹500 crore across multiple lenders.

 

Recently, the Finance Standing Committee of Parliament called for forensic audit of all wilful defaults. Of the 6,600-odd cases filed by banks and financial institutions, the top 200 wilful defaults account for about half the amount due as of September 2015.

 

Wilful defaulters owed banks nearly ₹64,000 crore as of September 2015, about one-and-a-half times the amount they owed last year. This is close to 20 per cent of banks’ bad loans.

 

 

 From E-Group, Banking-News

 

 

Standard Chartered Bank posts first

global loss in 26 years on $1.3bn India hit

 

The Times of India

Published on February 24, 2016

 

 

Mumbai, February 24: A $1.3-billion (Rs 9,781-crore) hit taken by Standard Chartered Bank on its loans in India has been a key trigger for the British lender to report its first loss in 26 years in its global operations.

 

The bank, which has its loans predominantly in Asia, reported a pre-tax loss of $1.5 billion (Rs 10,288 crore) for 2015, down from a profit of $4.2 billion (Rs 28,800 crore) last year.

 

StanChart, which is a lender to large corporate groups with exposure to commodities (like Essar), has reported a $981-million (Rs 6,728-crore) loss from its operations in India, down from a profit of $561 million in 2014. This is the biggest ever loss posted by a bank in India.

 

The impairment losses on loans in India were also the highest at $1.3 billion for StanChart - more than double of the $611-million hit it took due to credit losses in the UK.

 

The bank has also written down the value of its business in Thailand after placing Indonesia operations under review. It has cut down exposure in the commodities sector and has stopped executive bonuses.

 

The bank said it has reduced its target India exposure by 28% to $30.2 billion from $42 billion. "India and commodities represent a large proportion of the liquidation portfolio," the bank said. In a presentation to investors, the bank said India represented a high level of weak credit throughout the banking system despite high growth in GDP. It added that credit growth was the slowest in two decades and there was no appetite from local lenders to refinance the loans it wanted to offload.

 

The losses are part of the efforts of Bill Winters, the new CEO, to clean up the bank. "Our 2015 performance was poor, and in many ways unacceptable," said Winters, speaking to newspersons, forecasting another difficult year in 2016.

 

StanChart is not alone in being a victim of NPA. That apart,it is one of the best banks to do business with. The respons... Read More

 

India was the largest contributor to StanChart's profits until 2010. The bank had bet big on India and was the only multinational entity to list here under the Indian Depository Receipts route in 2010.

 

On corporate and institution clients, the bank said that loan impairment increased significantly to $3.2 billion. "We have reviewed the portfolio extensively through 2015 and have increased provisioning, largely to reflect lower commodity prices as well as further deterioration in India," the bank said in its annual report.

 

The bank's share price were down nearly 6% at 409 pence in London - a year to date decline of more than 25%. Shares recovered after dropping 12% immediately after the results were announced.

 

 

From E-Group, Banking-News

 

 

Party ending for Vijay Mallya in Rs.8 trillion bank revamp

 

Anto Antony (Bloomberg), The Mint

Published on February 23, 2016

 

 

Lenders will auction the Mumbai office of his Kingfisher Airlines on 17 March, about three years after its planes were grounded and staff stopped getting paid

 

Mumbai, February 23:  The party appears to be ending for Vijay Mallya, the tycoon behind India’s best-selling beer.

 

Lenders will auction the Mumbai office of his Kingfisher Airlines on 17 March, about three years after its planes were grounded and employees stopped getting paid. Mallya—whose flagship beer brand carries the slogan “King of Good Times”—is one of the most visible among India’s so-called “wilful defaulters” who don’t pay back loans despite banks’ claims that they have the funds to do so.

 

“It sends a clear signal to delinquent borrowers that they need to take genuine efforts to repay loans or face consequences,” Karthikeyan P., a Chennai-based analyst at Cholamandalam Securities Ltd, said by phone. The latest steps by authorities could trigger “the beginning of the end”, he said.

 

India has entered the final stage in its fight against rising bad debts. Banks are reporting their largest ever losses after authorities identified Rs. 8 trillion of stressed assets in the system, and both central bank governor Raghuram Rajan and Prime Minister Narendra Modi have given them until March 2017 to clean up their books.

 

The mountain of non-performing assets is holding back investment, threatening the sustainability of an economic growth rate that is outpacing all other major economies. Collecting on overdue payments and reviving stalled projects will free up cash, lower borrowing costs and boost lending, easing pressure on Modi to fund Asia’s widest budget deficit.

 

Beer, airline

 

While Mallya’s case is high profile, pressure is growing to get tough on other defaulters. The Supreme Court this month directed the Reserve Bank of India (RBI) to share a list of the country’s largest defaulters in the last five years and also sought details of loans above Rs. 500 crore that were written off by state-owned lenders.

 

Mallya, 60, took over United Breweries Holdings Ltd, known as UB Group, from his father in the 1980s. Under his watch Kingfisher beer came to dominate the India market, a position it holds to this day. UB Group also started Kingfisher Airlines, which was one of India’s leading airlines from 2005 until it stopped flying due to financial pressure in 2012.

 

Office seized

 

Kingfisher Airlines owes about Rs.7,000 crore to lenders, SBICAP Trustee Co., leader of the 17-bank consortium, said in a notice on its website this month that listed Mallya and United Breweries Holdings Ltd as guarantors. Last February SBICAP Trustee used a 2002 law to seize the airline’s Mumbai office, which had been put up as collateral, about two years after demanding payment on the loan, according to the document.

 

Punjab National Bank—India’s second-largest state-run lender—this month named United Breweries Ltd a “wilful defaulter,” the company told the stock exchange on 16 February. It is considering challenging the declaration in court, according to the statement.

 

Mallya was criticized after he threw a two-day party in December to celebrate his 60th birthday. Enrique Iglesias serenaded the audience while Mallya called his friends “his biggest assets,” the Mumbai Mirror reported.

 

Birthday bash

 

“If you flaunt your birthday bashes even while owing the system a lot of money, it does seem to suggest to the public that you don’t care,” Rajan told NDTV in January, without naming anyone. “If you are in trouble you should show that you care by cutting down your expenses and not flaunting more spending.”

 

Sumanto Bhattacharya, a spokesman for Mallya and his United Breweries Holdings, didn’t reply to questions e-mailed on 17 February. A letter seeking comment that was delivered on 19 February to his Bengaluru office also received no reply. Bhattacharya declined to comment when reached multiple times on his mobile phone, including on 22 February.

 

Mallya last week told Times Now TV channel that he is making all possible efforts to reach a settlement with the lenders, without elaborating. Punjab National Bank isn’t the only bank to have declared him a wilful defaulter, he said, refusing to provide more details. He also declined to comment when asked about Rajan’s statement on flaunting money.

 

Liquor holdings

 

In June 2006, Mallya directly or indirectly held about 23% of Kingfisher Airlines and was the single largest shareholder, according to stock exchange filings. This stake dropped to 8.5% by September 2014, about a year before trading in the shares was suspended, in part because banks converted defaulted loans into equity, according to the latest available filings.

 

Mallya’s public holdings, including stakes in two liquor companies, are valued at $256 million, according to data compiled by Bloomberg from the latest company filings. United Breweries Ltd, the maker of Kingfisher beer in which Heineken NV owns about 42%, reported a net income of Rs.260 crore last year.

 

United Spirits is controlled by Diageo Plc, which has sought to oust Mallya as chairman following an internal enquiry that said he diverted funds to other group companies under his control. Mallya at the time said he intends to continue as chairman, and that the board’s decision relied on a report based on “half truths and twisted facts.” Earlier this month, he told the Wall Street Journal that he is willing to make a “clean break” for the right settlement.

 

Bad bank

 

Holding the auction a year after authorities seized the airline has eroded the value of Mallya’s assets, said Vibha Batra, group head for financial sector ratings in New Delhi at Moody’s Investors Service’s local unit Icra Ltd. The asking price of at least Rs. 90,000 a square foot for Kingfisher House is unreasonably high for its location and will struggle to find buyers, the Asian Age reported on 14 February, citing property valuers.

 

The struggle to recover dues has revived speculation about the government creating a “bad bank”, which would take over toxic assets and leave lenders with clean balance sheets. Such a company would need more than Rs. 1 trillion in funding if it purchases about half of the end-September non-performing assets at 60% of their value, according to Crisil Ltd.

 

Rajan said earlier this month he didn’t see a need for a bad bank now because most of the problems were with public-sector banks backed by the government. Rising bad-loan provisions must be considered as an “anaesthetic” before “surgery” is conducted on the banks’ books, he said, adding that not all stressed assets will sour.

 

Be confident

 

“While we shouldn’t underplay the dimensions of the task, we should be confident that it is manageable, and that the government and RBI will do what it takes,” Rajan said in a speech last week.

 

Indian banks have a higher bad-debt ratio and its regulatory system is less prepared for a financial crisis than that of China, according to Bloomberg Intelligence analyst Alex Gardner. Soured loans jumped an unprecedented 30% in October-December, and Credit Suisse Group AG predicts it will rise further to about 6.6% of total loans by March.

 

Shares of state-run banks, which hold the bulk of the losses, have tumbled 35% to 60% over the past six months. So recapitalisation costs will probably rise to anywhere between $34 billion and $53 billion, Credit Suisse analysts led by Ashish Gupta wrote in a 15 February report, compared with the $11 billion pledged by the government.

 

Besides providing more capital, the government is also setting up more debt tribunals and drafting a bankruptcy code to replace an existing web of laws that officials say favour debtors.

 

“Banks will have to go through this gulf of pain so that they can come out stronger on the other side,” said Hatim Broachwala, a Mumbai-based banking analyst at Nirmal Bang Institutional Equities. “Earnings and asset quality will be better as we reach there.”

- Bloomberg

 

 From E-Group, Banking-News

 

 

Public Sector Banks delay decision

on Non-Core Assets over Valuations

 

Aparna Iyer & Swaraj Singh Dhanjal

The Mint

Published on February 24, 2016

 

 

State Bank of India Chairman Arundhati Bhattacharya says it is valuing its holdings in different entities and looking for opportunities to unlock capital, but is not in a hurry to sell.

 

Mumbai, February 23: Unsure about valuations and interest from investors, public sector banks are yet to actively pursue the sale of non-core assets as a way to boost their capital base, which has seen an erosion due to the increase in stressed assets. Non-core assets are investments by banks not related to lending and borrowing. These include strategic investments in the equity of other companies, holdings in subsidiaries and joint ventures.

 

The country’s largest lender, State Bank of India (SBI), is valuing its holdings in different entities and is looking for opportunities to unlock capital but it is not in a hurry to sell, chairman Arundhati Bhattacharya told Mint over the phone on Friday. “These things cannot be done fast. We have to discover value. There is no reason for us to do a fire sale, we are not in that position,” Bhattacharya said. Following the bank’s third quarter earnings release on 11 February, Bhattacharya said that the bank would be looking to offload non-core assets as one of the options to raise capital.

 

SBI’s holdings in its various subsidiaries and joint ventures were pegged at Rs. 9,781 crore as of March 2015, according to the bank’s annual report. Some of its non-core assets include a 26% stake in Clearing Corp. of India (CCIL), 10.9% shareholding in National Stock Exchange (NSE) Ltd, 6.42% stake in Infrastructure Leasing and Financial Services (IL&FS) Ltd and 9.57% in Central Depository Services (India) Ltd (CDSL).

 

To be sure, SBI is not in urgent need of capital and can afford to wait until an appropriate time. The bank’s capital to risk-weighted assets ratio (CRAR) was at 12.45% as of 30 December and its tier-I ratio was 9.64%. Present norms under Basel III require banks to maintain a minimum total CRAR of 9% and a tier-I ratio of 7%.

 

Other public sector lenders such as Bank of Baroda, IDBI Bank and Punjab National Bank may also benefit from sales of non-core assets. Bank of Baroda’s non-core holdings include a 6% stake in Credit Information Bureau (Cibil) Ltd, 5.07% shareholding in depository firm CDSL and 5.34% in Assets Care and Reconstruction Enterprise (ACRE) Ltd, an asset reconstruction company. In an interview with Mint last week, managing director and chief executive officer P.S. Jayakumar said that Bank of Baroda would not ask for capital from the government and is looking at selling non-core assets as one of the options to unlock capital over the next 12 months. The bank’s tier-I capital took a knock following a surge in bad loans and provisions in the December quarter and is currently at 9.57%.

 

In the case of Punjab National Bank, non-core assets include a 10% and a 15.30% stake in Asset Reconstruction Company (India) Ltd and ACRE, respectively. Its tier-I capital was at 8.52% as of December 2015.

 

This is the right time for banks to unlock capital from non-core holdings, said an investment banker. “Most of these investments are top-tier assets. In my view, it is a very opportune time for public sector banks to unlock value from these investments and use the resultant capital to buttress their balance sheets,” said Ritesh Chandra, executive director and head (consumer, FIG and business services group) at investment bank Avendus Capital. Chandra added that bank boards must stop dithering on the sale of non-core assets and put a transparent process in place to offload their stake in these assets.

 

Bankers, however, are not convinced that the process will be an easy one. “These are unlisted assets. Even if banks find out the valuation, which can be done by investment bankers, how do we find an investor? And these are bulk quantities of stake sale. Finding an investor in the present market scenario becomes tough and this is why the exercise is taking time,” said R.K. Takkar, managing director and chief executive officer at UCO Bank. “To get a good valuation and to get a buyer at that valuation is a challenge,” said Takkar.

 

Lack of buyers and valuation concerns have prevented quick exits from investments in entities like NSE. Investors, including SBI, are pitching for a listing of the exchange which will provide an easier exit route. Pradeep Kumar, managing director of Barclays Capital India, agrees that listing of some of these bank-sponsored entities is the best option.  “The easiest way forward would to be to go for listing of these businesses, like in the case of CARE and CRISIL,” said Kumar, adding that businesses which have good profitability and growth will be attractive to investors.

 

Banks acted as seed capital providers in the case of a number of companies created under special provisions by the government and the Reserve Bank of India. These companies, including NSE, Unit Trust of India, CCIL, Cibil, Stock Holding Corporation of India Ltd, CDSL, CARE and IL&FS, were established as financial market intermediaries. Given that these entities have now grown to be independent and self-sufficient, lenders can look to exit or at least dilute their stake.

 

Public sector banks will need to raise a total of Rs. 3.3 trillion in tier-I capital between fiscal 2016 and 2019, according to rating agency ICRA. The government has committed to infuse Rs. 70,000 crore into lenders over this period, but most expect this amount to be increased in light of the exercise to clean up bad loans.

 

 

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