Kotak Mahindra Bank Leadership Takes 15% Cut in Salary, Uday Kotak to Get Re1
Top executives of Kotak Mahindra Bank have unanimously and voluntarily opted to take a 15% cut in compensation for the financial year 2020-21. Uday Kotak, managing director and chief executive (CEO) of the bank has personally opted to forgo his salary, and will receive Re1.
 
In a statement, the lender says, "We are in the midst of a battle to protect both lives and livelihoods. The revival of the economy will depend on a healthy and robust financial sector. The bank is committed to work alongside the government, private enterprise, civil society and individuals in the tough times that lie ahead."
 
In FY2019, Mr Kotak has received a salary of Rs3.25 crore, as per the annual report of Kotak Mahindra Bank. The December 2019 data from BSE shows, Mr Kotak, who is also promoter, owns 29.67% stake in the bank. The Reserve Bank of India (RBI) in February 2020, allowed promoters to sell 4% of their stake to dilute promoters' shareholding in the bank.
 
Kotak Mahindra Bank says it has also contributed Rs25 crore to the PM CARES Fund and Rs10 crore to the relief efforts in Maharashtra. Mr Kotak has also made a personal contribution of Rs25 crore to the PM CARES fund, the bank added.
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    COMMENTS

    tss1955

    3 months ago

    A fine, laudable gesture..

    psd1941

    3 months ago

    A great example of goodwil gesture!

    Ramesh Popat

    3 months ago

    Great UK!

    Is Moratorium Applicable on Asset Classification of Past Due Accounts?
    Due to the sudden outbreak and spread of coronavirus (COVID-19) across the globe, the financial services sector has been severely hit. In this regard, the Reserve Bank of India (RBI) has issued several guidelines and advisories and put in place regulatory polices to give a benefit to the borrowers to ease the financial crisis. On 27 March 2020, RBI in its statement of development and regulatory policies has permitted banks and non-banking financial companies (NBFCs) to provide a moratorium to borrowers for a period of three months. Thereafter, the RBI came up with a notification titled COVID-19 Regulatory Package providing a brief guideline about the relaxation. This was followed by a set of frequently asked questions (FAQs) on RBI’s scheme for a three-month moratorium on loan repayment (https://pib.gov.in/PressReleseDetail.aspx?PRID=1609820) issued by the ministry of finance.
     
    However, there are still certain issues that are not clear and, due to the ambiguity around such issues, banks and NBFCs have been coming up with their own interpretation. One such major issue was with respect to the grant of moratorium to loan accounts having overdues as on 1 March 2020.
     
    The RBI has permitted banks and NBFCs to provide a moratorium to borrowers for a period of three months. However, there is still confusion among the lending institutions regarding the asset classification of loan accounts. The recent judgement of the Delhi High Court in the case of Anant Raj Ltd Vs Yes Bank Ltd dated 6 April 2020, seeks to provide some clarity on the issue.
     
    Regulatory Package by RBI
     
    Before examining the issue let us understand that the underlying objective of RBI’s guidelines was to inter-alia ease the financial stress caused by COVID-19 disruptions by relaxing repayment pressures and improving access to working capital. The COVID -19 regulatory package provides for the rescheduling of payments pertaining to term loans and working capital facilities.
     
    Several contentions have been raised to say that the moratorium is not applicable to the borrowers who are already in default as on 1 March 2020.
     
    The argument to support this contention is that the language of the regulatory package clearly states that the three-month moratorium is applicable only to those instalments which fall due between 1 March 2020 and 31 May 2020.
     
    Accordingly, only those borrowers would be covered whose loan account is outstanding as on 1 March 2020 and who were properly servicing their account till that date and were not in default.
     
    This was further supported by a clarification issued through a letter dated 31 March  2020 by the chief general manager-in-charge, department of regulations of the RBI to the chairman, Indian Banks Association, wherein it stated that if a borrower has been in default even before 1 March 2020, then such default cannot be said to be a result of the economic fallout due to the pandemic and the benefit of the moratorium can be extended to such borrowers in respect of payment falling due during the period 1 March  2020 to 31 May 2020. However, payments overdue on or before 29 February 2020 will attract the current income recognition and asset classification guidelines (IRAC Guidelines).
     
    Such an approach will cause all past due accounts to become NPAs during the disruption period and, therefore, the regulatory recognition of the disruption period as not a case of contractual failure but a case of systemic failure, gets defeated. The relaxation or grant of moratorium presumes that during the period 31 March 2020 to 31 May 2020, the borrower has not paid due to a systemic disruption. If the logic of disruption applies to the current dues during the moratorium period, the same logic cannot be inapplicable for the past dues.
     
    For example, a borrower had payments due on 29 February 2020 which was 30 days past due (DPD). In case he cleared all his dues, say on the 31st March, his account, which was, say, 60 DPD on the 29th March, would have been a regular standard account. But the borrower was precluded from paying anything during the disruption period. Thus, the opportunity of clearing any past due payment is not available to the borrower during the period of disruption. 
     
    What is a 'default' on the 1st March continues to be a default, but the ageing of the default cannot increase during the disrupted period. The disruption is not a credit event, perhaps, it is an externality, and admittedly a force majeure. Therefore, the disruption causes a standstill on the obligations of the borrower.
     
    The period of disruption is a period during which the clock of the payments in the system stops. If the ageing of past receivables changes, then the disruption will cause all regular accounts to become irregular. In such a case even a 10 DPD on 29th February will become an NPA 19th May. Such an approach will cause all past due accounts to become NPAs during the disruption period, and therefore, the regulatory recognition of the disruption period as not a case of contractual failure but a case of systemic failure, gets defeated.
     
    Delhi High Court Ruling
     
    The recent judgement of the Delhi High Court in the case of Anant Raj Limited Vs. Yes Bank Limited  (W.P.(C) URGENT 5/2020), dated 6 April  2020 has given a different perspective to the entire situation.
     
    The matter of dispute was the asset classification of the petitioner. The petitioner’s instalment that was due on 1 January 2020 was not paid within 30 days, due to which the account was classified as SMA-1 and thereafter, since it was not paid within 60 days, the account was classified as SMA-2. Further, it was contended that since the instalment was not paid till 31 March 2020, the account of the petitioner was liable to be classified as NPA. 
     
    The court considered the fact that in view of the pandemic COVID-19, RBI has issued several guidelines and advisories and to put in place regulatory polices to give a benefit to the borrowers to ease the financial crisis. The intention of the RBI is to maintain status quo as on 1 March 2020 with regard to all the instalments payment which had to be made after 1 March 2020 till 31 May 2020. Further, the relevant provision of the regulatory package with respect to classification of accounts also indicates that the intention of RBI is to maintain status quo with regard to the classification of accounts of the borrowers as they existed as on1 March 2020. The relevant extract of the judgement is as follows:
     
    27. The restriction on change in classification as mentioned in the regulatory package shows that RBI has stipulated that the account which has been classified as SMA-2 cannot further be classified as a non-performing asset in case the instalment is not paid during the moratorium period i.e. between 01.03.2020 and 31.05.2020 and status quo qua the classification as SMA-2 shall have to be maintained.
     
    This implies that, for a period of three months, there will be a moratorium from payment of the instalment. However, interest shall continue to accrue on the outstanding payment even during the moratorium period. Further, in case the borrower fails to pay the said instalment after the expiry of the moratorium, the asset classification would change as per the IRAC Guidelines.
     
    Conclusion
     
    Deterioration to non-performing asset (NPA) status has manifold consequences, including provisioning requirement that have an impact on the profit and loss (P&L) accounts. For NBFCs, their drawing power from banks comes down as NBFCs are not allowed to borrow against past due receivables. This will exacerbate the liquidity issue with NBFCs. Further, under the ECL provisions under Ind-AS 109, the continuation of default will cause the bucket of the receivables to move from Bucket 1 to Bucket 2, thereby requiring computation of lifetime expected losses. This may mean a huge impact on long-term receivables, as those in case of housing or project loans.
     
    After the high court judgement, two things have been clarified:
     
    1. An account already classified as NPA as on 29th February remains an NPA.
     
    2. If an account that is not an NPA on 29th Feb and is just classified as an SMA, then the ageing of the receivable shall not change during the moratorium and any further asset degradation shall not happen. 
     
    Accordingly, the possible scenarios can be summarised as follows:
     
     
    As per the practice adopted by banks and NBFCs, including the housing finance companies (HFCs), it seems that most of them have extended the moratorium on all standard loans, irrespective of whether they were overdue as on 1st March. Further, after the HC ruling, the asset classification of an account which has been classified as SMA cannot further be classified as a non-performing asset in case the instalment is not paid during the moratorium period and status quo qua the classification as SMA shall have to be maintained. However, there is a possibility that the ruling may be challenged in a higher court and the outcome of that ruling could be completely different. Therefore, until this ruling is challenged further or any clarification contrary to this is issued by RBI or any other authority, financial institutions may consider this ruling to frame their policies for account classification. 
     
    (Anita Baid is senior manager at Vinod Kothari Consultants Pvt Ltd)
     
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    Coronavirus Disruptions to Prolong Strains on Indian NBFIs: Fitch
    The challenges for India's non-bank financial institutions (NBFI) will intensify as local measures to contain the spread of the coronavirus exert pressure on their operating performance and financial profiles, says Fitch Ratings. 
     
    In a report, the ratings agency says, "Government-imposed activity restrictions in India will raise operational complications for the NBFIs, while any escalation in local infections would deal a blow to economic sentiment. These developments threaten to derail the incipient recovery in India's credit environment following the NBFI crisis in 2018-2019, and we have taken negative action on our rated Indian NBFI portfolio in light of these risks."
     
    The initial disruptions to regional manufacturing supply chains from a lockdown in China as the coronavirus spread have now broadened to include local discretionary spending and exports even as parts of China return to work. 
     
    Fitch says it now expects a global recession this year and recently cut gross domestic product (GDP) growth forecast for India to 2% for the fiscal year ending March 2021 after lowering it to 5.1% previously, which would make it the slowest growth in India over the past 30 years.
     
    According to the ratings agency, micro, small and medium-sized enterprises (MSMEs) and the services segment are likely to be among the most affected amid reduced consumer spending. "These segments can comprise a significant part of the loan portfolio for some non-bank lenders, though they form just 8% of system NBFI credit as a whole. NBFIs' business borrowers are typically smaller with more limited cash buffers, and any material fall in earnings is likely to affect their ability to repay their loans directly," it says.
     
    Other loan classes that are likely to have greater exposure, according to Fitch, include commercial-vehicle lending due to the segment's direct correlation with business activity, microfinance loans, and construction funding as work is delayed and property sales will take time to recover from the hit to sentiment. 
     
    Short-tenor asset classes such as consumer-durable and gold loans may face portfolio run-offs as fresh disbursements are curtailed, affecting profitability, it added.
     
    According to Fitch, business shutdown will also interfere with branch and field activities of NBFIs, with considerable implications for disbursements and collections particularly for those that are more reliant on cash transactions. 
     
    The ratings agency says, efforts by NBFIs rated by Fitch, to shift their customers towards digital payments in recent years will help mitigate against this. It says, Manappuram Finance Ltd, Shriram Transport Finance Co Ltd and India Infoline Finance Ltd have had greater success on this front. However, this will not address the anticipated pressure on borrowers' capacity to repay, which will increase if the shutdown is prolonged, it added.
     
    The authorities have introduced multiple measures to offset the human and economic cost of the shutdown. On 27 March 2020, the Reserve Bank of India (RBI) introduced a three-month moratorium on loan repayments for distressed bank and NBFI borrowers and loans under the moratorium need not be classified as non-performing. This will help ease borrowers' financial burden, but may lead to greater shortfalls in near-term collections, Fitch says.
     
    The ratings agency says, "A sizeable injection of liquidity worth around Rs3.74 trillion (USD49 billion) into the system should help to improve liquidity in local credit markets, but we expect credit providers to remain risk averse in the current conditions."
     
    The ratings watch negagive (RWN) placed on the ratings of Fitch-rated Indian NBFIs reflects heightened uncertainty over their credit profiles due to the authorities' measures to contain the spread of COVID-19. "We aim to address these within six months when there is greater visibility on the length and scale of the impact of the coronavirus on the issuers," the ratings agency concludes.
     
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