Sell assets of guarantors if firms don't repay loans: Govt to banks

Gross NPAs of PSBs rose to Rs 3.61 lakh cr while that of private lenders were at Rs 39,859 cr at the end of Dec'15

In order to effectively deal with Vijay Mallya type loan default cases, government Friday directed public sector banks to immediately invoke personal guarantees of promoter directors and recover loans from them in case the companies fail to repay.

Issuing the directive to heads of PSBs, the Finance Ministry regretted they seldom recover loan from guarantors in case of loan default by companies.

"It has been observed that there are a less number of cases where action has been taken for recovery against guarantors for attachment of assets owned by them and sell the same for recovery of defaulted loan," it said while issuing the directive in consultation with the RBI.

The ministry further told banks that "it would be prudent to take steps against guarantors immediately when no sign of revival is visible".

Asking banks to approach Debt Recovery Tribunal (DRT), it said action against guarantors should be taken under SARFAESI Act, Indian Contract Act and relevant legislations.

Exit of beleaguered industrialist Mallya to London early this month created huge uproar in Parliament as well as outside. Various companies associated with him owe over Rs 9,000 crore to different banks.

Mallya and his group firms are being probed by several agencies including Enforcement Directorate.

Gross NPAs of PSBs rose to Rs 3.61 lakh crore while that of private lenders were at Rs 39,859 crore at the end of December 2015.

Gross NPA ratio, as percentage of advances, rose to 7.30% while for private banks, it stood at 2.36% as of December-end.

In the event of default in repayments or loan by the borrower company, all directors are liable to repay the guaranteed loan with interest as the liability or the guarantor is co-extensive with the principal debtor (borrower).

"Action can be taken against the guarantor without suing the principal debtor for recovery and even if the decreed amount is covered by mortgage decree," the ministry said.

As per the law, if a guarantor has given any pledge of share held by him, the steps should be taken to sell the pledged share, under the Indian Contract Act.

The directive said that if the guarantor has not created any security Internet over his property but owns property and other assets, the banks should move DRT for their attachment and sale.

The banks, it said, should also keep a watch on periodical statement of book-debts and receivables submitted by the borrower and take steps for attachment and recovery of such book-debts under SARFAESI.

Sun Capital

Banks put up a united front on stressed assets

The message from bankers to the top management of stressed firms was clear: banks are willing to help only if the need is genuine and promoters are doing their bit.

Mumbai: On one side were the bankers—from some of India’s top banks, many state-owned.

On the other side were promoters and CXOs of companies, including some storied ones, that had borrowed money from them and were finding it difficult to pay it back.

Earlier this week, when the two met at State Bank of India’s (SBI’s) headquarters in Mumbai’s Nariman Point, the proceedings were anything but pleasant.

The message, at the end of a series of meetings, was clear: the banks would work in concert; they wanted interest payments to restart; they would help but only if the promoters and management were doing all they could to pay back the money owed by their companies; else, they would take charge.

The banks present included SBI, ICICI Bank Ltd, IDBI Bank Ltd, Punjab National Bank, Central Bank of India, Union Bank of India and Dena Bank.

The companies included Visa Steel Ltd, Uttam Galva Steels Ltd, Adhunik Metaliks Ltd, Aban Offshore Ltd, Bhushan Power & Steel Ltd and Bhushan Steel Ltd.

“We have been patient with a lot of borrowers, but if someone is trying to take advantage of that, we will not shy away from taking them to task,” said a senior banker at a state-owned bank who was present at the meetings. He sought anonymity as the meetings were confidential.

The meetings dovetailed with a massive clean-up of bank balance sheets; the Reserve Bank of India (RBI) has given them a deadline of March 2017 to complete the exercise.

The banking regulator has asked banks to provide for and reclassify stressed assets as part of an asset quality review that took place in December. Banks were asked to make at least half the required provisions in the October-December quarter and the remaining in the fourth quarter of 2015-16 (January-March).

In a report on Wednesday, JP Morgan analysts Seshadri Sen and Dhiren Shah wrote that while aggressive recognition and reclassification of stressed loans was a positive for the banking system, inadequate bank capital and low prices quoted by stressed asset buyers could play spoilsport.

Experts say joint lender meetings with borrowers could prove beneficial.

“When borrowers and all their bankers sit together, the true nature of the stress can be identified. If there are any issues that can be fixed on the bank’s end or even on the borrower’s part, it can be solved. For problems which go beyond these two, banks can always reach out to the government, which seems to be keen on reducing stress in the system,” said Vibha Batra, senior vice-president at rating company Icra Ltd.

According to the banker mentioned above, bankers had previously discussed the need for joint meetings to ensure that all lenders are on the same page.

SBI, being the lead lender in a number of instances, took the lead. The options discussed by the lenders include reclassification of loans to non-performing category, bringing in more promoter equity, working with restructuring and turnaround of firms, invoking lenders’ rights to take over collateral and finally, taking operational control of companies.

“Most borrowers came with an open mind, which made the discussions easier. But there were a few who refused to even turn up. Over the next few days, we will decide on how to move against them,” said a second banker at another state-owned bank who spoke on condition of anonymity.

Bankers warn that given the external environment, it would be too much to expect an immediate improvement in asset quality. Some cases discussed at the meetings involved iron and steel companies, which are not only highly leveraged but are also having to cope with low demand, both domestic and global.

In such cases, lenders say, the best option is to wait it out. “Whether we do it with a new promoter or old is a case-specific decision to take. But we are open to giving time to these borrowers,” said the second banker quoted above.

In some cases, lenders may choose to classify the loans as a non-performing asset (NPA), giving themselves more time to find a resolution, after due provisioning. “If it (the asset) is standard, the timeline is too stringent for any process to take place,” the second banker said.

Once the asset is classified as bad and lenders are convinced that the resolution process will show results, they could allow the company to avail of fresh loans under the current credit limits.

According to Icra’s Batra, in highly leveraged sectors such as steel which are reeling under various pressures, the least that bankers can do is to recognize the stress and provide adequately. “Once banks have adequately provided for these loans, it becomes easier for everyone to identify the issues and evaluate bank balance sheets better,” she said.

The marathon meetings with promoters form part of a larger movement by the banking system to bring problematic borrowers to task.

Apart from this, lenders are also actively trying to find investors who can buy stakes in companies where they have acquired equity control in lieu of debt.

In a 3 March advertisement on its website, SBI asked for expression of interest (EOI) from interested parties that might want to acquire management control of a company which is setting up a 2.51 million tonne per annum integrated steel plant in Bokaro, Jharkhand. The deadline for submission of the EOI is 21 March.

Gross NPAs of 39 listed banks surged to Rs.4.38 trillion in the quarter ended 31 December from Rs.3.4 trillion at the end of the September quarter, according to data collated by corporate database provider Capitaline.

In a statement last week, ratings agency Crisil Ratings said that it expects stressed assets (a sum of gross NPAs and other troubled assets) in the Indian banking system to rise to over Rs.7 trillion (or 11.3% of total loans) by March 2017, from about Rs.4 trillion (7.2% of total loans) as of March 2015.

BANKSSTRESSED ASSETSBAD LOANSSTATE BANK OF INDIANPAS

DRT freezes Vijay Mallya’s sweetheart deal with Diageo

Debt recovery tribunal says payment to Vijay Mallya can’t be made until case filed by SBI, other lenders is disposed of

Bengaluru: UB Group chairman Vijay Mallya received a setback on Monday when the debt recovery tribunal (DRT) in Bengaluru blocked him from getting his hands on a $75 million payout by Diageo Plc., responding to an application by creditors led by State Bank of India (SBI).

The tribunal said Mallya cannot access the money until a case filed against him by SBI is settled. The order came in response to one of the four so-called interlocutory applications filed last week by SBI, which also demanded the arrest of Mallya, the impounding of his passport and a full disclosure of his assets and liabilities.

SBI has also moved the Karnakata high court for similar directives.

Banks owed money by Mallya’s grounded Kingfisher Airlines have the “first right” to the Diageo money, according to SBI.

The tribunal on Monday also directed London-based Diageo and its Indian unit United Spirits Ltd (USL) not to disburse any money to Mallya before the case is disposed of. It set the next hearing for 28 March.

Sun Capital

Banks will have to lower lending rates in April

Mumbai Irrespective of whether the Reserve Bank of India (RBI) cuts its policy rate on or before the April 5 policy review, banks will have to cut their lending rates by at least 25-30 basis points (bps) in April, to catch up with the lag in transmission.

The central bank has, so far, cut its repo rate by 125 bps and banks have passed on between 60-70 bps of the cut. If the central bank cuts some more, as is expected by the market, banks' lending rate cuts should be steeper, too. One basis point is 0.01 per cent.

But, the lending rate cuts might not happen immediately in March, as banks would ideally want to shore up their treasury profits by taking advantage of the recent dip in bond yields, and also enjoy an improvement in spreads in the last month of the financial year, when credit demand generally picks up.

The resultant profit will also mend their bottom line to some extent, as they have been severely hit by RBI's asset quality review programme, which will continue to exert pressure in the March quarter as well. "Transmission will happen, irrespective of the rate cut quantum (by RBI)," said Soumya Kanti Ghosh, chief economist, State Bank of India.

However, that will likely not be in March, said A Prasanna, chief economist at ICICI Securities Primary Dealership Ltd.

"There is pressure on bank balance sheets now. Transmission will improve with liquidity in April," Prasanna said.

From April 1, RBI's marginal cost-based lending rate (MCLR) would kick in, which will prod banks to use their incremental cost of funds, rather than average cost of deposits to arrive at the lending rate. Since money market rates move faster than deposit rates and banks tap into these money markets, the incremental cost will add dynamism in lending rate calculations. And, 10-year bond yields have fallen 15-20 bps since the Budget. If this trend continues till March-end, banks would have to factor in this drop.

Finally, with RBI infusing longer-term liquidity in the system through secondary bond market purchases, banks should have less reason to complain that system liquidity tightness is not letting them pass on rate cuts. Under the new liquidity framework, RBI ensures call money rates are anchored at around the repo rate, no matter how much liquidity infusion is needed. However, bankers have complained that the liquidity infused is short-term, and more permanent liquidity needs to be infused through secondary market bond purchase. The central bank does so through its open market operations, or OMO. Including a scheduled Rs 15,000-crore OMO purchase on Thursday, RBI's liquidity infusion is close to Rs 50,000 crore in recent months.

The OMOs, and with government spending picking up, have ensured that from an acute shortage of Rs 1.6 lakh crore at the end of January, banking system liquidity has improved to less than Rs 1 lakh crore now.

But there would be stress on the liquidity front again, starting March 15, when advanced tax outflow starts, pointed out Gaurav Kapur, India economist at Royal Bank of Scotland.

The tight liquidity condition would be needed to be evened out first before banks can move with rate cuts and that would be by the next financial year, Kapur said.

However, whether the rate cut would be of any meaning to revive growth is a different question altogether, articulated IDFC Bank's Chief Economist Indranil Pan.

"With MCLR pricing the incremental cost, pass-through of the cumulative 125-basis point rate cut is expected to be at 25-30 bps. So, even after a transmission of 85-90 bps if credit growth doesn't take place, one needs to ask if the problem lies with the RBI rate cuts and transmission mechanism or the credit channel itself," Pan said.

Investment Banking 

Ajay Piramal targets distressed Indian assets

It’s a good time to be in the market, says Anand Piramal

Mumbai: Indian billionaire Ajay Piramal is a man on a shopping mission. His firms are training their sights on distressed assets discarded by indebted businesses and banks struggling with bad loans.

His unlisted real estate unit, recently flush with cash from Warburg Pincus and Co. and Goldman Sachs Group Inc., is looking to buy land parcels from distressed developers, a month after Piramal Enterprises Ltd announced a $893 million fund to buy soured loans. The group’s investment arm is financing builders, who in turn can buy or co-develop projects with their troubled peers.

“My father says we should be like a nimble gorilla so you are able to move quickly, but at the same time you should have the capital to move,” Anand Piramal, the group’s executive director and scion who manages the real estate business, said in an interview in Mumbai. “It’s a good time to be in the market.”

Rich pickings may come through for the Piramal conglomerate as Indian developers’ cash flow from operations fall short of their finance costs and lenders, desperate to recover dues, tighten screws demanding repayment. Saddled with distressed assets at a 14-year high, banks in Asia’s third-largest economy have reported record losses amid pressure from regulators to clean up.

Piramal Realty will “look at good, prime parcels of land with a clean title” from distressed developers and is already in talks for as many as five deals, Piramal said. Disputes over land ownership are common in India, with cases dragging because of litigation for decades.

Sellers are becoming “more amenable now” toward deals to overcome financial stress, which may continue for another year at least, Piramal said. “Capital is always a source of competitive advantage.”

Goldman Sachs acquired a minority stake in the company for $150 million in August, about a month after Warburg Pincus bought into it, pumping in Rs.1,800 crore ($268 million). The company has about 10 million square feet under development in Mumbai and plans to invest 160 billion rupees in the next four years.

Big boys

Builders are selling assets as they streamline operations driven by both strategy and distress, according to Shobhit Agarwal, managing director for capital markets at property broker Jones Lang LaSalle India. “Developers are turning to these big boys because they have both the money and the market trust to make sales plus command a premium,” Agarwal said.

As smaller local builders struggle with byzantine approvals processes, high cost of financing, dwindling sales and drying cash flows, moneyed-up investors such as KKR and Co. and Piramal Realty are swooping in, lured by the prospect of acquiring property at deep discounts from down-and-out developers.

Piramal Fund Management, the family’s real-estate funding vehicle, is distributing as much as Rs.15,000 crore to about 10 developers that are in a position to buy land or collaborate with struggling competitors.

Distress fund

The listed Piramal Enterprises announced setting up aRs.6,000 crore Piramal India Resurgent Fund with the specific mandate of acquiring soured loans, according to a post-earnings presentation in February. Piramal declined to share any details about the new fund or the sectors it’ll focus on.

Shares of Piramal Enterprises, which sells medicines to financial services, have risen 0.8% in the past year, compared with a 16% decline in the S&P BSE Sensex and the 3.9% drop in the 63-member S&P BSE Heathcare index.

The total cash flow from operations for six developers tracked by Moody’s Investors Service, was at Rs.300 crore in the year ended March 2015, dwindling from Rs.3,000 crore in 2011, while total interest costs rose to Rs.3,600 crore fromRs.2,900 crore over this period, the data showed.

Lenders struggling to recover loans that have soured has weighed on credit in the country. Reserve Bank of India governor Raghuram Rajan has set banks a March 2017 deadline to tidy their balance sheets while India’s top court directed the RBI last month to share a list of the country’s largest defaulters in the past five years.

Loans to commercial real estate segment grew 5.9% to Rs.1.7 trillion in 2015, less than half of the 14.8% growth the year earlier, data compiled by RBI show.

“The squeeze is also coming in because of the banks,” Piramal said. “If banks are able to push developers to accept more reasonable valuations, then groups like us can step in. I think it’s happening.” 

Private Equity

India on course for recovery: IMF report

Pegs GDP growth at 7.5% for FY17; expects private investmentto pick up

New Delhi, March 2:  

In a thumbs-up to Finance Minister Arun Jaitley’s financial management, the International Monetary Fund has said that the Indian economy is on the path to recovery, helped by low crude oil prices, improving current account and fiscal deficits, as well as a sharp fall in inflation.

However, in its India: 2016 Article IV Consultation report, the IMF has pegged the country’s growth rate at 7.3 per cent this fiscal and 7.5 per cent for the next. This is marginally lower than Jaitley’s official estimate of 7.6 per cent GDP growth in 2015-16 and 7-7.75 per cent in 2016-17.

“The Indian economy is on a recovery path, helped by a large terms of trade gain (about 2.5 per cent of GDP), positive policy actions, and reduced external vulnerabilities,” said the report, which is based on the IMF’s consultations with officials from the Finance Ministry and the Reserve Bank of India.

With some uptick in industrial activity, the Washington-based international lender also expects a pick-up in private investment to help broaden the economic recovery.

The report has, however, warned that a number of economic risks remain. On the external front, it has highlighted a possible disruption from increased volatility in global markets, unexpected developments in US monetary policy and China’s slowdown.

On the domestic front, the IMF has listed the weakness in corporate financial positions and bad loans of banks, as well as the delay in reforms as risks that could weigh on growth, accelerate inflation and undermine sentiment.

“On the upside, further structural reforms could lead to stronger growth, as would a sustained period of low global energy prices,” it said.

The report also stressed the need for continued vigilance, growth-friendly fiscal consolidation, and sustained reforms to enhance the resilience of the economy and bolster potential growth.

Essential reforms

It said reform priorities include removing supply-side bottlenecks, especially in the agricultural and power sectors, and facilitating land acquisition. “Further reforms are also essential to boost employment in the formal sector, encourage female labour force participation, and enhance labour market flexibility more broadly,” said the IMF.

The report welcomed the adoption of flexible inflation targeting and the progress in enhancing monetary policy transmission, and said the RBI should be ready to tighten the monetary stance, if required, to control inflation.

Sun Capital Services

Sumitomo Mitsui Banking Corp to sell stake in Kotak Mahindra Bank

Sumitomo Mitsui is looking to sell almost half of its stake in Kotak Mahindra Bank for around $300 million

Shares of Kotak Mahindra Bank closed at Rs.630.25 on the BSE, up by 2.35%, while the benchmark Sensex closed at 23,002 points, down by 0.66%, on a day the stock markets witnessed volatile trading on account of the announcement of the union budget.

Mumbai: Japan’s Sumitomo Mitsui Banking Corp. is looking to sell almost half of its stake in private sector lender Kotak Mahindra Bank Ltd, for around $300 million (approximately Rs.2,050 crore), according to two people aware of the development.

As of 31 December, Sumitomo held a 3.58% stake in the private-sector lender, data from stock exchanges show.

“The book has been launched and the sale is expected to close overnight,” said one of the two people mentioned above, requesting anonymity as he is not authorized to speak to the media.

Large domestic and foreign institutions have shown interest in buying the stake in block trade, he added.

Shares are being offered to buyers in a price range of Rs.611.34 to Rs.636.55 per share, according to Bloomberg. Citigroup Inc. is managing the share sale program, the report added. After the transaction, Sumitomo’s stake in the bank will fall to around 1.79%.

The Japanese bank firm had picked up a 4.5% stake in Kotak Mahindra Bank in 2010 through a preferential allotment for Rs.1,366 crore.

Shares of Kotak Mahindra Bank closed at Rs.630.25 on the BSE, up by 2.35%, while the benchmark Sensex closed at 23,002 points, down by 0.66%, on a day the stock markets witnessed volatile trading on account of the announcement of the Union budget.

Also, on Monday, California Public Employees’ Retirement System (CalPERS), the largest pension fund in the US, sold a stake worth around Rs.870 crore (approximately $127 million) in Axis Bank Ltd, according to data at stock exchanges.

Foreign institutional investor (FII) Genesis Indian Investment Co. Ltd bought the stake (around 0.94%) at a price of Rs.387.5 per share.

Last month Genesis bought a stake worth Rs.318 crore in Dabur India Ltd through an open market transaction, according to information on stock exchanges. The FII bought about 12.7 million shares, or a 0.72% stake, in Dabur.

In 2015, California Public Employees’ Retirement System, had assets under management of $298 billion, according to Preqin, a private equity database.

Shares of Axis Bank closed at Rs.375.25 on the BSE, down by 2.75%.

Sun Capital

New RBI norms to help banks unlock Rs. 40,000 cr

Central bank eases norms governing treatment of certain balance sheet items

The Reserve Bank of India on Tuesday relaxed norms relating to the treatment of certain balance-sheet items, including property, which will help banks unlock capital aggregating about Rs.40,000 crore.

This capital relief comes at a time when the banks, especially those in the public sector, are struggling with bad loans, provisioning requirements and falling equity market valuations.

The revised norms will give PSBs access to additional capital of Rs. 35,000 crore, while it could be about Rs.5,000 crore for private sector banks.

The unlocking of capital follows a review carried by the RBI with the aim of further aligning the definition of regulatory capital with the globally adopted Basel III norms.

These standards aim to improve the banking sector’s ability to absorb shocks arising from financial stress and improve risk management and governance.

Banks have now been allowed to include some items, such as property value and foreign exchange, for calculation of Tier 1 capital (CET1), instead of Tier 2 capital.

Analysts say State Bank of India may benefit a great deal from the change in the carrying amount of a bank’s property as it has huge property holdings across the country.

As per RBI norms, CET1 capital, comprising paid-up equity capital, statutory reserves, capital reserves, other disclosed free reserves (if any), and balance in P&L Account at the end of the previous fiscal year, must be at least 5.5 per cent of risk-weighted assets.

By Sun Capital

IDBI Bank looking to double business by FY19

Will catch up with the industry average of 12-15% growth, says MD & CEO

Mr. Kishor Karat, MD & CEO 

As part of its three year medium term strategic business plan, IDBI Bank on Tuesday said it is planning to double its business, rebalance loan portfolio towards micro, small and medium enterprises, agriculture and retail credit, augment low-cost deposits and purge the balance sheet of bad loans.

The public sector lender has unveiled the plan in the backdrop of it posting a huge loss of Rs. 2,184 crore in the October-December 2016 quarter and the government announcing in the Budget that it will consider the option of reducing its stake in the bank to below 50 per cent.

Under the plan, IDBI Bank expects to double its business (deposits plus advances) to Rs. 10-lakh crore (deposits of Rs. 5.50 lakh crore and advances of Rs. 4.50 lakh crore) by FY19 from the estimated Rs.5 lakh crore (deposits: Rs. 2.85 lakh crore and advances: Rs. 2.35 lakh crore) in FY16.

IDBI Bank will rebalance its portfolio so that the share of loans to retail, micro, small and medium enterprises and agriculture segments increases to 41 per cent of total loans in three years from 33 per cent now.

Consequently, the share of corporate and infrastructure loans in the total loans will come down to 37 per cent (43 per cent now) and 2 per cent (24 per cent), respectively.

Kishor Kharat, MD and CEO, said his bank has overcome the limitations on balance sheet growth arising from it not being able to meet the priority sector lending targets and is now at an inflection point.

Observing that the bank has grown at 5-6 per cent over the last few years due to the limitations, he said it will catch up with the banking industry’s average business growth of 12-15 per cent.

To bring down the cost of deposits, the bank plans to augment low-cost current account and savings account deposits from 25 per cent to 35 per cent of total deposits and reduce dependence on bulk deposits from 44.6 per cent to 32.6 per cent during the three-year period. This will bring down the cost of deposits to 5.9 per cent from 7.4 per cent as at December-end 2015.

The bank will contain the gross non-performing assets to below 3 per cent from 8.94 per cent as at December-end 2015 by stepping up efforts for recovery/resolution of bad loans. It will bring down the net NPAs to near zero from 4.60 per cent through intensive recovery and upgradation of accounts.

Branch expansion

To support business expansion, IDBI Bank will add 2,000 branches over the next three years, including 500 branches and 1,500 low cost banking points, and add 6,000 employees to its present count of 15,500.

When asked about his opinion on consolidation among public sector banks, Kharat said the strengthening of his bank’s balance sheet could help it takeover a bank.

---

IDBI Bank will rebalance its portfolio so that the share of loans to retail, MSMEs and agriculture segments increases to 41 per cent of total loans in three years from 33 per cent now

By Sun Capital

IDBI Bank unveils Rs 20,000-crore investment plan over three years

To raise Rs. 20,000-crore capital via equity route

MUMBAI: A day after Finance Minister Arun Jaitley said the government may consider bringing down its stake in state-run IDBI Bank to below 50 per cent, the lender today announced a "transformational" plan entailing an investment of about Rs 20,000 crore over a three-year period. 

The plan includes doubling the bank's business volumes and reducing gross NPA level below 3 per cent. 

"The plan rests on business growth and our approach will be to catch up with the industry. We will double our business from around Rs 5 lakh crore in FY16 to Rs 10 lakh crore in FY19, representing CAGR of over 20 per cent per annum," Managing Director and Chief Executive Kishor Kharat told reporters here. 

However, he was quick to add the "transformational plan" has nothing to do with the Government's move to reduce stake in the bank. 

"The plan has nothing to do with whether we remain a public sector or a private sector bank because it does not talk abut composition of ownership or holding. On a standalone basis we have made this plan for transforming the bank and therefore the thrust is more on business transformation." 

Kharat said bad loan will remain an issue for some more time but expressed confidence the bank will be entering the next fiscal with a lighter stress. "Our endeavour will be to bring down gross NPA to 3 per cent and net NPA to near 0 per cent." 

For the quarter ended December, the bank's gross NPAs jumped to 8.94 per cent from 5.94 per cent in the same period last year, while net NPA rose to 4.60 per cent. 

To meet the plan, the bank is looking at raising around Rs 19,000-20,000 crore over the next three years, he said. Besides, it will be raising Rs 4,000 crore from Tier I bonds and Rs 8,000-9,000 crore through Tier II bonds. 

The city-based lender has lined up around Rs 3,000 crore of assets for monetisation, of which it is expecting nearly Rs 1,200-1,500 crore to accrue this month. 

Kharat said he would like to list the bank's subsidiaries - IDBI Capital, IDBI AMC, IDBI Federal - but no final decision has been taken so far. "Right now, we will monetise to the extent of our need only." 

The bank has also put on hold its plan to raise Rs 3,771 crore through qualified institutional placement (QIP) route due to volatile market conditions. 

"We have put the QIP plans on hold for now because the price is not right at this point in time. The investor interest during our roadshow was very good but they wanted more clarity around the impact of AQR (asset quality review). Now that things are clearer, we will wait for the price to come back up," Kharat said.

JP-UltraTech Cement deal: Stressed lenders to receive about Rs 4,000 crore

MUMBAI: In what could be the biggest recovery of loans from a struggling company, Indian banks will receive about Rs 4,000 crore from the sale of Jaiprakash Associates' cement units to UltraTech Cement, said three people familiar with details of the deal. 

Lenders such as State Bank of India, IDBI Bank and ICICI Bank played an active role in the sale of the cement plants at an enterprise value of Rs 16,500 crore, said the people cited above. 

Banks have agreed to transfer about Rs 12,000 crore of Jaiprakash Associates' loans to the Kumar Mangalam Birla-owned unit, they said. Indian lenders are tightening the screws on promoters who are behind schedule in loan repayments. 
The RBI has set a deadline of March 2017 to clean up banks' books. While Jaiprakash has not been declared a defaulter in the technical sense of the term, the company has been lagging behind in payments. 

"The company was not classified as NPA (non-performing asset) but their payments were not happening on due dates which shows that they were strapped for liquidity," said BK Batra, deputy managing director of IDBI Bank. "Therefore, we exerted pressure on the company to sell its entire cement unit to reduce debt. The company has been cooperating by putting up the best of assets on block to reduce debt." 

Banks are being pressed by the Raghuram Rajan-led RBI to clean up their books after stressed loans in the system touched a high of 11.3% of the total. More loans could be classified as rotten and the demand for capital from the government could rise. Analysts estimate that more than Rs 2 lakh crore may be needed in the next three fiscal years to capitalise banks. 

There was a significant increase in bank credit to Jaiprakash Associates in the last three years. Its share in the firm's total debt of more than Rs 29,000 crore at the end of March 2015 stood at 82%, up from 58% in 2012, according to a Morgan Stanley report. 

ICICI's total exposure to the group was at Rs 6,624.2 crore, or 32.8% of the total, at the end of FY15, up from Rs 3,615.3 crore three years earlier. Under the terms of the UltraTech transaction, lenders won't be taking any haircuts even as the deal has been struck at a time when corporates can push lenders to write off a part of their loans to arrive at better valuation. 

Transferring some of their debt to Ultra-Tech means that lenders now have exposure to a business group that's regarded as being financially more sound than many others, thereby reducing the risk of defaults. They can also assign lower capital on the loans as UltraTech is a better rated company. The riskier the borrower, the higher the capital assigned on the loan. 

Among the major financially stressed conglomerates, Jaiprakash Associates has been relatively more cooperative with banks. Others have been delaying asset sales in the hope of an economic recovery and increased cash flow to service debt or, in some cases, bargain for writeoffs. 

The central bank recently identified about 150 companies that are potentially defaulters but banks were yet to declare them as such. More companies could be putting their assets on the block as lenders go after bad loans.

By Sun Capital

Effect of rising NPAs of banks on aam aadmi

The domino effect of rising NPAs of banks

With public sector banks having accumulated Rs 4.5 lakh-crore worth of nonperforming assets or loans in which repayments are not happening in time, there has been a lot of talk going around on the performance of the banks and how it reflects on the broader performance of the Indian economy.

With public sector banks having accumulated Rs 4.5 lakh-crore worth of nonperforming assets or loans in which repayments are not happening in time, there has been a lot of talk going around on the performance of the banks and how it reflects on the broader performance of the Indian economy.

While RBI has gone ahead with a 125 basis points rate cut, the 'aam aadmi' is yet to experience the full transmission. With banks further saddled with a huge NPA burden now, the customers are bound to feel the pinch

1. How do NPAs affect a bank's balance sheet?Accumulated bad loans severely dent a bank's interest income. As per regulatory norms, banks are expected to make provisions against bad loans. High provisioning figures further eat away from their profits. Banks such as Bank of Baroda, Bank of India and Punjab National Bank have all posted huge losses due to high provisioning this quarter.

2. Should investors be worried?With all public sector banks being listed entities, a bad quarterly result reflects strongly in the stock market. If a bank is suffering from mounting NPAs and does not give any positive forward looking statements then stock prices crash which in turn affects the bank's shareholders income. However, now with the RBI instructing banks to clean up their balance sheets over the last two quarters of FY16 it is left to be seen how the banks after recognising the bad accounts manage to recover them.

3. Does it impact your accounts with the bank?Yes. Banks already reeling under mounting losses will not offer any rate cut for the customers. Therefore, home loans and car loans will continue to pinch the pockets of the bank customers though the Reserve Bank of India has cut repo rates by 125 basis points.

4. What are the other constituents which are affected?The government which is the largest shareholder in public sector banks loses out on dividends from the banks. Moreover the government in its Economic Survey 2016 has mentioned that banks would require Rs 1.8 lakh crore which will be taxpayers' money at the end of the day. Another effect is that banks, being more worried about loan recovery fail to invest in latest technologies and digitization of banking. Thus, customer convenience is affected.

By Sun Capital