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<keyword id="6357149" type="CITY" weightage="100" keywordseo="HDFC-bank">HDFC Bank</keyword>’s second quarter net profit increased by 20.1% to Rs 2,380 crore against Rs 1,982 crore in the corresponding quarter last year. 
 
The bank’s net interest income surged 23.1% to Rs 5,511 crore in the July-September quarter from Rs 4,476.5 crore in the same period last year. The net interest margin rose 10 basis points sequentially to 4.5% from 4.4%. 
 
Other incomes (consisting of fees and commissions, foreign exchange and derivatives, profit on sale of investments) went up by 11% to Rs 2,047 crore from Rs 1,844 crore during the same period while operating expenses jumped 19.2% to Rs 3,497.90 crore from Rs 2,934.2 crore year-on-year. 
 
The bank’s gross non-performing assets (NPAs) fell to 1.02%, while net NPA remained unchanged at 0.3%.

HDFC Bank’s Q2 Profit Surges 20%

Thanks to India’s mining sector companies whose projects are stalled or faltering, total bad loans, called non-performing assets, of listed banks had reached a staggering Rs.4.85 lakh cr. With bad loans piling up in Indian Banks, the blame is on lax regulation at both the clearance level and the credit giving agency level. 
 
As per a news report by The Times of India, the Centre for Science &amp; Environment (CSE) has confirmed between 2007 and 2014 "almost all environmental clearance applications were cleared" while "94 percent of proposals seeking forest clearance were approved, yet the lax regulation at both the clearance level and the credit level prevented the smooth flow. 
Infrastructure, iron and steel, mining, textiles and aviation had 52% of total stressed advances (NPAs and restructured loans) of all scheduled banks, according to Reserve Bank's Fiscal Stability Report of December 2014. Within infrastructure, electricity, oil and gas constituted around 58%, transport 21% and telecommunications around 10%. 
 
India's regulatory framework for natural resources - minerals, land, forests and environment - is "unpredictable, arbitrary and irrational" the RRI report says. Projects are sanctioned on a case to case basis without reference to the larger picture, final decisions are in the hands of a small group of bureaucrats, there is no transparency and accountability, regulators have little access to objective information and the impact on people is very cursorily assessed. 
 
In a similar analysis of the financial regulatory system, the RRI report says that the RBI does not regulate due diligence by banks beyond forbidding loans purely for land acquisition. There is no explicit requirement from SEBI to disclose regulatory compliance or the status of clearances, the report says. 
 
A senior officer of a major public sector bank told TOI on condition of anonymity that although theoretically everything should be final before the loan disbursement starts, in practice, initial disbursement starts even as the regulatory approvals or land acquisition process is continuing. "This happens because the promoters usually convince the lead bank at the highest level that everything is on course," he said. 
 
The consequences of this lending spree are cronyism, fixing and regulatory arbitrage, the RRI report says. A CAG audit of land acquisition in Odisha found that the State Industrial Development Corporation illegally permitted companies to mortgage 46,533 acres of publicly acquired land. It was found that out of 89 memoranda of understanding signed by the State government only two had started production. A similar audit in Rajasthan had found that only 30% of over 72,000 acres land that was acquired was actually being used. Another audit of SEZs revealed that 11 developers in four states had raised Rs.63 lakh cr by mortgaging their SEZ lands, 35 percent of which was diverted to non-SEZ purposes. In Chhattisgarh, an ET report had revealed that just 15 out of 60 private power projects were ever going to start. Most companies were looking for buyers of land. 
 
(Image: Reuters)

Non performing assets of Banks
too high for comfort. Who’s to blame?

According to a new rule which is still to be announced, <keyword id="36838" type="COMPANY" weightage="100" keywordseo="indian-banks">Indian banks</keyword> could suffer if one of their corporate borrowers is blacklisted as 'non-performing asset' (NPA) by another bank. 
 
The proposal has recently been discussed between senior bankers and regulatory officials, and chances are that it might impact earnings of many banks. 
 
Going back in time, a similar rule was announced about 15 years ago. According to that rule, if a bank had tagged a loan as NPA, all other banks who dealt with that company had to do the same, no matter if the company did no default to them. The rule was considered too harsh and was thus scrapped. 
 
"The proposal aims to protect banks from sudden blow that's inevitable when a large account turns NPA. If a company has missed interest payments to one bank which is treating the account as NPA, it is evident that borrower is either facing problems or promoters have misused the money. Now, if the cash flow problem persists, it's a matter of time it would default to other banks as well. These banks will then have to categorise the loan as NPA and provide for it. This extra provisioning will act as a cushion against future defaults," an expert told ET. 
 
<a href="http://www.streetwisejournal.com/wp-content/uploads/2015/04/Struggling-under-debt-burden.jpg">Image source</a>

New provisioning rule too harsh to handle for bank loan defaulters

Even though the gross non-performing assets (<keyword id="710979" type="General" weightage="80" keywordseo="gnpa" source="Orion">GNPA</keyword>) of scheduled commercial banks in <keyword id="3658" type="General" weightage="20" keywordseo="india" source="Orion">India</keyword> has hit a six year low of 5.9 per cent in FY22, it can improve further, said <keyword id="6431877" type="General" weightage="100" keywordseo="care-ratings" source="Orion">CARE Ratings</keyword> in a report. According to the credit rating agency, the GNPA of Indian banks at the end of FY22 was at 5.9 per cent and the overall provision coverage ratio (PCR) went up to 70.9 per cent. "As the Indian economy has navigated the pandemic-induced shocks, the <keyword id="6355272" type="General" weightage="20" keywordseo="bank" source="Orion">bank</keyword> credit growth by scheduled commercial banks (SCBs) improved post-August 2021 to reach 13.1 per cent in early June 2022, a rate last recorded in March 2019," the report said. Apart from retail, the major driver of this growth has been the wholesale credit, which reported double digit growth after witnessing a significant slowdown last year. According to CARE Ratings, the <keyword id="6354335" type="General" weightage="50" keywordseo="reserve-bank-of-india" source="Orion">Reserve Bank of India</keyword>'s (<keyword id="30067" type="General" weightage="50" keywordseo="rbi" source="Orion">RBI</keyword>) <keyword id="678734" type="General" weightage="50" keywordseo="financial-stability-report" source="Orion">Financial Stability Report</keyword> released on June 30 presents a rather satisfactory picture of the Indian banking system and the GNPA ratio is one of the most important indicators to check the health of the banking system. The GNPA ratio of SCBs had been on a downward trajectory since March 2019, owing to recoveries and higher write-offs by multiple banks and one time restructuring (OTR) scheme announced by RBI. As per the stress tests conducted by RBI, the SCBs GNPA ratio could improve from 5.9 per cent in March 2022 to 5.3 per cent by March 2023 under the baseline scenario driven by higher bank credit growth and a declining trend in the stock of GNPAs. "However, the GNPA ratio may rise under the medium/severe stress scenarios, the GNPA ratio may rise to 6.2 per cent/ 8.3 per cent, respectively," CARE Ratings said. SEE ALSO : <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/stock-market/news/adani-enterprises-adani-ports-and-adani-total-gas-are-going-ex-dividend-on-july-14-should-you-buy-them/articleshow/92823532.cms">These three Adani stocks are going ex-dividend on July 14 – should you buy them?</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/careers/news/after-techies-its-aviation-crew-salaries-thatll-be-up-in-the-air/articleshow/92818738.cms">After techies, its aviation crew salaries that’ll be ‘up in the air’</a>

Banks' non performing assets hit a six year low, says CARE Ratings

New Delhi, Mar 22 () The "evolving" insolvency law is a kind of "Swachhata drive" to clean up non-performing assets as well as put companies in the hands of capable and credible people, according to IBBI chief M S Sahoo. Around 3,600 companies have been admitted under the Insolvency and Bankruptcy Code (IBC) so far. While acknowledging that the Code is still evolving, Sahoo said authorities are conscious of the emerging needs. "As and when they find a problem, they try to address it as expeditiously as possible. The insolvency professionals, creditors, NCLT, IBBI -- all are on a steep learning curve. The Supreme Court has been settling matters at a quick pace. I believe the road to success is always under construction," he told in a recent interview. Sahoo is the chairperson of the Insolvency and the Bankruptcy Board of India (IBBI), a key authority in implementing the Code. A case is taken up under the Code only after approval from the National Company Law Tribunal (NCLT). When asked about the enduring benefits of the Code, which came into force in 2016, the IBBI chairperson said, "This is another kind of Swachhata (cleanliness) drive to clean up NPAs (non-performing assets) and to put companies in the hands of capable and credible people". "This reinforces the rule of law by treating every company on the same level-playing field, irrespective of its size or the influence of the people behind them. Repayment of loan is no more an option, but an obligation," he noted. With the IBC in place, as the Supreme Court puts it, the defaulter's paradise is lost, Sahoo emphasised. The Code provides for a time-bound and market-linked resolution of stressed assets. If the resolution does not happen, the company concerned goes into liquidation. "Failing is succeeding in Silicon Valley. An entrepreneur should not be stuck up in a business if he is failing to deliver," Sahoo said. On whether the success of IBC is not just in numbers, the IBBI chief said that given the behavioural change, the performance should be seen in totality. It should be seen in terms of "what happens under the IBC, what happens on account of the IBC and what happens in the shadow of the IBC," he said. "190 companies were rescued, while 780 companies were referred for liquidation. Thus, the number of companies getting into liquidation is four times that of companies being rescued. These 190 companies, however, had assets, which is four times of the assets of the 780 companies. "Thus, asset rescued is four times compared to those referred to liquidation. Importantly, of the companies rescued, one-third were under BIFR or defunct. Of the companies that proceeded for liquidation, three-fourths were under BIFR (Board for Industrial and Financial Reconstruction) or defunct," he said. RAM HRS

Insolvency law a 'Swachhata drive' against non-performing assets: IBBI chief

<ul><li>The central government has asked the <keyword id="30067" type="ORGANIZATION" weightage="20" keywordseo="RBI">RBI</keyword> to dilute its Prompt Corrective Action (<keyword id="6383105" type="UNKNOWN" weightage="20" keywordseo="pca">PCA</keyword>) framework to increase the flow of credit to small-and-medium-sized enterprises. </li><li>The RBI is reportedly mulling a plan to allow some state-run banks to leave the PCA programme ahead of time if they demonstrate a turnaround in their <keyword id="463915" type="PERSON" weightage="20" keywordseo="non-performing-asset">non-performing asset</keyword> ratios and profitability. </li><li>The <keyword id="6358156" type="ORGANIZATION" weightage="20" keywordseo="central-bank">central bank</keyword> is also expected to relax certain requirements imposed on all banks with regards to secured and unsecured loans to SMEs.</li></ul>The current <a href="https://www.businessinsider.in/the-spat-between-indias-central-bank-and-the-government-gets-more-heated-as-the-finance-minister-blames-it-for-not-doing-enough-to-prevent-the-countrys-bad-loan-problem/articleshow/66442846.cms">clash</a> between India’s central bank and the BJP-ruled government has roiled markets and stoked fears among investors. Thankfully, the two parties may reach a compromise as the board of the Reserve Bank of India (RBI) prepares to sit down on 19 November. In the wake of the recent IL&amp;FS crisis and the drying up of funds at the nation’s non-banking financial companies, the central government has asked the RBI <a href="https://www.businessinsider.in/indias-government-wants-to-dilute-an-important-corrective-programme-for-the-nations-struggling-lenders-and-the-central-bank-is-having-none-of-it/articleshow/66411552.cms">to dilute its Prompt Corrective Action (PCA) framework</a> so as to increase the flow of credit to small-and-medium-sized enterprises (SME). This framework is aimed at putting certain lending and operational restrictions on banks with high rates of non-performing assets. After initially refusing to loosen restrictions under the framework, it appears that the RBI might be open to meeting the central government halfway in this regard. BI is reportedly mulling a plan to allow some state-run banks to leave the PCA programme ahead of time in the event that they demonstrate a turnaround in their non-performing asset ratios and profitability, sources told <a href="https://indianexpress.com/article/india/restrictions-on-banks-rbi-and-govt-work-to-narrow-their-gap-5445145/">the Indian Express</a>. As per the RBI’s current norms, struggling banks are only taken off the watchlist after reporting a net profit for two consecutive years. The central government has not presented its proposal as a dilution, however. It has maintained that is asking the RBI to bring the PCA programme in line with the intervention programmes of global central banks and the international <keyword id="142572" type="PERSON" weightage="20" keywordseo="Basel-III">Basel III</keyword> risk framework. It has also argued that the PCA framework needs to be revised because a restriction on lending, a core operation, prevents a bank from increasing its profits. Around 11 of India’s 21 state-run banks are on the PCA watchlist, which places limits on the extension of loans, branch expansion and issue of dividends. As a result of restrictions on these banks, SMEs have suffered from <a href="https://www.businessinsider.in/indias-small-businesses-are-suffering-from-a-shortage-of-credit-options/articleshow/63683278.cms">a slowdown in financing.</a> In addition, the central government is also pushing for the RBI to reduce the capital-to-risk-weighted assets ratio, a key indicator of financial stability, that it imposes on the nation’s banks from 9% to the 8% prescribed by the Basel III framework. The move could give state-run banks an additional ₹550 billion of funds for lending purposes, Anil Gupta, the head of credit ratings agency ICRA, <a href="https://www.bloombergquint.com/business/government-pushing-to-relax-capital-requirement-norms-for-banks#gs.IM5s1ns">told BloombergQuint</a>. Finally, the RBI is also expected to relax certain requirements imposed on all banks with regards to secured and unsecured loans to SMEs. In line with international standards, India’s central bank could lower the risk weightage, which influences the amount of capital set aside, for SME loans to 75% from a current level of 150%. SME loans are considered more risky than loans to larger companies and hence require higher risk provisioning. While the RBI could accede the government’s requests keeping in view the dire <keyword id="6355375" type="DEFINITION" weightage="20" keywordseo="Liquidity">liquidity</keyword> situation in the short term, it will be wary of precipitating a further build-up in bad loans. The current risk requirements are a preventive measure that were implemented in response to the burgeoning bad loan problem in India’s banking sector. It’s a classic case of the conflict between a short term boost to the economy and long term stability. Given that we’re headed for general elections, it isn’t difficult to ascertain which one will win out. SEE ALSO: <a href="https://www.businessinsider.in/the-spat-between-indias-central-bank-and-the-government-gets-more-heated-as-the-finance-minister-blames-it-for-not-doing-enough-to-prevent-the-countrys-bad-loan-problem/articleshow/66442846.cms">The spat between India’s central bank and the government gets more heated as the finance minister blames the RBI for not doing enough to prevent the country’s bad loan problem</a> <a href="https://www.businessinsider.in/indias-government-wants-to-dilute-an-important-corrective-programme-for-the-nations-struggling-lenders-and-the-central-bank-is-having-none-of-it/articleshow/66411552.cms">India’s government wants to dilute an important corrective programme for the nation’s struggling lenders — and the central bank is having none of it</a> <a href="https://www.businessinsider.in/the-reserve-bank-of-india-is-trying-to-prevent-a-liquidity-crisis-at-banks-by-relaxing-an-important-risk-requirement/articleshow/65978953.cms">The Reserve Bank of India is trying to prevent a liquidity crisis at banks by relaxing an important risk requirement</a>

An end to the spat between the RBI and the government could be in sight as the board of the central bank prepares to meet next week

<ul><li>The central bank has told the creditors of the cash-strapped <keyword id="6357293" type="UNKNOWN" weightage="20" keywordseo="ILFS">IL&amp;FS</keyword>, India’s largest infrastructure lender, that they will have to treat their loans to the company as non-performing. </li><li>As a result, the creditors of IL&amp;FS, which include many of India’s public sector banks, will have to set aside provisions for their stressed loans to the infrastructure lender while also recording an increase in their bad loan ratios. </li><li>In mid-December 2018, as many as 20 banks had approached the RBI asking for a six-month breathing period prior to the implementation of provisioning norms.</li></ul> The Reserve Bank of India (RBI) has told creditors of the cash-strapped IL&amp;FS, India’s largest infrastructure lender, that they will have to treat their loans to the company as non-performing, according <a href="https://www.business-standard.com/article/finance/rbi-asks-banks-to-treat-crisis-hit-il-fs-loans-as-non-performing-assets-119010900031_1.html">to media reports</a>. As a result, the creditors of IL&amp;FS, which include many of India’s public sector banks such as State Bank of India, Bank of Baroda and Punjab National Bank, will have to set aside nearly ₹100 billion (US$1.5 billion) in provisions for their stressed loans to the infrastructure lender while also recording an increase in their bad loan ratios for the quarter ended December. As the current financial year draws to a close, their balance sheets will be severely weakened. In mid-December 2018, as many as 20 banks had approached the RBI asking for <a href="https://www.livemint.com/Companies/moncqTJPWGPYlcegjv1HSO/ILFS-lenders-knock-on-RBI-door-seeking-easier-provisioning.html">a six-month breathing period</a> prior to the implementation of provisioning norms. The lenders reportedly had a cumulative amount of ₹600 billion in outstanding loans to IL&amp;FS, more than half of which the company has defaulted on. To put things into perspective, IL&amp;FS has a total debt burden of around ₹940 billion. The banks had also asked for a standard provisioning rate of 0.4% on the loans following the expiry of the six-month period. Normally, bad loans require a provisioning rate of 25% in the first year of default. The move came as the National Company Law Appellate Tribunal (NCLAT) was hearing a petition to grant a 90-day breather to IL&amp;FS and its subsidiaries on all loan repayments as it devises a resolution plan. In addition to subsequently enforcing a moratorium on repayments, the tribunal has allowed the government to examine all of the <a href="https://www.livemint.com/Companies/d9pRJ1KUAfAxVsozjhIyUO/In-a-first-NCLT-allows-govt-to-reopen-ILFS-books.html">company’s unreleased accounts and financial statements</a>. The right decision The RBI’s decision is based on a prevailing order that loans that go 90 days without payment will have to be classified as non-performing. It was a tough choice, but the RBI made the right one, demonstrating that its <a href="https://www.businessinsider.in/the-spat-between-indias-central-bank-and-the-government-gets-more-heated-as-the-finance-minister-blames-it-for-not-doing-enough-to-prevent-the-countrys-bad-loan-problem/articleshow/66442846.cms">learnt from its supposed past mistakes</a>. The central bank came under fire from finance minister <keyword id="42575" type="PERSON" weightage="20" keywordseo="Arun-Jaitley">Arun Jaitley</keyword> late last year when he said that it had enabled the cloaking of the bad loan issue by allowing some stressed assets to be classified as “restructured.” It seems that easing restrictions on creditors and hoping for a resolution is no longer a viable option. Meanwhile, the newly-constituted board of IL&amp;FS, led by veteran banker <keyword id="45051" type="PERSON" weightage="20" keywordseo="Uday-Kotak">Uday Kotak</keyword>, are currently in the process of restructuring operations and monetising the infrastructure lender’s assets in order to pay back maturing loans. In addition to cutting costs and selling off <a href="https://www.businessinsider.in/ilfs-has-no-option-but-to-sell-its-profitable-financial-services-unit-as-it-tries-to-avoid-bankruptcy/articleshow/65898283.cms">its financial services unit</a> and <a href="https://economictimes.indiatimes.com/industry/indl-goods/svs/construction/ilfs-puts-22-road-assets-on-block/articleshow/67131183.cms">road assets, </a>IL&amp;FS is also offloading stakes in its <a href="https://economictimes.indiatimes.com/industry/banking/finance/ilfs-to-sell-stake-in-education-wealth-management-arms/articleshow/67182184.cms">education and wealth management</a> businesses. In fact, no non-strategic asset that can be sold is being left untouched with even <a href="https://www.livemint.com/Companies/Ur7DsEIq13DFZ9IoZxykhO/ILFS-group-selling-luxury-cars-office-furniture-to-raise-f.html">high-end furniture and luxury cars</a> on the chopping block. Despite the aggressive liquidation, it is likely that banks will have to take a haircut on their loans. SEE ALSO: <a href="https://www.businessinsider.in/as-indias-shadow-banks-brace-for-a-tough-2019-the-central-bank-and-government-will-try-and-prevent-a-repeat-of-the-ilfs-crisis-by-solving-the-data-problem/articleshow/67419846.cms">As India’s shadow banks brace for a tough 2019, the central bank and government will try and prevent a repeat of the IL&amp;FS crisis by solving the data problem</a> <a href="https://www.businessinsider.in/indias-finance-minister-touts-the-success-of-the-countrys-recently-implemented-bankruptcy-code-but-it-still-requires-significant-improvement/articleshow/67382165.cms">India’s finance minister touts the success of the country’s recently-implemented bankruptcy code — but it still requires significant improvement</a>

The RBI may have dealt a $1.5 billion blow to Indian banks’ bottom line

Mumbai, Apr 6 () Banks in the country are likely to witness a spike in their non-performing assets ratio by 1.9 per cent and credit cost ratios by 130 basis point in 2020, following the economic slowdown on account of COVID-19 crisis, says a report. In its report titled "For Asia-Pacific Banks, COVID-19 Crisis Could Add USD 300 Billion To Credit Costs" S&amp;P Global Ratings said, it expects the non-performing assets (NPA) ratio for the Chinese banking sector to increase by about 2 per cent in 2020, and credit losses, to increase by about 100 basis points. On India, the report said "the NPA ratio in India is likely to fare similarly to China's (1.9 per cent 2 per cent) but the credit costs ratios could be worse, increasing by about 130 basis points," the rating agency's credit analyst Gavin Gunning said in the report. Gunning said there are concerns that the coronavirus will spread faster, further, and for longer. "This will deepen the economic pain we already anticipate for 2020. Financing conditions may likewise sour as investors become more risk averse. This would hit bank credit," he said. The report noted that an additional USD 300 billion spike in lenders' credit costs and a USD 600 billion increase in (NPAs) will occur in 2020 due to the adverse impact of coronavirus pandemic. While banks are not as exposed as the corporate sector during the initial stage of the pandemic, the strain on lenders could ultimately be profound. Banks face a second-order hit compared with the corporate and household sectors. The report said the economic storm created by COVID-19 will test the ratings resilience of the region's 20 banking sectors. "The resilience of banks' asset quality in 2020 hinges in part on the success of governments' and regulators' policy responses. These measures are in early stages. Some have started, some are in planning, and we suspect many more may be in the wings," Gunning said. Asia-Pacific governments, central banks, and supervisory authorities have rolled out diverse measures to address COVID-19. These include liquidity injections, targeted loans to affected industries and regions, and policy rate cuts. It also includes support for banks to provide forbearance to otherwise economically viable households and businesses sideswiped by COVID-19. The RBI in its seventh bi-monthly monetary policy announced on March 27, reduced the repo rate by 75 basis points to 4.40 per cent. It announced to provide Rs 3.74 lakh crore liquidity to banks through reduction in cash reserve ratio, by conducting targeted long term repos operations (TLTRO) and by increasing the limit for marginal standing facility (MSF) to 3 per cent. RBI also allowed a repayment moratorium for three months on all term loans outstanding as on March 1, 2020, to borrowers of all commercial banks, including regional rural banks, small finance banks and local area banks, co-operative banks, and NBFCs, including housing finance companies and micro-finance institutions. "The equation underpinning policy responses is simple in theory but difficult in practice, and always comes at a significant fiscal cost," Gunning noted. HV DRRDRR

You Searched For "Non Performing Assets" and got 8 results

HDFC Bank’s Q2 Profit Surges 20%

BI India Bureau

Non performing assets of Banks too high for comfort. Who’s to blame?

BI India Bureau

New provisioning rule too harsh to handle for bank loan defaulters

BI India Bureau

Banks' non performing assets hit a six year low, says CARE Ratings

IANS

Insolvency law a 'Swachhata drive' against non-performing assets: IBBI chief

PTI

An end to the spat between the RBI and the government could be in sight as the board of the central bank prepares to meet next week

Dilsher Dhillon

The RBI may have dealt a $1.5 billion blow to Indian banks’ bottom line

Dilsher Dhillon

COVID-19 impact: Banks to witness spike in credit costs, non-performing assets in 2020

PTI

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