State-run banks speed up recovery efforts as NPAs pile up

Gross NPAs of listed banks crossed Rs1 trillion by the end of the September quarter, a full 33% higher than a year ago, on the back of a hardening interest rate regime, slackening growth in some sectors like steel and mining, along with system recognition of bad assets

Mumbai: Following a steep rise in bad assets in the past two quarters, public sector banks are devising various ways to ramp up the recovery in the rest of the fiscal, such as setting up special recovery cells and aggressive follow-up of sticky accounts, reports PTI.

Some banks are even mulling offloading some of the non-performing assets (NPAs) to asset reconstruction companies in the fourth quarter, to clean up the balance sheets.

“We have a high focus on recovery. We have instructed teams of general managers to work towards this. In some cases, we are trying to recover the loan amounts through compromise settlements and one-time settlement schemes,” Indian Overseas Bank chairman and managing director M Narendra told PTI.

The Chennai-based public sector lender, which recovered around Rs600 crore in the first half, aims to recover around Rs850 crore in the second half, the chairman said, adding that bank will open ‘asset recovery branches’ soon.

Gross NPAs of listed banks crossed Rs1 trillion by the end of the September quarter, a full 33% higher than a year ago, on the back of a hardening interest rate regime, slackening growth in some sectors like steel and mining, along with system recognition of bad assets.

Since March 2010, the Reserve Bank of India (RBI) has upped short term interest rates by 525 basis points to 8.5%.

Most of the incremental addition of NPAs has happened in public sector banks, which control 75% of the system.

“Due to system recognition, the flexibility of classifying NPAs is no longer there. So, we start following up a sticky account after 60 days in case of possible defaults,” Bangalore-based state-run lender Vijaya Bank's executive director, Subhalakshmi Panse, pointed out.

A standard asset turns a non-performing one if the borrower doesn’t service the loan for 90 days together.

Ms Panse also said a special department is taking care of the bank’s recovery efforts now.

Vijaya Bank had a cash recovery of Rs354 crore in the first half, while it upgraded Rs890 crore worth of portfolio during the same period.

Referring to this, a top bank official of IDBI Bank said though his bank can’t give a recovery target for the second half, it is looking at recovery on case to case basis.

“Our approach is case to case basis. While some of them are restructured, some are settled though compromise and in others we have to take legal route,” IDBI Bank's executive director Rajkumar Bansal said.

Bankers also said they would take a call by December end whether to offload some of the bad assets to asset reconstruction companies (ARCs).

“We had offloaded around Rs330 crore of bad assets last financial year to ARCs. Going forward, we will take a call about this,” Mr Narendra of IOB said.


Investing locally

For successful investing it is necessary to realise, that any country where the government protections are so bad that their own citizens are leaving, there is no place for foreigners to be going the other way

To pick a good restaurant the expression goes, find a place with a full parking lot or a line out the door. This is also true of investing. The proven concept of momentum is always a good way to make money. Finding a hot stock that everyone wants and then going with the flow for a short time is an excellent strategy. It is also wise to ask the locals. They invariably know the best places. This is true for investing in countries as well. Sadly no one does it.

 Most investors believe the BRIC (Brazil, Russia, India and China) countries are great places to invest. There are no less than 340 BRIC investment funds sold in different markets around the world. Although in the past six months these funds have fallen about 15%, in the two years prior to April 2011, these funds have increased over 100%. This is supposed to be evidence of the vibrant growth of emerging markets until you contrast it to the US market which increased 75%.

 Still if we look at the turbulence in Europe, the BRIC countries do seem to be an attractive place to invest in the long-term. Economists and analysts have other good reasons. Certainly the European sovereign debt crisis is an excellent example that the developed world has too much debt. The second reason is that the developed world is too old. There are too many retirees for each worker. Third, the developed world has too few natural resources. These are all good reasons, but they miss the most important ingredient of economic growth. It is not important that economists believe in it. For the forecasts to be accurate, the local people have to believe in them. In places like Russia and China the locals don’t.

 In Russia many people just want to leave. According to a recent survey the number of people, mostly young people, thinking of leaving has risen to 44%.The well-educated readers of the Novaya Gazeta, a newspaper famous for its investigative coverage, were even more adamant about getting out, 62% wanted to go. For good reason, it takes 10 to 20 years to buy a flat and five years to buy a car. There are no chances for promotion. It's very hard to set up your own business and loans cost 20% to 30% a year. A half a million Russian citizens have moved to China including businessmen, students and even pensioners.

 It is not just the young. The rich want out too. The price for high-end London real estate in September of 2011 was 4.5% higher than the last price peak reached in March 2008 due to purchases by wealthy Russians. Cypriot banks have a tonnes of off shore Russian money which they sadly invested in Greek debt. So much so that Moscow is negotiating a 2.5 billion euro loan to Cyprus to shore up its banking system.

 But it is not just the Russians. The Chinese and their money are leaving too. According to a real estate agent of expensive international real estate, “The primary motivation for Chinese buyers is to export wealth out of the country… They prefer luxury properties because they can transfer large amounts in one go.”  According to a survey taken by the Bank of China about 60% of rich Chinese people, wealth in excess of $1 million, have already begun the process of emigrating or are considering doing so. They cannot even keep the corrupt officials. They have exported an astonishing $123 billion over the last 10 years.

The reason is simple, poor governance. China is plagued with institutionalised corruption that infects every part of society. The food is often poisoned. Doctors have to be bribed to get good treatment. According to one mom, “Nine out of ten of my friends complain that they have to bribe their children’s teachers or schools in order to get proper or better education”. The real problem is the lack of any protections for rights, both human and property. In China there is no security for wealth or possessions. They can be taken away at any time.  

The leaders of Russia and China have powerful security services. They routinely spy on all aspects of their citizen’s lives. One would think that equipped with this power they could crack down on corruption. They can’t, for the simple reason that they would be arresting themselves.

What these leaders along with western economists, investors, and commentators do not understand is the economic cost. If your best and brightest are heading toward the exits in droves, they will take with them capital and expertise necessary for economic growth. For successful investing it is necessary to realise, that any country where the government protections are so bad that their own citizens are leaving, there is no place for foreigners to be going the other way.

(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected]).



‘Put Pressure on builders informally for the society’s interest’

Advocate and property expert Mr Vinod C Sampat sorts out issues related to conveyance and redevelopment of cooperative housing societies

“Not a single case of deemed conveyance has happened successfully in Maharashtra, so don’t go for it,”Said Mr Vinod C Sampat, advocate and expert on property matters, speaking at a seminar organized by Moneylife Foundation on cooperative housing societies.

Not many people are familiar with the workings of the cooperative housing societies, and are left confused while dealing with a variety of civic and legal compliances. Mr Sampat spoke on several issues like conveyance and re-development. He said, “Unfortunately, the real estate sector is unregulated, and few people have knowledge about its various laws. And even fewer can stand up to the powerful builders’ lobby.”

 He pointed out that most cooperative housing society members do not check the several financial aspects related to cooperative housing societies; and end up paying extra charges for several things, and at times, defaulting on necessary payments. He said, “It is important to know what and how much to pay, and to submit audits and necessary statements to the authorities concerned,” So, the best thing to do is to insist on documentation for every step, and make the builders list every laws/conditions/liabilities  involved and complies with laws. He said that a statute will always prevail over contracts, and consumers must approach consumer courts if any unfair conditions are imposed on him.

 He later talked about many landmark judgments related to cooperative societies and explained new rules which have been framed and laws which have been struck down. He said, “However, in many cases, court rulings have little bearing. Once, it was ruled that permission of registrar is not required~ but we all know registrar will insist on the same for redevelopment projects.” He also talked about several laws by virtue of which officers concerned can be made accountable for delays and even be penalized.

Mr Sampat also offered tips to the audience on selecting developers for redevelopment  projects. He insisted that the process should be transparent, and advised that members should have legal and technical consultants to interact with the builder. Also, it is important to check the builder’s credentials and financial conditions.

“You should be alert about what is going on, and must visit other projects that the builder has undertaken, and interact with the residents to get a fair idea. Include people who can ask hard-hitting questions, and who can negotiate with them about repayment/penalties in case of delays or other complaints. Also, there is nothing wrong with informally pressurizing the builder for the society’s interests; and don’t allow the builders to take loan on these properties. Involve women who can put forward their demands about height of ceilings, storage space of washrooms. Some say it is emotional blackmailing; I would call it smart bargaining,” he said.

He said, “The best tip I can offer is that don’t allow the builder to sell a part of the property before he has complied with laws and have provided necessary clearances for those who have booked the property.” About management committees and responsibilities and rights of residents, he said, “Use video recording for each meetings. Take advantage of technology to put a cap on the powers of the managing committee. Also, societies can’t make you shut down your shop or beauty parlour you are running in your flat. Lastly, make a will about your property; so that your heir and relatives can get their due.”



We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)