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For India’s banks, the worst of their bad-loan woes may be yet to come

MUMBAI: Just when many Indian banks thought the worst of their bad debt woes were behind them, new central bank rules are stoking fears that the worst of the soured-loans buildup is yet to come.

The central bank surprised the financial sector this week by halting all of its existing loan-restructuring mechanisms with immediate effect, and rolling out new rules that will push more debt defaulters into bankruptcy courts.

To force its point home, the Reserve Bank of India (RBI) set strict timelines for lenders to take action against defaulters, threatening penalties if banks failed to act in a timely manner.

Soured loans, which include non-performing, restructured or rolled-over loans, reached a record high of Rs 9.5 lakh crore ($148 billion) in the middle of last year before dipping slightly and prompting some relief among bankers that the worst was over. State-run lenders account for the bulk of these loans.

India’s bad loans have nearly doubled in the past four years following an economic slow down and years of profligate lending – the combination has choked new lending and dragged on the economy.

Analysts say the actual level of bad loans is higher than the official figures suggest, pointing to central bank audits of banks, including State Bank of India, that showed non-performing loans were higher than reported for the financial year ended March 2017. Banks have also been blamed for perpetually renewing loans on soured assets.

Most of the loan-restructuring schemes that the central bank is withdrawing have seen little success. Analysts say banks will soon have to declare the loans in those schemes as non-performing loans, which will trigger the timeline for banks to take debtors to court.

That means the banking sector will have to recognise the new status of the loans and make provisions for them, said Rajkiran Rai, chief executive at state-run Union Bank of India.

“When you look at the short term, yes, we will have issues with the existing accounts,” Rai said.

Longer term, the RBI’s measure will benefit banks, he said.

Indeed, the new rules would bring discipline to the banking sector, although provisioning costs will shoot up as more borrowers are taken to court, said R. Subramaniakumar, chief executive at Indian Overseas Bank, a state-run lender with the second-highest bad loan ratio among all banks.

“Of course it’s going to put pressure on bank’s balance sheets,” he said, adding capital injections announced by the government will help cushion the impact.

The RBI’s decision to force more struggling borrowers into bankruptcy proceedings was its latest move to try to clean up India’s bad loans mess.

Last year, it ordered about 40 of the country’s largest debt defaulters into bankruptcy courts, demanding creditors put aside at least 50 percent of loan amounts in provisioning.

Under the new process, the RBI requires banks to figure out plans to resolve debts of defaulters with Rs 2,000 crore ($311 million) or more in outstanding debt by Sept. 1, or take them to bankruptcy court.

Since 50 percent provisioning will be required for these bankruptcy cases as well, the total funds that banks will have to set aside will shoot up, pressuring profits, analysts said.

Moody’s Indian affiliate ICRA estimates the criteria would net 50 defaulting companies with combined outstanding debt of Rs 2.46 lakh crore ($38 billion), so banks’ credit provisions will spike.

India Ratings and Research, the local affiliate of Fitch, said banks’ non-performing loans and provisions will shoot up in coming months, said analyst Udit Kariwala.

Banks seek clarity from RBI on new NPA norms

Mumbai: Lenders want the RBI to clarify whether the new norms on non-performing assets (NPAs) will apply to loans where restructuring has been initiated. They are also not sure whether the new rules require them to get external ratings for all restructured loans.

“The new guidelines expressly state the loans in respect of which the new NPA norms will apply. However, it does not say that they will not apply to loan that are restructured,” said a senior banker.

“It is also not clear whether the exemptions (on the NPA classification) for earlier restructured loans will include strategic debt restructuring (SDR) cases where new promoters have not been brought in,” said a banker. SDR refers to cases where lenders convert debt to equity and sell it to a new promoter who comes with a viable business plan.

Many stressed loans have been referred to SDR, and are not yet classified as NPAs, but new promoters have also not been found yet.

According to Care Ratings, in the medium term, banks will see a spike in their NPAs over the next couple of quarters. “The standard restructured accounts stood in the range of Rs 1.8-1.9 lakh crore as on March 31, 2017, and the incremental provisioning requirement for banks would be in the range of Rs 40,000-50,000 crore for FY19,” the ratings agency said.

The stock of gross NPAs in the banking system is seen rising to Rs 9.5 lakh crore by the end of this fiscal. According to Crisil, NPAs started rising fast since fiscal 2015, and trebled from Rs 3.2 lakh crore seen then, after the RBI pushed banks to recognise NPAs on time rather than kick the can down the road.

However, while NPAs have risen, the overall stressed assets have stabilised. Stressed assets include bad loans plus troubled loans which are not classified as NPAs but those where borrowers have been given more time through restructuring schemes. Globally, analysts look at stressed assets rather than NPAs because a large chunk of restructured loans also eventually slip into default.

Gross non-performing advances (GNPAs) ratio of banks rose from 9.2% in September 2016 to 9.6% in March 2017. However, the stressed advances ratio declined from 12.3% to 12% due to fall in restructured standard advances.

PNB stock cracks again, loses 8% in early trade

NEW DELHI: The Rs 11,500 crore fraud in one of Punjab National Bank’s (PNB) Mumbai branches is taking a heavy toll on the bank’s stock. On Thursday, the PNB stock lost 8 per cent in morning trade to hit the day-low of Rs 133.45 on the BSE. At 10.15 am, the stock had pared to some extent, but was still down by 6 per cent. On the NSE too, the scrip was down 5.83 per cent.

The group’s subsidiary stocks, PNB Gilts and PNB housing Finance were also in the red.

The fraud has led to allegations and probe on leading jewellery companies. Gitanjali Gems, one of the jewellery maker which came under the scanner was losing 12 per cent in early trading. Other scrips in the sector like PC Jeweller, Rajesh Exports, Asian Star, Tribhovandas etc were all in the red.

The broader market on Wednesday was having a rather impressive day with the Sensex up more than 250 points after the initial first hour of trading.

Singh bros step down from religare board too

Mumbai: Within a week of resigning from the board of Fortis Healthcare, brothers Malvinder and Shivinder Singh also quit the board of financial services firm Religare Enterprises on Wednesday. Shivinder was the non-executive vice-chairman of Religare, while Malvinder was a non-executive, non-independent director on its board. On February 8, the two brothers had quit the Fortis board and the next day there were reports of the company extending loans worth about Rs 500 crore to companies related to the brothers who are the promoters of listed Fortis as well as Religare.

“Malvinder Mohan Singh and Shivinder Mohan Singh have stepped down from the board of directors with effect from February 14, 2018,” Religare Enterprises said in a filing with the bourses. No reason for their resignations were given. The company also said that Francis Daniel Lee, another non-executive, non-independent director on the board, had also resigned. In 2016, RBI’s internal investigations had found that Religare had extended loans to several companies without proper due diligence and had also flouted company’s lending rules. Religare said that its board will meet on February 17 to decide how it can raise fresh funds.

On Wednesday, the company also said that in Q3 ended December 2017, it had incurred a net loss of Rs 42 crore, slightly lower than a Rs 43-crore net loss earlier. Its total income for the quarter was nearly Rs 8 crore, slightly up from Rs 7.6 crore in the same period of previous year.

 

PNB fraud: after Nirav Modi, 3 more big jewellers come under scanner

NEW DELHI: Major jewellers Gitanjali, Ginni and Nakshatra have also come under the scanner of various investigating agencies following PNB’s declaration of Rs 11,400 crore fraud, committed allegedly by Nirav Modi.

Punjab National Bank (PNB) disclosed this morning that it has detected some fraudulent transactions with financial implication of $1.77 billion (about Rs 11,346 crore) and the matter has been referred to law enforcement agencies for the recovery.

“Four big jewellers — Gitanjali, Ginni, Nakshatra and Nirav Modi — are under scanner. The CBI and Enforcement Directorate is looking at their arrangements with various banks and end use of money,” a senior official of a public sector bank told PTI.

No immediate comments were available from these companies.

There is strict instruction from the finance ministry to all banks that no big fish should go scot free and no honest borrower is harassed, the official said.

Banks are now looking at their systems and processes so that such frauds are not repeated, the official said.

All banks have been asked to present a status report as soon as possible, he added.

In 2015, Bank of Baroda — another public sector bank — had brought to light a scam in which two Delhi businessmen cheated it of Rs 6,000 crore which slightly less than $1 billion at that time.

Investigations revealed major irregularities, because the forex transactions were done mainly via advance remittances for import, through newly-opened current accounts. Heavy cash transactions — sometimes four or five times a day — were also noticed.

The Enforcement Directorate, under the revenue department of the finance ministry, had arrested the businessman duo under money laundering provisions.

PNB said in a statement that fraudulent transactions took place in one of its branches in Mumbai for the benefit of a few select account holders with their apparent connivance.

Based on these transactions, done by his brother Nishal, wife Ami and Mehul Chinubhai Choksi, other banks appear to have advanced money to these customers abroad.

Billionaire jeweller under lens as PNB jolted by Rs 11,300 crore fraud

MUMBAI: In one of the biggest fraud cases to hit Indian banking, Punjab National Bank (PNB) informed stock exchanges on Wednesday that it has been hit by embezzlement amounting to Rs 11,300 crore at one of its branches in Mumbai. Although the bank did not name any person or company, it had lodged a complaint with CBI on January 31 naming billionaire diamond merchant Nirav Modi and a few others in a Rs 280-crore fraud.

The complaint also mentioned his wife Ami Modi, his brother Nishal Modi and his uncle Mehul Choksi, MD of Gitanjali Gems — a listed company. Two PNB officials, Gokulnath Shetty and Manoj Kharat, were also named. The Modis and Choksi are partners in three businesses — Diamonds R US, Solar Exports and Stellar Diamonds.

The Enforcement Directorate has also initiated a money laundering case against the Modis, agencies had reported on Wednesday. The news sent PNB stocks tumbling nearly 10% lower on the Bombay Stock Exchange. The fraud is worth almost eight times the bank’s 2016-17 profit and nearly a third of its market cap on Wednesday’s closing price. In a matter of a few days, the scale of the fraud has grown from Rs 280 crore to over Rs 11,300 crore.

The alleged irregularities are expected to impact not just PNB, which had shown signs of recovery in recent months after grappling with a pile of bad debt, but several other banks.

The irregularities started sometime in 2011 but went undetected until a few weeks ago. People in PNB said the fraud came to light after an executive, named by CBI, retired last summer ending the unsanctioned rollover of letters of undertaking, based on which the companies were raising funds overseas.

Singh bros step down from religare board too

Mumbai: Within a week of resigning from the board of Fortis Healthcare, brothers Malvinder and Shivinder Singh also quit the board of financial services firm Religare Enterprises on Wednesday. Shivinder was the non-executive vice-chairman of Religare, while Malvinder was a non-executive, non-independent director on its board. On February 8, the two brothers had quit the Fortis board and the next day there were reports of the company extending loans worth about Rs 500 crore to companies related to the brothers who are the promoters of listed Fortis as well as Religare.

“Malvinder Mohan Singh and Shivinder Mohan Singh have stepped down from the board of directors with effect from February 14, 2018,” Religare Enterprises said in a filing with the bourses. No reason for their resignations were given. The company also said that Francis Daniel Lee, another non-executive, non-independent director on the board, had also resigned. In 2016, RBI’s internal investigations had found that Religare had extended loans to several companies without proper due diligence and had also flouted company’s lending rules. Religare said that its board will meet on February 17 to decide how it can raise fresh funds.

On Wednesday, the company also said that in Q3 ended December 2017, it had incurred a net loss of Rs 42 crore, slightly lower than a Rs 43-crore net loss earlier. Its total income for the quarter was nearly Rs 8 crore, slightly up from Rs 7.6 crore in the same period of previous year.

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