Money & Banking
Bankers guarded on new scheme to fix bad loans
Bankers are looking forward to the Reserve Bank of India's (RBI's) new scheme to tackle bad loans. But they are also keeping their fingers crossed owing to its limited applicability, as also the absence of provisions to cut down lengthy legal processes.
 
Though previous tools to arrest mounting non-performing assets (NPAs) did not provide satisfactory results, bankers have started examining the applicability of the 'Scheme for Sustainable Structuring of Stressed Assets' (S4A) introduced last month by the apex bank.
 
Crisil has estimated weak assets in the Indian banking system to touch a high of Rs800,000 crore by the end of the current fiscal. The RBI's latest Financial Stability Report suggested that the GNPA (Gross non-performing asset) ratio might rise to 8.5% by March 2017 from 7.6% in March 2016.
 
The new scheme envisages banks will need to divide the existing debt of a company into "sustainable" and "unsustainable". The sustainable part is that share of the debt that can be serviced by the company on the strength of its current cash flows.
 
As for the unsustainable amount, banks are allowed to convert that part of the debt to equity or quasi-equity instruments. The scheme provides for determining the sustainable amount of the debt through a techno economic viability (TEV) study to be conducted by an independent body.
 
The TEV study is required by the banks to understand the risks inherent in any restructuring of loans.
 
"TEV study is important for the projects, because it helps to determine which part is sustainable and which is not. There are ifs and buts with regard to S4A," said United Bank of India's Executive Director Sanjay Arya.
 
"But shortcomings or weaknesses, if any, would be detected after the scheme is tested. Not many proposals have come so far," Arya told IANS. He also felt the scheme may not impact the lengthy legal and judicial processes.
 
"The scheme is apparently fine but the huge time taken for judicial and legal processes is not going to go away," Arya said.
 
Another top banker said the applicability of the scheme to various stressed companies was being looked into.
 
"We are currently examining the applicability of this scheme to various companies under stress. So far we have not approved any proposal under the scheme," State Bank of India Managing Director (Corporate Banking) B. Sriram told IANS.
 
According to the scheme, it will cover projects that have started commercial operations and have outstanding loan of over Rs500 crore. Thus there is limited applicability of the scheme.
 
"There are different schemes available. S4A is applicable to some stressed corporates while some others will not be eligible. The scheme is good and let us see, how it pans out," said Dena Bank Chairman and Managing Director Ashwani Kumar.
 
Sriram said it was a meaningful scheme for some of the companies.
 
"It gives opportunity to the promoter to restructure his business and service the debt. At the same time the scheme also ensures sacrifice on the part of promoters and incentivises the successful implementation of the scheme due to improvement in value of the company," he said.
 
In a bid to deal with stressed companies, the RBI had earlier formulated schemes like corporate debt restructuring (CDR), joint lenders forum (JLR), strategic debt restructuring (SDR), A5/25 scheme and sale of assets to asset reconstruction companies. But the level of non-performing assets has continued to rise.
 
Asked to compare the previous schemes with S4A, Sriram said: "The schemes have different purposes and benefits. They can be applied to different companies facing different types of issues."
 
Another leading rating agency was bullish about the independent TEV study envisaged by the new scheme.
 
"In the past, accounts, which were refinanced/ restructured after TEV studies, have not shown satisfactory performance," said ICRA's Senior VP and Co-head Financial Sector ratings Karthik Srinivasan.
 
The key difference between SDR and S4A lies in that while the earlier formulation prescribes change in existing promoters, S4A as such does not prescribe change in existing promoters, Srinivasan told IANS.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

NARENDRA NEGANDHI

4 months ago

It looks like the government does not have the courage to dislodge the current set of promoters & hence are giving long rope in one form or the other. It is understandable that outside the industry, there may not be such a large pool of talent available to run the company but there are quite a few extreme cases which must be tackled with the takeover the control from the promoters. In many cases, just the threat too will work 7 promoters will fall in line to pay up the dues. Just find out how many promoters have reduced their own benefits/remuneration or CEO's salaries.... hardly any.

NSEL scam: EOW attaches over Rs 7,000 crore assets of FTIL
The Economic Offences Wing (EOW) of Mumbai police has attached assets worth Rs7,063 crore belonging to Financial Technologies India Ltd (FTIL), owned and founded by Jignesh Shah, an official statement said on Sunday.
 
"So far, 831 properties worth Rs7,063 crore have been attached by EOW, Mumbai police under MPID Act, out of which, attachment of 711 properties worth Rs6,115 crore have been notified.
 
"EOW, Mumbai Police was requested to expedite realisation of value of attached assets, as per the procedure, quickly," a Finance Ministry statement here said following a review meeting last week chaired by Economic Affairs Secretary Shaktikanta Das.
 
So far, 12 such meetings have taken place, with the previous one being held on June 6, it added.
 
The latest developments follow Shah's recent arrest by Enforcement Directorate (ED) in connection with the Rs6,000 crore scam at National Spot Exchange Ltd (NSEL), which is owned by FTIL.
 
The ED said it had collected evidence of money-laundering against Shah, and he has been remanded in judicial custody till August 1 by a Special PMLA (Prevention of Money Laundering Act) court.
 
Last month the central government asked the Maharashtra government to quickly auction the assets attached and refund investors at the earliest.
 
On the merger of NSEL with FTIL, the statement said the Bombay High Court had restrained the government from notifying it.
 
The prosecution complaint under PMLA details a money trail of over Rs3,721 crore.
 
Further, Financial Intelligence Unit has been directed to make all efforts to ensure realisation of the Rs1.66 crore penalty imposed on NSEL for non-compliance of PMLA, it added.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Modern Indian artist S H Raza passes away
Iconic Indian artist Syed Haider Raza, known for his abstracts, passed away on Saturday at the age of 94.
 
Raza's works had very rich use of color, replete with icons from Indian cosmology as well as its philosophy.
 
Raza is touted as one of Indian modern art's greatest painters. He was a founder-member of the Progressive Artists' Group that wished to break with the revivalist nationalism established by the Bengal school of art and to encourage an Indian avant-garde engaged at an international level.
 
He was awarded the Padma Shri in 1981, the Padma Bhushan in 2007 and the Padma Vibhushan in 2013. He was also conferred with the highest French civilian honour, the Commandeur de la Legion d'honneur (Legion of Honour) in 2015.
 
He became one of India's priciest modern artists in June 2010 when his seminal work, "Saurashtra" was sold for Rs 16.42 crore at a Christie's auction.
 
Raza was in the ICU of a private hospital for the last two months.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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