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Showing posts with label NPAs and restructured accounts. Show all posts
Showing posts with label NPAs and restructured accounts. Show all posts

Tuesday, 17 July 2018

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Friday, 11 May 2018

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Monday, 9 October 2017

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Tuesday, 18 July 2017

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Tuesday, 23 May 2017

08:46

Prompt corrective action for banks

Prompt corrective action for banks
May 22, 2017:  
As the financial health of banks had deteriorated over the last three years, the Reserve Bank of India (RBI) revised the norms for prompt corrective action early last month, and has promptly imposed those norms on a couple of public sector lenders.
What is PCA?
PCA norms allow the regulator to place certain restrictions such as halting branch expansion and stopping dividend payment. It can even cap a bank’s lending limit to one entity or sector. Other corrective action that can be imposed on banks include special audit, restructuring operations and activation of recovery plan. Banks’ promoters can be asked to bring in new management, too. The RBI can also supersede the bank’s board, under PCA.The provisions of the revised PCA framework will be effective April 1, 2017 based on the financials of the banks for the year ended March 31, 2017. The framework will be reviewed after three years.
When is PCA invoked?
The PCA is invoked when certain risk thresholds are breached. There are three risk thresholds which are based on certain levels of asset quality, profitability, capital and the like. The third such threshold, which is maximum tolerance limit, sets net NPA at over 12 per cent and negative return on assets for four consecutive years.
What are the types of sanctions?
There are two type of restrictions, mandatory and discretionary. Restrictions on dividend, branch expansion, directors' compensation, are mandatory while discretionary restrictions could include curbs on lending and deposit. In the cases of two banks where PCA was invoked after the revised guidelines were issued — IDBI Bank and UCO Bank — only mandatory restrictions were imposed. Both the banks breached risk threshold 2.
What next?
Some more lenders are expected to come under the corrective action framework as and when their asset quality worsens, putting profitability under pressure. Some public sector banks have breached the net NPA parameter as well as the profitability parameter. These banks are comfortable on the capital parameter, thanks to the government’s commitment to ensure the PSU banks are not starved of capital. However, as the government has its own commitment for maintaining fiscal discipline, it remains to been seen how long it can afford to infuse capital in these banks.


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Tuesday, 9 May 2017

07:51

PSU stake sale to wait for improvement in balance sheets: FM

PSU stake sale to wait for improvement in balance sheets: FM

The government will dilute its stake in state-run banks to 52 per cent once the health of the lenders improve and the money will be used to inject capital in them, Finance Minister Arun Jaitley said Monday.

He hoped for a resolution to the burgeoning bad loan problem following the government empowering the Reserve Bank of India (RBI) to order lenders initiate insolvency proceedings against defaulters and create committees to advise banks on recovering non-performing loans.

“We already have a programme under which we have been supporting recapitalisation of banks. Where more funds are required from the government, we will be quite willing to look at that.

“But once the health of the banks themselves improve, we have also announced that the government will be willing to bring down its own equity in the banks to 52 per cent and that can be used for banks’ recapitalisation,” he said at a CII-Kotak investor roundtable here.

This fiscal, the government has budgeted Rs 10,000 crore of capital infusion in public sector banks.

The amount is lower than Rs 25,000 crore set aside in the previous budget but will be insufficient to help state-run banks raise about Rs 80,000 crore of equity capital that they will require over the next two years to comply with the Basel III norms and support credit growth.

Jaitley said the non-performing assets (NPA) problem is limited to “a certain set of accounts and these numerically are not very large in number but the quantums are high and therefore, they impact the balance sheet of banks”.

“Now, we will wait for the result over the next few months of what we decided (through the ordinance) and ensure that under the empowerment that is being given to the RBI, the banking industry itself goes in for resolution,” he said.

At a separate interactive session on ‘India’s Business Environment: Reforms and Opportunities’ organised by CII, Indian Embassy and Japan Chamber of Commerce, he said that with the new empowerment of RBI, a resolution to the stressed asset problem will be reached.

“We were trying over the last few years to address this problem and about three days ago, we have empowered the central bank to take certain precipitative action in relation to resolving the issue of stressed asset itself.

I do hope, with this new system in place, resolution of lot of stressed asset in India would take place,” he said.

Source:URL
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Tuesday, 7 March 2017

18:09

Government agrees on the Employee Stock Option Plans (ESOPs) Offer by PSU banks

Government agrees on the Employee Stock Option Plans (ESOPs) Offer by PSU banks

The Finance Ministry has agreed in-principle to allow public sector banks to offer stock options to their employees from next fiscal -- a move aimed at retaining experienced hands with better incentives.
According to sources, Employee Stock Option plans (ESOPs) could be given by those banks which have not only earned substantial profit but also made remarkable improvement in managing NPAs.
It will help motivate employees to work towards strengthening the financial status of their banks so that their share value rises, sources said.
Although the Finance Ministry has given in-principle nod, the finer details are being worked out like what percentage of profit can be earmarked for ESOPs, sources said, adding, this is based on the suggestion of Banks Board Bureau (BBB).
One of the proposals is to issue shares equivalent to a certain percentage of banks' net profit to employees which is being examined.
For large banks, the ESOPs could be as much as 5 per cent of profit after tax while for the smaller ones, it could be about 3 per cent but no decision has been taken yet, sources said.
Apart from ESOPs, bonuses and other performance-linked packages are also being discussed as suggested by BBB, sources added.
ESOPs are common in the private sector, where companies offer stocks to reward and retain key and top-performing employees.
Since the employees stand to benefit from any appreciation in stock price, ESOPs also help in aligning the interests of the employees with those of shareholders.
Earlier in January, BBB chief Vinod Rai had said the compensation package across the board of public sector banks needs to be improved.
"Maybe we are not able to do much with the fixed part of compensation package but variable part we are hopeful that in the next financial year we will be able to introduce a far more attractive package which will have bonuses, ESOPs and other performance linked incentives as part of the package," he had said.
It can be monetary or non-monetary benefits to make it more attractive for professionals to enter public sector banking space, he had said.
Last year, the then RBI Governor Raghuram Rajan also made a case for offering ESOPs to bank staff.
"With public sector banks' shares trading at such low levels, a small allocation to employees today may be a strong source of motivation, and can be a large source of wealth as performance improves," Rajan had said.


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Saturday, 4 March 2017

06:13

Banks need incentives to clean up bad loans: State Bank of India

Banks need incentives to clean up bad loans: State Bank of India

"The budget statement was clear that if required the government would not hesitate to support the banks. They will find the means and ways to fund banks."
The State Bank of India (SBI) on Wednesday said that the Reserve Bank of India (RBI) needs to give some incentives to banks for resolution of bad loans in terms of provisions or extending the deadline of March 31 to clean up their books.
"Wherever resolution is being attempted, some kind of incentivisation from RBI in terms of NPA (non-performing assets) recognition date of March 31, 2017, or in terms of provisions should be given. If this relaxation can be given, banks will be encouraged for faster resolution," SBI MD Dinesh Kumar Khara told BTVi in an interview.
"Various professional agencies have got into the process of resolution. I think consultants are also coming up for managing the stressed assets. Things are happening but one month is too short for definite results," he said.
Khara said that though the banking sector is prepared for the worst, whatever be the regulatory guidelines, it is also putting forth its viewpoint.
He also notes that in every case, the public sector banks are assured of government support.
"The budget statement was clear that if required the government would not hesitate to support the banks. They will find the means and ways to fund banks. I don't expect problem on this count provided banks have justified reason for additional capital," he said.
Meanwhile Finance Minister Arun Jaitley had sidelined the idea of bad bank on the account that the taxpayers' money should not be used to pay for corporate defaulters to banks.
"Creation of a bad bank or a public sector agency is one of the suggestions. Any mechanism eventually supported by the Budget should be avoided. If a private company doesn't pay the bank, then taxpayer should not pay the bank for it," Jaitley had said on Tuesday.
Khara however said: "Bad banks are not essentially expected to pick up bad assets, but also turnaround these and make them profitable. Bad banks will have investors who see the turnaround of these assets."
He said that banks had made assessments based on judgement and assumptions, many of which didn't turn out the same way but all decisions were not bad.
"All banks make assessment. Not all decisions could be bad. Banks can segregate such assets and focus on justified lending," he added.



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Thursday, 7 July 2016

07:48

Government considering ESOPs to bank employees: Jayant Sinha

Government considering ESOPs to bank employees: Jayant Sinha 

NEW DELHI: Government is considering to issue ESOPs to bank employees, Minister of State for Finance Jayant Sinha said today.

He also asked bank employees to make the public sector competitive so that they get higher compensation and other benefits.

"This government is of view that we should create ESOPs for PSB bank staff," he said at a function organised by BMS and NOBW.

The employees, Sinha said, should be working towards making PSBs competitive, raising market sharing and improving profitability. 

It will help improving profit to book ratio so that banks can raise capital from market.

On non-performing assets in the banks, the minister said strict measures will be taken by law in case of criminal negligence. 

The Reserve Bank of India has said the gross non-performing assets of the banks can rise to as high as 9.3 per cent in 2016-17 after hitting 7.6 per cent in March 2016. 


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Sunday, 3 July 2016

18:32

Bank NPAs may hit 8.5 % by March

Bank NPAs may hit 8.5 % by March 


Banking sector gross NPA at 7.6%, highest in 12 years; Expected to rise further to 8.5% by March 2017
Gross bad loans at commercial banks could increase to 8.5 per cent of total advances by March 2017, from 7.6 per cent in March 2016, according to a baseline scenario projection by the Reserve Bank of India (RBI) in its Financial Stability Report released on Tuesday. “The macro stress test  suggests that under the baseline scenario, the gross NPA may rise to 8.5 per cent by March 2017,” the RBI noted in the report. “If the macro situation deteriorates in the future, the gross NPA ratio may increase further to 9.3 per cent by March 2017.”
Asset Quality Review
The central bank has been pushing lenders to review the classification of loans given by them as part of an Asset Quality Review (AQR). The resultant sharp surge in provisions for bad debts has eroded profitability, especially at state-owned banks, in recent quarters. The gross bad loans of public sector banks increased to 9.6 per cent as of March 2016, from about 6 per cent a year earlier, RBI data showed.
There was an almost 80 per cent jump in gross bad loans in 2015-16, according to the report. Gross bad loans of Indian banks widened to 7.6 per cent from 5.1 per cent in September and from 4.6 per cent in March 2015.
In 2004, gross bad loans in the Indian banking sector touched 7.8 per cent, while the ratio was 11.1 per cent in 2002. “The stress in the banking sector, which mirrors the stress in the corporate sector, has to be dealt with in order to revive credit growth,” RBI Governor Raghuram Rajan said in the report. The rise in gross NPA is mainly because of the AQR, RBI said in the report. The AQR conducted by the banking regulator found several restructured advances, which were standard in the banks’ books, that needed to be reclassified as non-performing.
Since a large proportion of standard restructured advances slipped into the NPA category, the overall stressed assets ratio increased marginally to 11.5 per cent from 11.3 per cent in September. 5
RBI said subsequent to the AQR, gross NPAs rose 79.7 per cent year-onyear in March 2016. 

Private sector banks
The net NPA of the banks also increased sharply to 4.6 per cent in March 2016, from 2.8 per cent in September 2015. Public sector banks’ net NPA was 6.1 per cent, while the ratio for private sector banks was 4.6 per cent.
On the business side, the report noted that credit and deposit growth remained in single digits for the previous financial year. While credit growth was 8.8 per cent, deposit growth was 8.1 per cent.
There was a stark difference in the credit and deposit growth of public sector banks as compared with their private sector counterparts. According to RBI data, for public sector banks, loans grew at 4 per cent while it was 24.6 per cent for private banks. Deposits of state-run banks grew by 5.2 per cent, while for private banks it was 17.3 per cent. “The relative performance of bank groups reflect their respective strengths amidst on-going industry-wise balance sheet repair and also sluggish growth in private capex,” according to the report.
Silver lining
The only silver lining is the housing sector, according to the financial stability report, which said with gross NPAs of the retail housing segment at 1.3 per cent, it does not pose any significant systemic risks in the Indian context. 

Source:AIBEA
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Friday, 25 September 2015

09:14

Bankruptcy code can help resolve NPAs, deepen corporate bond market: RBI

Bankruptcy code can help resolve NPAs, deepen corporate bond market: RBI

RBI Governor Raghuram Rajan today welcomed the Finance Ministry’s move to bring in a Bankruptcy Code, saying it will help bankers resolve asset stress and also infrastructure financing by deepening the corporate bond market.

“We need a speedy Bankruptcy Code to resolve distress, while maintaining the priority structure of claims, and I am glad the Finance Ministry intends to bring in one soon,” Rajan said.
The RBI Governor further said the proposed code, on the lines of the bankruptcy laws elsewhere in the world, will not only give the creditors more ability to resolve distress, but will also help strengthen the nascent corporate bond market in the country, which is essential for the large infrastructure financing needs of the economy.

A majority of the developed economies have such a code already, and Finance Minister Arun Jaitley had last month announced that his ministry would be out with such a code anytime soon.

“The bankruptcy code was to be ready by the end of July, and I think it’s going to be ready any of these days,” Jaitley had said on August 18.

It may be noted that since the past three years, the bad loans issue has assumed alarming proportions with the combined stressed assets ratio (NPAs and restructured accounts) jumping to over 13.5 per cent of the system as of the June quarter, with the state-run banks bearing the maximum brunt.

Rajan sought to dismiss allegations of government bonds crowding out private sector issuances in the bond market, saying the “real issue is confidence”, which will come through measures like the Bankruptcy Code.

Apart from the code, the RBI is mulling various other measures to strengthen the corporate bond market, including allowing the better-rated banks to issue long-term bonds and not allowing foreign investors a greater play in G-secs which can divert some money to the corporate bonds.

Besides, the RBI is planning to soon allow banks to credit-enhance corporate bonds and is also examining the possibility of reporting high quality corporate bonds.

 Source :BankingUpdates.
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