TUESDAY THOUGHTS: SHARING BANKING NEWS AS ON 02.09.2014 CONTRIBUTED BY SHRI.D.S.GANESAN 1. UBI declares Kingfisher, Mallya, 3 directors ‘wilful defaulters’ Business Line / Kolkata / Sept 1: Kolkata-based United Bank of India (UBI) on Monday declared as “wilful defaulters” Kingfisher Airlines, its promoter Vijay Mallya, and three directors on the airline’s board. UBI is the first bank to make such a declaration against Mallya, who is the chairman of all United Breweries group companies. UBI is a part of the State Bank of India-led consortium and has an exposure of around ₹400 crore to Kingfisher. “We have declared Vijay Mallya and three other directors of KFA as wilful defaulters after they failed to turn up for a grievance redress meeting. The Reserve Bank of India, SEBI and other authorities have also been alerted,” Deepak Narang, Executive Director, United Bank, told BusinessLine. The other directors named defaulters are AK Ganguly, Subhash R Gupte and Ravi Nedungadi. Kingfisher Airlines filed a special leave petition before the Supreme Court to get a stay against UBIs decision. UBI has already filed a caveat in the Supreme Court. A “wilful defaulter” tag means Mallya cannot be on the board of any company nor can he raise money from the public. He can also be subjected to criminal proceedings under Sections 403 and 425 of the IPC, dealing with misappropriation and fraud. According to Narang, KFA representatives were to meet bank officials at 10-30 a.m. on Monday to discuss settlement of dues and offer reasons why action should not be taken against the promoter and board members. The meeting was scheduled as per a Calcutta High Court directive that wanted KFA to be represented by the company officials not lawyers. KFA abstained from today’s meeting. According to Narang, in a letter to UBI, the airline’s officials claimed they would challenge the Calcutta High Court order and, and till then no action should be taken. But UBI decided to declare Mallya as a defaulter. ‘Miscarriage of justice’ In a statement, the airline said it has been demanding that UBI permit it to have legal representation of its choice at the hearing to be held before the Grievance Redressal Committee set up by UBI. “The basis for KFA’s demand is that being declared a wilful defaulter entails serious consequences, including penal consequences. Hence, depriving KFA of an opportunity to be represented by a trained legal professional is a miscarriage of justice, a denial of real and reasonable opportunity of defending itself and a violation of the principles of natural justice.” Sources in the banking sector indicate that other lenders are likely to follow suit against KFA. 2. RBI issues amendments to Basel 3 norms Business Line / Mumbai / September 1: The Reserve Bank of India has allowed banks to issue additional Tier 1 capital instruments, the principal amount of which would absorb losses, either through conversion into common shares or a write-down mechanism that allocates the losses to the instruments, either temporarily or permanently. Unveiling a slew of amendments in the implementation of the Basel 3 regulations, the RBI said that banks must have a provision of Point of Non-Viability (PONV) for every non-equity instrument which, when triggered, would lead to a conversion to common shares (of the bank) or a permanent write-off. The regulator has reduced the minimum tenor after which call options are permissible in perpetual debt instruments from 10 to five years. The minimum maturity of Tier 2 debt instruments has also been reduced from 10 to five years. Admissibility limits The limits on admissibility of excess additional Tier 1 and Tier 2 capital for computing and reporting Tier 1 capital and CRAR (capital adequacy ratio) have been withdrawn. Accordingly, a bank having met the minimum capital requirements may admit excess additional Tier 1 and Tier 2 capital for the purpose of reporting. For exposure limits, capital funds is the sum of all eligible common equity Tier 1 capital, additional Tier 1 capital and Tier 2 capital, net of regulatory adjustments and deductions. Banks have also been allowed to issue additional Tier 1 and Tier 2 debt capital instruments to retail investors, subject to their enhancing investor awareness and board approval. For issuing Tier 2 capital, banks have to clearly explain to the investor the loss absorbency features of the instrument and get the investor’s confirmation that these features are clear to him. Finally, banks need not pay coupons on perpetual debt instruments (PDI) if these are likely to result in a loss during the current year. This has to be indicated in the offer document. Capital buffer “However, payment of coupons on PDIs from the revenue reserves is subject to the issuing bank meeting minimum regulatory requirements for common equity Tier 1, additional Tier 1 and total capital ratios at all times and subject to the requirements of capital buffer frameworks (capital conservation buffer, countercyclical capital buffer and domestic systemically important banks),” the RBI said. 3. RBI asks banks to fasten loan disposal process Business Line / Mumbai / Sept. 1: Cracking the whip on banks for delay in disposal of loans to borrowers, RBI asked banks to set up timelines and review pending loan applications beyond specific period. Within 30 days, banks are advised to clearly delineate the procedure for disposal of loan proposals up to Rs. 2 lakh, with appropriate timelines, and institute a suitable monitoring mechanism for reviewing applications pending beyond the specified period, RBI said highlighting from its guidelines on Fair Practices Code for Lenders. The Central Bank observed that there have been inordinate delays by banks in conveying their credit decisions leading to delays in project implementation. Infrastructure projects worth over Rs. 7 lakh crore have been locked up in 215 projects spread across power, roads, ports, cement and steel, each with an estimated cost of Rs. 250 crore or more. In addition, India’s credit growth has remained sluggish amid a slowing economy amid high interest rates. For the fortnight ended August 8, year-on year credit growth in the banking sector fell to its lowest in over four years. On a year-on-year basis for that fortnight, credit grew 11.64 per cent as compared to growth of 13.29 per cent in the previous fortnight (ended July 25). “While banks are required to carry out necessary due diligence before arriving at credit decisions, timely and adequate availability of credit is a pre-requisite for successful implementation of large projects.” It added that a similar practice of time bound decision making may be required in the case of other loans too. Reiterating that due diligence requirements should not be compromised, RBI said, “Banks may also make suitable disclosures on the timelines for conveying credit decisions through their websites, notice-boards, product literature, etc.” 4. Image management, the missing art at PSBs Business Line / Chennai / September 1, 2014: These are not the best of times for India’s public sector, especially for the Government-owned banks and financial institutions. Always faring worse than their private counterparts in the art of ‘image management’, the public perceptions about them have nosedived recently. Take the case of the government banks. Much before a serving chairman of a nationalised bank — S. K. Jain of Syndicate Bank — was arrested on a bribery charge, public sector banks (PSBs) carried the inefficiency tag and were urgently in need of a make-over in the fullest sense of the term. All of them need additional capital to meet the new capital adequacy norms of international regulators, and also in the context of the massive provisioning that all these banks have had to do. In fact, tackling huge bad loans, as reflected in their high levels of non-performing assets (NPAs), has become a principal challenge for banks, the Reserve Bank of India (RBI) and the government. A number of explanations exist as to why the NPAs spun out of control. The economic downturn has definitely stressed bank balance-sheets. Stalled infrastructure projects have made repayment of bank loans difficult. Even if the government succeeds in reviving some of them, the portfolio of banks’ problem loans will not improve dramatically. (Among other reasons, more money would be needed and where else except from banks will it come from?) This smacks of political interference. There is no other major reason why commercial banks should have such large exposures to infrastructure projects which typically require long-term funds. Commercial banks, as a rule, take deposits and borrow only for the short-term. Their loans are, therefore, for short-periods. The humongous loan exposures to entities such as Kingfisher Airlines and Winsome Diamonds and its associate companies are even more inexplicable. About Mallya the two things that stand out are his well-cultivated playboy image and success in the spirits business. Both these should not normally count with government banks. Yet, they lent and lent large, apparently without any real security. Airline business is again something new to Indian banking leading one to conclude that but for some extraneous pressure sober banks would not have gone anywhere near Kingfisher Airlines. In this season, however, it is not any new expose of political interference that is affecting the image of public sector banks. It is corruption, not confined to just any specific acts, but applicable to the whole canvas. In other words, corruption among banks is perceived to be endemic, deeply ingrained and affecting all strata of bankers. It is such sweeping generalisations that have put all PSBs on the defensive. Consider these. The fall of the Syndicate Bank Chairman has prompted probes against six or seven other recent top-level bank appointments. Suddenly, the system of selecting them has come unstuck. Nobody wants to have anything to do with their selection. One cannot but note the irony in this. The Finance Ministry and the top management of banks have wanted field-level bank staff to be less ‘credit shy’ and avoid fear psychosis “assuring them of a reasonable protection against vexatious prosecution if bona fide commercial decisions go wrong”. Now it is a case of top bureaucrats and probably ministers taking cover from accusations of wrong selections of top bankers. Should they be persuaded to sit on selection committees and be provided with immunity if the person they selected goes berserk even though he seemed to be an ideal candidate at the time of selection? Mr. S. K. Jain of Syndicate Bank allegedly operated through and was tripped by a middleman, who specialised in getting loans sanctioned for his clients. When this fact became known, practically every broker, every intermediary, every middleman became suspect. In many respects, this is reminiscent of the securities scam of 1991-92 where every broker was seen complicit with corrupt bankers. Nothing useful came of it then and nothing will come out of today’s hysteria. Like in any other profession, there are good and bad middlemen. In any case, banning middlemen from entering office or even talking on the phone is bizarre to say the least. Incidentally, credit syndication by merchant banks is a legitimate activity. Should the activity be banned? In fact, in a broader sense, all merchant banks, investment counsellors and others are middlemen. At another level, there are any number of small and medium-sized industrialists and businessmen who require the help of chartered accountants to get loans sanctioned and to iron out problems thereafter. Nobody has suggested that these useful service providers should be banned. There are reports that some PSB chairmen are going the extra mile to deflect any possible criticism by installing closed-circuit TVs to presumably record the proceedings of their investment committees. If true, these steps can only be termed outlandish. If any one wants to cheat, they can do so in a thousand other ways and still not be caught by television cameras. Which brings us to the cardinal point: there is no substitute for trust. The best of selection procedures cannot prevent a delinquent bank chairman. Nor can the finest credit appraisal skills prevent bad loans. But exceptional results should not force large scale changes that are both unworkable and bring the system to disrepute. 5. SBH launches 275 days deposit Business Line / Hyderabad / September 1: State Bank of Hyderabad has launched a new deposit scheme for 275 days for their medium period investments, for period less than a year. ‘SBH – Vrudhi 275 Days’ offers liquidity with 9 per cent interest per annum and is open from September 2 to October 31, according to a release. The depositors also get loan/overdraft on their deposits. The minimum amount is ₹10,000 while maximum is ₹99,99,000. Customers may withdraw after seven days without penalty. 6. Andhra Bank opens 5 lakh accounts Business Line / Hyderabad / September 1: Andhra Bank has opened 5.27 lakh basic savings bank deposit accounts across the country as part of the National Mission on Financial Inclusion - Pradhan Mantri Jan Dhan Yojana (PMJDY). Andhra Bank had conducted camps/programmes at district and village levels camps. “All our 2,147 branches have organised camps. Kits containing passbook, Ru-Pay card and Financial Literacy Material were also handed over account holders,” it said in a release issued on Monday. 7. ‘Savings account operative even if dividend credited’ Business Line / Mumbai / September 1: The Reserve Bank of India on Monday said savings bank accounts where dividend on shares is credited will be treated as operative. According to it, a savings account can be treated as inoperative only two years from the date of the last credit of dividend, if there is no other customer transaction. The RBI, in a notification, said: “There may be instances where the customer has given a mandate for crediting dividend on shares to savings bank accounts and there are no other operations in the account. Some doubts have arisen whether such an account is to be treated as inoperative after two years. As dividend on shares is credited to savings bank accounts as per the customers mandate, it should be treated as a customer-induced transaction. As such, the account should be treated as operative.” 8. TN region of Bank of Baroda to be bifurcated Business Line / Coimbatore / September 1: Since the launch of the “Credit on Wheel” programme in December 2013, Bank of Baroda, Tamil Nadu region has managed to add ₹125 crore to its advances portfolio. “The initiative aims to accelerate credit by reducing the turn-around time and making the decision making process faster,” Regional Manager of Tamil Nadu Region of Bank of Baroda V Murugan told Business Line. “Credit proposals are discussed across the table and decisions taken rather quickly,” he explained. To identify the credit requirement, the bank organised credit camps at industrial clusters such as Erode, Tirupur, Madurai, Rajapalayam and Thenkasi, meeting people at their place. Tamil Nadu region comprises 103 branches across 26 districts. “This is to be bifurcated into Coimbatore and Madurai regions soon,” he said. The bank already operates two specialised SME loan factories in this region in Madurai and Coimbatore. On expansion of branch network in this region, he said, “We will be adding four new branches — at Annur, Dharapuram, Arupukottai and Anuparpalayam — by November and another five before March 2015.” On the proposed launch of Adarsh Grameen Branch, he said one such branch was under consideration in Tamil Nadu at Othakalmandapam near here. The Bank’s Chairman and Managing Director SS Mundra had made this announcement some time back. He had then stated that the Adarsh Grameen Branch will be constructed by the bank on its own plot in rural areas and will include branch premises, manager’s residence and assembly area, where various activities such as agri-clinic, vocational education and medical camps would be organised from time to time. Murugan said that the plot of land for establishing the Grameen branch was in advanced stage of negotiation. BoB is planning 56 such Adarsh Grameen branches across the country. 9. Set timeline to process loans, RBI tells banks Business Line / Mumbai / Sept 1: To expedite credit decision, the Reserve Bank of India (RBI) today asked banks to set a timeline for disposal of loan proposals but did not ascribe a particular time frame for the same. “Banks should clearly delineate the procedure for disposal of loan proposals, with appropriate timelines, and institute a suitable monitoring mechanism for reviewing applications pending beyond the specified period,” RBI said in a notification. The central bank also asked banks to make suitable disclosures about timelines by conveying credit decisions through their websites, notice boards and product literature, among others. However, it said that banks should not compromise on due diligence requirements. The move came after RBI noticed that there have been inordinate delays by banks to convey credit decisions, leading to delays in project implementation. In its earlier guidelines, the RBI had stipulated that the timeframe within which loan applications up to Rs. 2 lakh ought to be disposed of, should be indicated while accepting loan applications. “It is felt that a similar practice of time-bound decision making may be required in the case of other loans too,” the regulator said, adding that banks must put in place the required system within 30 days. 10. SBI, Japan Bank sign deal for export credit of $152 million Business Line / Mumbai / Sept 1: The State Bank of India (SBI) and Japan Bank for International Cooperation (JBIC) signed a dual-currency loan agreement of $152 million (about ₹912 crore). “The loan is co-financed with the Bank of Tokyo-Mitsubishi UFJ Ltd amounting to ¥13.5 billion ($131 million) and $21 million approximately. The total co-financing amount came to $152 million,” an SBI official said. This is the third time that SBI has participated with JBIC in a project funding. The bank, in a statement, said this credit line will be utilised by Meja Urja Nigam Pvt Ltd (MUNPL) to finance the procurement of steam turbine generator equipment from Japan’s Toshiba Corporation and its subsidiary in India, Toshiba JSW Power Systems, to construct a super critical pressure coal-fired power plant (660MWx2 units) in Uttar Pradesh. MUNPL is a joint venture, with equal investments from NTPC Ltd and UP Rajya Vidyut Utpadan Nigam Ltd. Arundhati Bhattacharya, Chairman and MD of SBI, said, “India has a strong appetite for infrastructural development and I see a greater role for JBIC in supporting Indian commercial banks and infrastructure companies..…I would request JBIC to look at India as a land of unique opportunities.” 11. SBBJ revises FCNR(B) deposit interest rates Business Line / Jaipur / Sept 1: The State Bank of Bikaner and Jaipur today revised its FCNR (B) rates for fresh deposits and renewals. The new rates in the maturities of one to five years for US dollar are 2.34 per cent, 2.71 per cent, 4.14 per cent, 4.50 cent and 4.77 per cent. While for GB Pound it is 2.80 per cent, 3.24 per cent, 4.54 per cent, 4.76 per cent and 4.92 per cent, respectively, for Euro it has been fixed at 2.27 per cent, 2.29 per cent, 3.34 per cent, 3.40 per cent, and 3.51 per cent respectively. “These rates are applicable on fresh deposits and renewal of existing deposits,” the bank said in a statement here, adding the interest rates on NRE term deposits remain unchanged at 9 per cent for deposits of 1 year to upto 10 years maturity. 12. Why regulators fail to tame ‘shadowy’ banking players The Economic Times / Sep 1: The recent arrest of Subrata Roy — who transformed himself from a lesser-known employee of Sahara Finance, a minuscule finance company that ran a chit fund in the impoverished state of Bihar, to the owner of Sahara India Pariwar, which has an asset base of more than $13 billion and employs over 900,000 people — has revived debates on the clandestine and often murky world of shadow banking that has been flourishing in India, like most emerging and developed economies, for centuries. Despite consistent efforts by Reserve Bank of India (RBI) and financial markets regulator Securities and Exchange Board of India (SEBI) to bring operations of shadow banking players under the ambit of financial scrutiny, these firms have continued to thrive, while triggering insurmountable risks that are typically associated with unregulated financial products. The reason is: more than 50 per cent of Indias 1.2 billion populations are still unbanked. For centuries, shadow banking firms have been reaching out to meet the banking needs of this humongous unbanked population. The recent decision of RBI to give in-principal nod for banking licences to Kolkata-based micro-lender Bandhan Financial Services—along with Mumbai-based non-banking financial company IDFC that specialises in infrastructure lending—effectively disregarding more prominent applicants including Anil Ambani-owned Reliance Capital, Kumar Mangalam Birla-controlled Aditya Birla Nuvo, Bajaj Finserv, Religare Enterprises, Indiabulls Housing Finance, India Infoline and Muthoot Finance, has reinforced the central banks policy of financial inclusion which means offering banking services to those who are outside the purview of mainstream, regulated banking operations. What gave Bandhan (set up in 2001 by Chandra Shekhar Ghosh) an edge when it came to bagging preliminary baking licence is that it focuses on working with socially disadvantaged and economically exploited women and has a strong presence in the under-banked eastern and north eastern regions of India. Despite a litany of players in Indias banking space—there are 27 state-run banks and 22 private sector ones in the country—RBI has apprehensions if the so-called corporate banks are serious about penetrating into Indias hinterland and enhancing lending to farmers and small traders who comprise a major chunk of the unbanked population. Shadow banking, which typically comprises a diverse set of institutions and markets that carry out traditional banking functions but do so outside the traditional system of regulated depository institutions, has flourished world over. A recent report by Financial Stability Board pegged its size at around $67 trillion globally, representing a little more than 30 per cent of the total financial system. Shadow banking institutions—hedge funds, securitisation vehicles, asset-backed commercial paper programmes and off-balance sheet credit default swaps.
Posted on: Tue, 02 Sep 2014 06:42:42 +0000
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