SBI chief says new NPA norms will have minimal impact

BL :MUMBAI, JUNE 5:2013

  

State Bank of India today said it will have less than 1 per cent impact on its pre-tax balance sheet or around Rs 200 crore annually due to the revised norms on NPAs and restructuring by the RBI.

“Total impact will be around Rs 200 crore a year which will be less than 1 per cent on a PBT (profit before tax) basis,” Chairman Pratip Chaudhuri told reporters on the sidelines of an international banking summit organised by the industry lobby IMC here.

On May 19, the central bank revised the norms on restructuring and NPA accounts, increasing the provisioning percentage on restructured accounts besides making loan recasts tougher by increasing promoters contribution.

Under the new rules, from June 1, banks must set aside provisioning for 5 per cent of the value of a loan that is newly restructured, from 2 per cent previously.

But the regulator said it will not force banks to re-classify loans as NPAs in the event of project delays in the infrastructure and commercial real estate sectors.

To discourage loan recasts, which has more than doubled last fiscal, the RBI had said from April 2015 an account will have to be classified as sub-standard as soon as it is restructured and a standard asset on restructuring would be immediately classified as sub-standard as also non-performing assets.

“All restructured accounts which have been classified as NPAs upon restructuring, would be eligible for upgrade to the standard category after observation of ‘satisfactory performance’ during the ‘specified period’,” the RBI had said.

According to ICRA, banks may have to keep an additional Rs 1,500-2,500 crore as provisions this fiscal for their existing recast loan book.

On the possible impact of reducing deposit rates on retail rates, Chaudhuri said it would depend on what competitors are offering on other instruments.

He also said despite reducing rates on bulk deposits in the recent past, such a possibility on retail rates seems to be remote.

Referring to credit growth in first two months of the current fiscal, Chaudhuri said, “the first half is generally slow. So, it will be unrealistic if we expect higher growth.

We are taking deposits because we think growth will happen in the second half. Growth today is coming from the consumer side.”

On Kingfisher Airlines, Chaudhuri said it will not be possible on his part to comment on a specific account.

He also said it is worrisome to see stagnancy in the industrial sector.

(This article was published on June 5, 2013)

Keywords: RBI, SBI, bad loans, NPA provisioning, restructuring of loans, Reserve Bank of India,

Indian bankers suit up for war on debt defaulters

Debt image via Shutterstock

B S : Reuters  |  Mumbai  June 3, 2013 Last Updated at 08:14 IST

Weighed down by stressed loans of nearly $150 billion and against a backdrop of slowest economic growth in a decade, Indian banks are bringing an unprecedented intensity to their recovery efforts

Fed up with a profitable textile company's failure to repay its loan, India's UCO Bank has taken its grievance public, placing newspaper ads last month that brand the industrialist owner of S Kumar's Nationwide Ltd a defaulter.

State Bank of India (SBI), Bank of India Ltd and Bank of Baroda are also preparing to name and shame corporate borrowers which are not paying them back, bank executives told Reuters.

This aggressive tactic for dealing with bad debt marks a major departure from the traditional laid-back approach of Indian state lenders.

Weighed down by stressed loans of nearly $150 billion - equivalent to more than 10% of bank assets in the country - and against a backdrop of the slowest economic growth in a decade, Indian banks are bringing an unprecedented intensity to their recovery efforts.

"We are going hammer and tongs to recover loans," said M S Raghavan, executive director at Bank of India, which last year began opening debt recovery branches to pursue defaulting borrowers.

In the banks' arsenal of debt recovery tools are the power to seize and sell assets, take deadbeat borrowers to court, sell loans to investors, and beef up debt recovery teams, although a slow-moving legal system and the lack of a bankruptcy process limit their effectiveness.

Officials at state banks, which account for about three-quarters of lending in India, expect the push will cut bad loan ratios by at least 1 percentage point.

Bank of India's non-performing loan (NPL) ratio improved slightly to 2.99% of total assets at end-March from 3.08% at end-December.

"If we don't intensify, nothing is going to come to us," Raghavan said.

Traditionally, Indian lenders, especially those controlled by the government, have tried to nurse customers through tough times by easing terms or "evergreening" loans - giving new loans to pay old ones - an unlawful practice that many in the industry say is common.

In a country where businesses thrive on personal relationships, Indian banks have typically avoided involving the courts or liquidating assets - time-consuming efforts which often yield only minor results.

Even the so-called "fast-track courts" for banks, formed in the last decade, can take more than two years to resolve a case.

The central bank has called for better management of bad debts, and wants to strengthen oversight by lenders.

Indian banks tried to recover on $10.9 billion in bad loans but managed just a quarter of that through liquidation and lawsuits in the year ended March 2012, the latest data from the central bank shows.

Banks are particularly needled by business chiefs who sit on huge personal fortunes, but whose companies fail to repay loans.

In March, Finance Minister P Chidambaram asked state banks to move against rich "promoters" to recover loans from failing companies after a $1.4 billion default by Kingfisher Airlines Ltd , controlled by liquor baron Vijay Mallya.

Targests and texts

S Kumars and its Reid & Taylor clothing brand, well-known in India thanks to its endorsement by Bollywood superstar Amitabh Bachchan, owes $19 million to UCO Bank, according to the Kolkata-based lender's newspaper ad.

Another lender, SBI, in May sent a liquidation notice to S Kumars and Reid & Taylor, said Soundara Kumar, head of the bank's stressed assets management division.

S Kumars and Reid & Taylor founder Nitin Kasliwal did not respond to several phone calls from Reuters.

S Kumars earned net profit of Rs 86.5 crore in the nine months to December, according to a stock exchange filing.

"What we are now beginning to see is incidents of such prosperous promoters and sick companies are increasing. What we have tried to do is simply send a message across," said a senior executive at UCO in Mumbai, speaking on condition of anonymity because they were not permitted to talk to the media.

There is some evidence that public outing as debt dodgers can goad a company into action.

United Bank of India took out a newspaper ad in April to say pharmaceutical packaging firm Bilcare Ltd'soutstanding Rs 51.5 crore loan was in default. Bilcare later said in a stock exchange statement that it was in touch with lenders and was trying to restructure its loan.

Such methods are likely to become more popular, given the absence of a formal bankruptcy law, and the great time and cost of pursuing collection in court.

"Our legal systems move very slowly. We have such a huge number of pending cases in the courts that we are unable to lay our hands on assets that we can recover from," said Shubhalakshmi Panse, chairwoman of state-run Allahabad Bank .

Bankers say errant borrowers often manage to get stay orders from various courts, slowing down the recovery process, and most cases take over two years to be resolved.

Panse said she has given daily loan recovery targets to bank officers and branch managers across India. They send her a text message each day apprising her of the status of those targets.

If borrowers want to stay out of court, they can try the Corporate Debt Restructuring (CDR) Cell, where banks sought to restructure a record $16.6 billion in loans in the year that ended in March 2013, an increase of 38% year-on-year.

Worried that CDR enables both borrowers and banks to escape from bad loans too lightly, the central bank has asked lenders to set aside more money in reserve against restructured loans and begin classifying them as bad, starting in 2015.

In a rare case, lenders recently rejected a proposal by outsourcing firm Spanco Ltd to restructure a Rs 1,300 crore loan through CDR.

Even the powerful Vijay Mallya could not hold Kingfisher's creditors at bay forever. After threatening to do so for months, banks began liquidating collateral for the airline's loans in March, more than a year after its initial default.

"Trying to be tough is a good step given that whatever they have been doing in the past has not been working," said Ismael Pili, banking analyst at Macquarie Securities in Hong Kong.

Kingfisher losses widen as airline stays grounded

 

Live Mint :P.R. Sanjai  |  Mihir Dalal :Fri, May 31 2013. 10 49 AM IST

Kingfisher posts Rs.2,141.80 crore net loss for Q4; UBHL swings to a loss of Rs.190 crore on finance costs

Mumbai/Bangalore: Vijay Mallya’s Kingfisher Airlines Ltd, which hasn’t flown since October, continued to pile up losses in the fourth quarter, dragging down the fortunes of United Breweries (Holdings) Ltd (UBHL), the holding company of the tycoon’s UB Group, as well.

Kingfisher Airlines’ net loss widened 86% to Rs.2,141.80 crore for the quarter ended March from Rs.1,151.83 crore in the year-ago period. UBHL swung to a loss of Rs.190 crore for the March quarter due to a fourfold increase in finance costs. In the year-ago quarter, UBHL had reported a profit of Rs.2.1 crore.

UBHL’s loss marks another chapter in the steady erosion of Mallya’s family fortunes, which he partly inherited from his father. Mallya’s legacy is under threat after the group’s airline dream turned sour because of costly overreach—the acquisition of Air Deccan in 2007 and the debt taken on to pay for this and other assets, which include a Formula One racing team.

With planes remaining on the ground, the airline had zero sales in the March quarter, compared withRs.782.83 crore in the year-ago period.

Unsurprisingly, the airline posted a net loss of Rs.4,001.12 crore for the fiscal year against a loss ofRs.2,328.01 crore the previous year. Kingfisher Airlines has never made profit since its inception in 2005.

The Mumbai-based airline said it has racked up accumulated losses of Rs.16,023.46 crore and that its net worth was a negative Rs.12,919.81 crore as of 31 March.

Kingfisher’s operating licence was suspended in October by regulator Directorate General of Civil Aviation (DGCA) following a strike by the airline’s employees. The licence has since expired, although it can be renewed within two years.

Last month, Kingfisher Airlines submitted a fresh revival plan to DGCA. Permission to resume flights wasn’t forthcoming as the airline didn’t have no-objection certificates from various stakeholders, including airport operators, bankers, jet fuel vendors and spare parts sellers.

“Kingfisher is almost dead now; I don’t see any way it can come back. There are just too many issues surrounding debt and viability,” said Sharan Lillaney, an analyst at Angel Broking Ltd. “The UB Group is in a big mess right now with all the court cases and lenders selling pledged shares. And UBHL has guaranteed Kingfisher’s debt, so it’s pretty likely that courts will rule in favour of lenders.”

Over at UBHL, total income from operations for the March quarter rose 3.4% to Rs.117.57 crore. Finance costs rose to Rs.238.26 crore from Rs.59.13 crore.

Lenders to Kingfisher Airlines have filed several lawsuits against UBHL, which has given guarantees for Kingfisher’s debt. UBHL has itself filed counter lawsuits in the Karnataka and Bombay high courts against the lenders seeking, among other things, damages of roughly Rs.4,500 crore.

Meanwhile, a consortium of 14 lenders led by State Bank of India is readying to move the Debt Recovery Tribunal on selling Kingfisher Airlines’ assets after having filed a claim under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act to recover dues, marking the last rounds of a bitter battle in one of corporate India’s most high-profile loan default cases.

Mallya is expected to use at least a part of the money he gets from selling a part of his majority stake in group company United Spirits Ltd (USL) to repay Kingfisher’s lenders, which are owed more than Rs.7,000 crore.

On 9 November, Diageo Plc, the world’s largest distiller by revenue, agreed to buy a majority stake in Mallya’s USL for a total consideration of Rs.11,166.5 crore, offering the liquor tycoon a way out of mounting debt woes even as it gains a strong presence in the Indian market.

The complex transaction includes the purchase of a 19.3% stake from UBHL and other promoter entities, and fresh preference shares from the company. The UK-based distiller was to buy the remaining 26% from the public shareholders of USL. But Diageo’s open offer to shareholders failed, with the firm announcing earlier this month that it bought less than 0.5% of USL shares.

UBHL is likely to complete the stake sale in USL to Diageo for about Rs.2,400 crore in June.

The company said its luxury residential building Kingfisher Towers, being built on the site on which Mallya’s Bangalore home stood, was expected to be completed in 2015.

Stocks of both UBHL and Kingfisher have taken a battering over the past few years.

UBHL was trading as high as Rs.970 in May 2006 and at Rs.880 in 2008, when Kingfisher was on a massive expansion spree. By April 2011, UBHL had plunged to Rs.220 after multiple rounds of restructuring of the airline’s debt. In January 2012, the stock fell to as low as Rs.81, as the future of Kingfisher looked increasingly bleak and banks refused to lend more money to the airline.

In October, shares of UBHL rose again to a high of Rs.145 on speculation that Mallya would sell a stake in Kingfisher after India allowed foreign airlines to invest in domestic airlines. However, after it became clear that Mallya was struggling to find an investor, the stock slumped again.

As for the Kingfisher stock, it was trading at Rs.145.15 when the airline acquired Deccan Aviation Ltd, which ran India’s first low-fare carrier Air Deccan, on 1 June 2007. By 1 June 2009, the shares had tumbled to Rs.62.50. By the time DGCA suspended its operating licence in October, the stock was atRs.15.35. From an all-time high of Rs.316.60 on 18 December 2007, it sank to a record low of Rs.5.23 on 24 May this year.

On Friday, Kingfisher dropped 4.89% to Rs.6.03 on BSE, while UBHL fell 2.61% to Rs.37.35 and USL fell 1.14% to Rs.2,415.60. India’s benchmark Sensex fell 2.25% to 19,760.30 points.