Companies & Sectors
Vodafone offers to triple interconnect points, Jio says inadequate
New Delhi: Vodafone India on Thursday said it had decided to increase its points of interconnect (PoIs) with Reliance Jio three-fold -- a move which the new player has welcomed but still found it short of actual requirement.
 
"Vodafone India has always provided the PoI to other operators for all their fair, reasonable and legitimate requirements and will continue to do so," a company statement here said.
 
"Following guidance from the Telecom Regulatory Authority of India (TRAI) and clarifications from Jio regarding its commercial launch, Vodafone India has decided to increase its POI with Jio three-fold and accordingly increase the capacity to connect. Vodafone is hopeful that all issues it has raised with TRAI and Jio will be duly considered and resolved at the earliest," the statement added.
 
Reliance Jio said the decision was welcome, but with a caveat.
 
"The quantum of POIs proposed to be released by Vodafone as per its press release is substantially less than the requirement estimated based on transparent workings shared with Vodafone," it said in a statement.
 
The company said while it has been writing regularly to Vodafone, no action was taken for the last several weeks, resulting in non-compliance of regulations on quality of service that mandates that PoI congestion should not affect more than 1 call in every 200 calls made.
 
"The situation has deteriorated significantly in the last few weeks, with over 80 calls failing out of every 100 call attempts. In the last 10 days alone, over 15 crore RJIL calls have failed on the Vodafone network," it said.
 
"Reliance Jio hopes Vodafone will enhance the PoI's sufficiently to meet their license obligation of quality of service with immediate effect and maintain these parameters on an ongoing basis."
 
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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Bad loans recovery grim, because they are concentrated among large companies, this time
Religare conducted a conference call, the key takeaway of which was that in the current cycle of bad loans, non-performing assets are not concentrated in smaller accounts (SMEs), as the last time. They are concentrated in large companies. This makes recovery more difficult. Due to the bloated ticket sizes, banks are deterred from turning hostile. Earlier, the ticket size was around Rs100 crore –1,000 crore. Today, many of the loan ticket sizes are around Rs5,000 crore. This makes the current scenario different as compared to the earlier downturns where stress was restricted to Small and Medium Sector industries (SMEs). Another key point is that earlier a large part of stressed SME loans was backed by real estate as collateral, which is not the case currently. 
 
Postponement of stress recognition due to which solving the stressed assets problem has been delayed, is another key issue associated with the sector. Interest has been accrued over many years. The stressed non-fund exposure has not yet been fully recognised. These are currently being treated as restructured, Strategic Debt Restructuring (SDR) or 5:25 loans.  It is a near-term risk for banks. According to experts, banks should ideally have a provision cover of 60-65% against these loans compared to the 40-45% coverage in place for public sector banks (PSU). 
 
The impact of Asset Reconstruction companies (ARCs) to resolve the problem of stressed assets is limited, finds Religare. This is because they prefer to buy small to mid-sized companies with debt below Rs1,000 crore which are in the initial stages of difficulty. Thus, ARCs are unwilling to take loans of large distressed carriers, especially when promoter credibility is perceived to be lacking. Secondly, due to limited capital, ARCs cannot resolve the problem. Consider these figures. The total credit in the system is more than Rs70 trillion, while the total stress in the system is around Rs10 trillion. On the contrary, ARCs have a cumulative capital base of merely Rs4,000 crore. 
 
Another problem is that ARCs and banks cannot agree on the level of haircut. Currently, the spread between bid-ask rates stands at around 25%. This implies that on average ARCs wanted a 50% haircut whereas banks were ready to yield only around 20%. ‘One needs to sell an asset when it is sick and not dead,’ as per one of the experts. The consensus among our expert panel was that the average haircut on troubled iron & steel sector accounts should be 40-50%. It should be 36-40% for power sector loans. It should be around 60% on construction loans, where a large part is non-funded.  Experts from ARC’s believe that banks have been excessively optimistic about the realisation value of these assets. 
 
Coming to different sectors, the steel sector is considered to be the worst. It has a humungous Rs3trillion – Rs5 trillion of stressed assets. The dependence on China and the low capacity of steel plants are a few reasons responsible for its woes. Another issue is one of promoter credibility in some large steel companies due to which many ARC’s are unwilling to work with them. The government has not been very keen on solving problems in this sector as opposed to the power sector. 
 
In the Engineering, Procurement, Construction (EPC) sector, the total stress is around Rs3 trillion, out of which only Rs 700bn is fund-based. If the non-fund based exposure is increased, then the loss given default (LGD) will increase. Key issues in the construction sector include the build-operate-transfer (BOT) nature of most projects, and an inflated cost of assets due to the accumulation of interest over the last three years. When it comes to construction sector, the build operate transfer (BOT) nature of most projects is an issue. Diversion of bank funding to real estate development by promoters is another one. An inflated cost of assets due to the accumulation of interest is another problem. 
 
“Provisions will likely stay elevated and bank P&L statements are unlikely to improve for 9-12 months at least”, according to one of the experts. In addition, some large accounts may also become NPA’s in the next 1-2 quarters. 
 
The Non Performing Assets (NPA) resolution process is likely to remain protracted despite the upcoming bankruptcy law. Setting up of infrastructure which includes setting up of national company law tribunals (NCLT) across India and training of judges is likely to take time. The Bankruptcy Code, which bears a strong resemblance to Chapter 11/9 of US bankruptcy law, tries to addresses the inefficiencies in the system by defining specific timelines for various processes. 

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COMMENTS

Anil Kumar

1 year ago

Good and thorough article. Excellent data to show the overall picture.

Mahesh S Bhatt

1 year ago

Enjoy the fun Chill Legally illegal situation self inflicted aping USA Amen Mahesh

Deepak Narain

1 year ago

It is quite a complicated matter. All the noise about growth has to be evaluated in the light of such bad loans. These giant-size players and politicians are having their pound of flesh and the common man is crushed under their weight for no fault. What kind of growth is this which benefits the looters in good and bad weather alike.

SuchindranathAiyerS

1 year ago

Too big to fail:

I remember when, as a Probationary Officer in the SBI, I was asked to summarise the Hegde and Golay file (File 80 A to G), by N. Sadashivan the then C & I Manager of Bangalore City Branch, into a single type written legal size page (1977). I did, and could not resist adding my recommendation in the last line which was to shut down the account and take legal action of recovery of debt.

Hegde and Golay had essentially used political clout (B.T.Shankar Hegde was a former Union Leader at Tata's) to get the deal going with the help of the Karrinayithikka Khangress. Bernard Golat S.A. was a failing watch company in Switzerland.

They had mulcted State Bank by importing large quantities of obsolete watch parts and demanding additional loans for "balancing" components. In essence this tactic, combined with the accusation that SBI did not understand the need for large economies of scale and horology had, with political assistance from the local politicians operating through Delhi had expanded the loan well beyond the original limits without, effectively, bringing the watch to market over several years. I had added my two bits worth from Cost accounting and Management accounting in paranthesis in the synopsis.

A few weeks later, the Branch Manager, M. Victor sent me off to meet the Circle Management Committee (S. K. Dutta Chief General Manager, T, K, Sinha, General Magaer (Operations) and V. N. V. Padmanabha Rao, General Manager (Planning) and R. Vishwanathan Chief Manager (Credit). I was asked a few searching questions on the contents of my synopsis that I had to answert from memory as I had not carried the files. (Unknown to me, the mirror file was available with the Credit Appraisal Cell of the Chief Manager Credit)

Based on this, the line of credit was immediately stopped and legal proceedings commenced with the approval of the Local Board.

My experience, as a Probationary Officer, in several branches such as Belgaum, Thiruvalloor, Vellore, and so on, with transferring "non performing assets" to Recalled Debts and Protested Bills, however, was entirely different. These had to be done aftre office horus as the onerous task would not be performed by the Unionized staff or the confirmed (unionized Grade Two) officers.These were mainly "priority sector" loans in small scale and agricultural sector distributed to politically preferred castes, tribes, religions and vote banks. In National aggregate they must have been enormous. But the Bank was simply not willing to go through with the enormous expense and effort of going through the legal processes demanded by the Bank's own policy! My hard work went in vain, and all this was simply covered up!

B. Yerram Raju

1 year ago

Religare's perceptions from the conference calls is worthy to note. Banks implementing the SARFAESi Act provisions, now armed with more powers after the latest amendments giving priority to institutional debt are on the trigger. They are resorting to either over valuing the assets and putting the bid amount at 10% and the related EMDs that instantly lead to repeat auctions as bidders are not showing interest when the assets on hold are more than 50 crores. This delays the realisation of the dues. In the case of SMEs the Banks are overenthusiastic in sale of assets even where the realisation is possible through restructuring or OTS.
RBI's guidelines are thrown overboard in being transparent on OTS norms. The Board decided OTS norms that should be non-discriminatory should be put on the Banks' websites as per RBI regulations. You can't find any. Asset sales to ARCs as mentioned in the Religare Study with large haircuts in the case of SMEs because of their interest, have few recovery tales to tell. Since the Boards of Banks are represented by the RBI and GoI Directors on the PSBs, these directors should review the NPA position in regard to the ARC and Auctions and ensure that their regulations are complied with fully for better monitoring and realisation of such loans.
The Banks are classifying quite a few companies as willful defaulters to save their skin where their actions like not granting in time adequate working capital or stopping working capital in the midstream of project execution by the companies, non-supervision of the advances, etc. The grievance procedure required to be followed in such cases as required under the RBI guidelines is followed in breach as several borrowers do not even know that such a procedure existed. The Grievance Redress Committee consists of the officials from the same Bank and it is anybody's guess as to why the members disagree with the branding of willful default that would affect the interests of their officials. RBI typically distances itself from many such lapses as they fall under micro management. The border line between non-conformance to regulation and micro management is very thin.

B. Yerram Raju

1 year ago

Religare's perceptions from the conference calls is worthy to note. Banks implementing the SARFAESi Act provisions, now armed with more powers after the latest amendments giving priority to institutional debt are on the trigger. They are resorting to either over valuing the assets and putting the bid amount at 10% and the related EMDs that instantly lead to repeat auctions as bidders are not showing interest when the assets on hold are more than 50 crores. This delays the realisation of the dues. In the case of SMEs the Banks are overenthusiastic in sale of assets even where the realisation is possible through restructuring or OTS.
RBI's guidelines are thrown overboard in being transparent on OTS norms. The Board decided OTS norms that should be non-discriminatory should be put on the Banks' websites as per RBI regulations. You can't find any. Asset sales to ARCs as mentioned in the Religare Study with large haircuts in the case of SMEs because of their interest, have few recovery tales to tell. Since the Boards of Banks are represented by the RBI and GoI Directors on the PSBs, these directors should review the NPA position in regard to the ARC and Auctions and ensure that their regulations are complied with fully for better monitoring and realisation of such loans.
The Banks are classifying quite a few companies as willful defaulters to save their skin where their actions like not granting in time adequate working capital or stopping working capital in the midstream of project execution by the companies, non-supervision of the advances, etc. The grievance procedure required to be followed in such cases as required under the RBI guidelines is followed in breach as several borrowers do not even know that such a procedure existed. The Grievance Redress Committee consists of the officials from the same Bank and it is anybody's guess as to why the members disagree with the branding of willful default that would affect the interests of their officials. RBI typically distances itself from many such lapses as they fall under micro management. The border line between non-conformance to regulation and micro management is very thin.

PayU acquires Citrus Pay for USD 130 million
Global online payment service provider PayU has acquired Indian payments technology player, Citrus Pay, for $130 million in an all-cash deal, a joint-statement said here on Wednesday.
 
The agreement is due to close in the third quarter of 2016. The statement described PayU's $130 million transaction as the largest ever merger and acquisition cash deal in the Indian fintech sector.
 
"Today's announcement is a significant milestone for both businesses, as well as the fintech industry in India. It is exciting for everyone across the PayU and Citrus teams as we bring together new capabilities that will help us to better serve our collective clients." said Laurent le Moal, CEO of PayU.
 
The deal will grow PayU India customers to more than 30 million, processing a forecasted 150 million transactions in 2016 worth a combined $4.2 billion, growing at more than 50% year-on-year, the statement said.
 
"The agreement also enables PayU to quickly bring additional innovative financial services to market for its business and consumer customers," it added.
 
Amrish Rau, currently Citrus Pay managing director, will become CEO of PayU in India. Reporting to PayU Global CEO, Laurent le Moal, he will lead entrepreneurial management team across PayU and Citrus Pay. 
 
Citrus Pay founder Jitendra Gupta will drive PayU's Fintech foray into credit through Citrus Pay's Lazypay, while Shailaz Nag, PayU co-founder, will focus on new areas of growth through bank alliances. 
 
Nitin Gupta, PayU co-founder, will help complete the transition to the new leadership team before departing PayU to pursue his entrepreneurial ambitions.
 
Citrus Pay was founded in 2011 by Jitendra Gupta.
 
PayU is part of Naspers, a global Internet and entertainment group, and one of the largest technology investors in the world.
 
Investec acted as the sole advisor to the transaction.
 
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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