This PSU Banks classified its loans of Rs 2,000 crore to Go First as NPA

 

Central Bank of India classified its loans to Go First as non-performing assets (NPAs) in the July-September quarter (second quarter, or Q2) of 2023-24 (FY24). The no-frills carrier has been under insolvency proceedings since May 2023 and ceased operating flights on May 3 this year.

The public sector lender’s exposure, including government-guaranteed emergency credit to the ailing airline, amounts to about Rs 2,000 crore.

Apart from Central Bank of India, another state-owned lender, Bank of Baroda, also has substantial exposure to Go First.

During an analyst call for Q2, Central Bank of India executives revealed that the bank had previously made provisions in the standard asset category for one big corporate account (Go First) due to anticipated issues (stress) in the future. With the corporate account now classified as NPA, the provision led to a write-back, resulting in a 100 per cent provision on that account.

In the April-June quarter of FY24, the bank paid tax on the provision (over Rs 600 crore) for this account, treating it as a standard asset. Now, with the provision amounting to nearly Rs 2,000 crore as an NPA, the bank experienced a write-back of Rs 43 crore, as disclosed by bank executives.

While the bank did not specify the exact extent of recovery expected from this account, executives stated that the account was sufficiently collateralised. They expressed confidence in the possibility of a successful recovery effort. Any recovery made will contribute to the bank’s bottom line, the executives said during the analyst call.

According to provisioning rules, this account is categorised as a sub-standard account, indicating that it has remained non-performing for less than or equal to 12 months.

Although the provisioning obligation for sub-standard accounts can be up to 25 per cent of the exposure, depending on the nature of the credit facility, Central Bank of India chose to make a full provision for airline accounts.

A bank executive said, “The bank aims to reduce net NPAs and improve overall asset quality profile, hence the provision made exceeds the requirement.”

Of the Rs 2,000 crore exposure, over Rs 600 crore is covered under the Emergency Credit Line Guarantee Scheme by the Government of India. The National Credit Guarantee Trustee Company, a government-owned entity, administers the scheme, providing emergency loan facilities to companies and micro, small and medium enterprises affected during the pandemic. The lender will file claims based on the prospects for resolution and recovery from proceedings under the Insolvency and Bankruptcy Code, 2016.

In recent developments, Naveen Jindal-led Jindal Power and Jettwings Airways, a Guwahati-based regional airline, have submitted expressions of interest for Go First.

Despite efforts by the resolution professional at Go First to revive the airline with limited flights, securing funding from lenders has proven challenging due to ongoing legal cases filed by the aircraft’s lessors.

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This PSB is going to auction actor Sunny Deol's Juhu property to recover loan

Public sector lender Bank of Baroda (BoB) has issued a notice to Bollywood actor Sunny Deol for auctioning his villa in Mumbai’s Juhu citing non-payment of dues amounting to nearly Rs 56 crore.

In a notice published in a national newspaper on August 19, 2023, BoB said the villa will be e-auctioned on September 25 due to non-payment. As per the notice, Deol, whose real name is Ajay Singh Deol, is the borrower and guarantor of the loan and has allegedly failed to pay the amount to the bank on time.

According to the rules, a loan becomes a non-performing asset (NPA) if there is no repayment of interest and principal for a period of 90 days. Banks need to set aside money to cover likely losses from such loans and they typically auction such properties to recover the amount.

"The loan was taken for the purpose of film financing in 2016, and it is an NPA since last year December 2022," said a person familiar with the matter speaking on condition of anonymity.

An email sent to BoB for official response did not elicit any response till the time of filing this copy. Moneycontrol couldn’t immediately reach out to Deols for a comment.

The development comes in the backdrop of a recent mega release of Deol’s movie. ”Gadar 2”, starring him and Ameesha Patel, which has crossed Rs 300 crore mark at the domestic box office on August 19.

Directed by Anil Sharma, the film is a sequel to the 2001 blockbuster ”Gadar: Ek Prem Katha”. The movie, a Zee Studios production, released in theatres on August 11. In a press note, the makers claimed the film has ”soared to a remarkable all-time high for any Hindi film”, especially in territories like Punjab.

In response to a query, Sunny Deol's representative said "We are in process of resolving this issue and the issue will be resolved. We request for no further speculation on the same."

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Non-performing advances of public sector banks at multi-year lows

The non-performing advances (NPAs) of banks are at multi-year lows, supported by substantial write-offs, especially for state-owned banks. 

The overall loan write-offs by public sector banks (PSBs) exceeded Rs 10 trillion during the FY2017-2023 period. 

This followed the banking industry-wide asset quality review the Reserve Bank of India (RBI) initiated in FY16. The closing stock of write-off pool stood at Rs 7.5 trillion at the end of March 2023, up from Rs 6.8 trillion a year ago. 

The recoveries from this pool are expected to continue to contribute significantly to the profita­bility of PSBs even in a scenario of low recoveries.  

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5 Indian banks with the lowest NPAs

Growing NPAs (non performing assets) have become an unending nightmare for the Indian banking sector due to the pandemic.While some banks have implemented measures to mitigate this, others may be at the beginning of a new NPA cycle.Although there is no ‘acceptable limit’ for NPAs, it’s considered manageable if the bank’s NPAs are under 3%.

Here are 5 Indian banks with the lowest NPAs.

#1 HDFC Bank

HDFC Bank is India's largest private sector bank by assets and by market capitalisation.The bank, despite having less than 10% share of the banking sector, is one of the most respected banks in the country.When it comes to servicing retail customers, the bank relies on the model of wide franchise and low-cost deposit base. This ensures good pricing power and sustainability of above average NIMs (net interest margins).

That sourcing home loans for parent HDFC is a huge advantage for the bank cannot be undermined. But even otherwise being extremely conservative with margins and provisioning policies has been very rewarding.

It thus comes as no surprise to us that HDFC Bank holds the distinction of reporting more than 20% YoY profit growth every quarter for over 40 quarters. All this while, its net NPAs have never crossed 0.5% of loans!

Even in the year 2020, where the entire banking industry was hit due to the pandemic, HDFC Bank reached out to large corporates for their funding requirements, which it could do because of its strong balance sheet.

In its latest quarterly results, the bank’s net NPA ratio stood at 0.48%.

Its bad-loan write-offs doubled to Rs.31 bn from Rs.15 bn in the June 2020 quarter. It also offloaded its non-performing assets (NPAs) amounting to Rs.18 bn to maintain a robust asset quality profile.

#2 IndusInd Bank

Another private sector bank, which has come a long way, and has a strong resemblance to HDFC Bank in the past few years is IndusInd Bank.The bank was incorporated around the same as HDFC Bank, in 1994, by Srichand Hinduja, one of the promoters of the Hinduja group.It was not until 2008, when Romesh Sobti along with some of his colleagues at ABN Amro NV, took over the reins of IndusInd bank, that the entity gained some vigour.Despite above average loan growth, even in the most difficult of times, IndusInd Bank has not compromised on its asset quality.The bank's net NPA ratio, like in the case of HDFC Bank, has consistently stayed below 0.5% over the past five years.

The bank also has a leadership position in certain retail asset classes with a pan India franchise which has strengthened its ability to manage the asset quality in those segments.

In its latest quarterly results, the bank’s gross non-performing assets (GNPAs) stood at 2.88% as it was impacted by the second wave of Covid-19 while the net NPA ratio rose 15 basis points sequentially to 0.84%.

However, the impact of the same was mitigated by the fact that the bank carries unutilised provisions of Rs.20.5 bn (not a part of the provision coverage) that can be utilised in case it sees further slippages.

#3 Kotak Bank

Third on the list is Kotak Mahindra Bank.

The bank is the third largest Indian private sector bank by market capitalisation. It offers products and financial services for corporate and retail customers in the areas of personal finance, investment banking, life insurance, and wealth management.Over the last couple of years, Kotak Mahindra Bank has demonstrated a highly consistent and healthy historical track record.

The bank has sustained net NPAs below 1.5% of its loan book all these years. Its institutional memory of tiding over one credit crisis after the other for nearly 25 years has also served it well.

The bank’s loan book has grown at a CAGR of over 25% over the past decade. This has been supported by a healthy contribution of low-cost deposits (current and savings accounts).In its latest quarterly results, the bank’s asset quality weakened as gross NPAs stood at 3.56%. However, net NPAs still came in below 1.5% at 1.28%.The bank’s Covid-19 related provisions stand at Rs.12.8 bn in accordance with the Resolution Framework for Covid-19 and MSME announced by RBI. It has also implemented a total restructuring of Rs.5.5 bn as of 30 June 2021.

#4 Federal Bank

Federal Bank (FBL) is another private sector bank with robust asset quality.

The bank is headquartered in Kerala and handles more than 15% of India’s total inward remittances.It has a customer base of over 10 m, including 1.5 m NRI customers and a large network of remittance partners across the world.

The bank constantly improves its collection and recovery architecture to improve its asset quality. It also uses various analytics tools to predict the propensity to default and collection score of the borrowers.

During the financial year 2021, while there was large increase in NPAs in almost all banks, Federal Bank exhibited a decline in NPAs due to diligent selection of borrowers.

Its slippage ratio also came in at 1.6%, lower than 1.7% in 2020 and the management has guided further similar slippage ratio for FY22, in line with its historical trend.

In the latest quarterly results, the bank’s gross NPAs rose to 3.5% while its net NPAs increased marginally to 1.23% largely due to the Covid-19 related challenges faced by borrowers.

However, the bank has reasonably provided for the Covid-19 related impact in 2021 and the June 2021 quarter for restructuring and the subsequent rise in delinquencies.

#5 ICICI Bank

ICICI Bank is one of the three systemically important banks in India with a 7% market share in the banking sector.

Along with its subsidiaries, the bank has a wide presence across various financial services verticals such as life insurance, general insurance, merchant banking, asset management, etc, with a leadership position in many of these businesses.

The bank’s net NPAs have stayed around 2% in the last decade with an exception in the years 2017 and 2018 where it saw high additions to NPAs in its corporate and small and medium enterprises loan portfolio.

With the onset of Covid-19 during 2021, the bank did see an impact on asset quality across segments, resulting in an uptick in the overall fresh NPAs.

However, despite a rise in slippages, the net NPAs remained lower at 1.14% as on 31 March 2021 against 1.54% as on 31 March 2020.

The bank has also changed its provisioning policy on non-performing assets for certain loan categories to make it more conservative resulting in higher provisions.

In its latest quarterly results, the bank reported a net NPA ratio of 1.16%.

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Punjab & Sind Bank declares Sintex Industries account as Defaulter

 

State-owned Punjab & Sind Bank on Thursday said it has declared the account of Sintex Industries with the total outstanding of Rs 294 crore as fraud and reported the same to the RBI.

With regard to the bank's policy on determination and disclosures of material events, it is informed that an NPA account Sintex Industries Ltd with outstanding dues of Rs 294.49 crore has been declared as fraud, the Bank said in a regulatory filing.

The lender said it has made provisioning of Rs 147.25 crore against this fraud account.

It has been reported to the Reserve Bank of India (RBI) today as per regulatory requirement, Punjab & Sind Bank said.

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This Indian PSU banks' have exposure to Sintex Industries

Punjab National Bank (PNB) reported yet another scam on Thursday to the tune of Rs 1,203.26 crore. The public sector reported its exposure to Sintex Industries as “fraud”, its exposure to Sintex Industries.

“Pursuant to the applicable provisions of Sebi's Listing Obligations and Disclosure Requirements (LODR) and the bank's policy, "we inform reporting of borrowal fraud of Rs 1,203.26 crore in NPA account of Sintex Industries Ltd (SIL)," PNB said in a regulatory filing.

The fraud reporting pertains to the large corporate branch at Ahmedabad zonal office, it added.

"The fraud of Rs 1,203.26 crore is being reported by bank to RBI in the accounts of the Company (SIL). Bank has already made provisions amounting to Rs 215.21 crore, as per prescribed prudential norms," the PSU bank said in a BSE filing.

This after the stressed textile company said it defaulted on its debt repayment of Rs 49.54 crore to a total of 10 investors. Of this amount, Rs 45.84 crore is the principal amount while the remaining Rs 3.70 crore was the due interest.

Sintex Industries’ total debt stands at Rs 7,358.88 crore. According to a TOI report, the total exposure of public sector banks to Sintex could be as much as Rs 6,000 crore. The banks have already classified the Sintex account as a non-performing asset (NPA) but will now will have to make full provision for the loan within four quarters – which is a requirement account classified as fraud.

According to Brickwork Ratings, at Rs 1,203.26 crore, PNB has the highest exposure to Sintex followed by Bank of Baroda (BoB) at Rs 649 crore, it rises to Rs 949 crore if the exposure of Dena Bank and Vijaya Bank, which merged with BoB, is taken into account. Another PSU bank Union Bank of India has an exposure of Rs 621 crore, including the erstwhile Andhra Bank which was merged into Union Bank followed by Canara Bank (erstwhile Syndicate Bank) at Rs 472 crore, Exim Bank at Rs 416 crore, Punjab & Sindh Bank Rs 333 crore, Andhra Bank Rs 250 crore.

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Bad bank may start with Rs 60K-crore NPAs; govt may put in Rs 10K crore

Banks are likely to move big-ticket bad loans amounting to over Rs 60,000 crore to an asset reconstruction company (ARC), which will focus on turning around non-performing assets (NPAs) and enhancing value. Banks are likely to transfer more stressed assets going forward.

The government could invest up to 50 per cent of the capital in the “bad bank” with a contribution of about Rs 9,000-10,000 crore, said sources.The ARC is expected to take up both old and new cases, bankers said.

Banking lobby group Indian Banks’ Association (IBA) is expected to take the proposal, which is on the lines of the Sashakt panel recommendations, to the finance ministry this week.

The panel had recommended that large bad loans could be resolved under an ARC. The IBA plan envisages setting up of three entities — an ARC, an asset management company (AMC), and an alternative investment fund (AIF) to acquire bad loans from banks with an aim to turn around those assets.

The ARC will acquire and aggregate the asset, the AMC will manage the assets — including takeover of management or restructuring of assets, and the AIF will raise funds and invest into securities floated by the ARC.

The proposed ARC will have to be backed by the government. A similar arrangement was done in the case of IDBI Bank where a stressed assets management fund was created, bankers added. The coronavirus pandemic is expected to result in a rise in NPAs of banks despite steps like allowing a 90-day moratorium on retail loans and relaxing working capital financing norms.

In July 2018 a committee headed by Sunil Mehta, now chairman of YES Bank, had come out with a report on resolution of stressed assets (dubbed as Sashakt panel). It recommended the formation of an independent ARC to acquire bad loans predominantly from public sector banks. The large assets with exposure above Rs 500 crore with potential for turnaround were to be managed by an AMC, while the AIF would raise funds and invest in the securities of the ARC.

The groundwork for forming such a vehicle has been done, keeping in mind the regulatory environment and conditions in financial sector. This would help to reduce response time.

According to a CARE Ratings analysis, gross non-performing assets of commercial banks declined to Rs 9 trillion in December 2019 from Rs 9.7 trillion in December 2018. Public sector banks continued to have the lion’s share (Rs 7.2 trillion in December 2019) of the total NPA pool.

State Bank of India Chairman Rajnish Kumar had said last week this is the right time for a structure along the lines of a bad bank as most banks are holding very high levels of provisioning of NPAs.

Banks have been making hefty provisions for bad loans after asset quality review kicked in 2015-16. As a consequence, the provision coverage ratio of banks has also seen an improvement from 65 per cent in December 2018 to 71.6 per cent in December 2019, reflecting an improvement in the financial health of scheduled commercial banks.

Source- Business Standard

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Central Bank of India reports higher loss for FY19 due to NPA divergence

Central Bank of India has reported an increased net loss of Rs 6,430.48 crore for 2018-19 due to NPA divergence after assessment of higher bad loans by the Reserve Bank. The net NPA divergence -- the difference between the NPAs reported by the bank and that assessed by the RBI -- was at Rs 2,565 crore for 2018-19. Central Bank of India had reported a net loss of Rs 5,641.48 crore in 2018-19 earlier. "The adjusted (notional) net profit after tax for the year ended March 31, 2019 after taking into account the divergence in provisioning is (-) Rs 6,430.48 crore," the bank said in a regulatory filing. Banks are required to report divergences in their asset classification and provisioning as per Sebi guidelines issued on October 31, 2019.

The bank had reported Rs 11,333.24 crore net NPAs during the year while the RBI assessed it at Rs 13,898.24 crore, leaving a gap of Rs 2,565 crore. The divergence in provisioning also increased by Rs 788 crore for the fiscal ended March 2019. Market regulator Sebi has put in place tighter disclosure norms, directing all listed banks to disclose any divergence in bad loan provisioning within 24 hours of receiving RBI's risk assessment report, rather than waiting to publish the details in their annual financial statements.

Banks, including Indian Bank, Union Bank of India, Bank of India, Indian Overseas Bank and Lakshmi Vilas Bank, have already reported their NPA divergences for the last fiscal. The disclosures need to be made in case the banks' additional provisioning for non-performing assets (NPAs) assessed by the RBI exceeds 10 per cent of the reported profit before provisions and contingencies, and if the additional gross NPAs identified by the RBI exceed 15 per cent of the published incremental gross NPAs.

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