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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%

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

<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

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?

<keyword id="19895995" type="General" weightage="20" keywordseo="HDFC-Bank" source="keywords" meta.keywordsubtype="org" meta.entityname="HDFC Bank" meta.hostid="261" meta.entityid="HDFC Bank">HDFC Bank</keyword> on Saturday posted a marginal 5 per cent increase in its standalone profit at Rs 16,821 crore in the second quarter ended September 2024. The country's biggest private sector lender had earned a <keyword id="19942166" type="General" weightage="20" keywordseo="net-profit" source="keywords">net profit</keyword> of Rs 15,976 crore in the same quarter a year ago. Total income increased to Rs 85,500 crore during the quarter under review against Rs 78,406 crore in the same period last year, HDFC Bank said in a regulatory filing. The bank reported <keyword id="20202322" type="General" weightage="20" keywordseo="interest-income" source="keywords">interest income</keyword> of Rs 74,017 crore during the quarter compared to Rs 67,698 crore in the same period a year ago. Net Interest Income (NII) improved to Rs 30,110 crore, from Rs 27,390 crore in the second quarter of previous year, registering a 10 per cent growth. As regards asset quality, the bank witnessed slight deterioration with gross <keyword id="19927319" type="General" weightage="20" keywordseo="Non-Performing-Assets" source="keywords">Non-Performing Assets</keyword> (NPAs) rising to 1.36 per cent of the gross loans by the end of September 2024 from 1.34 per cent a year ago. Similarly, net NPAs or bad loans rose to 0.41 per cent from 0.35 per cent at the end of the second quarter of the previous fiscal. On a consolidated basis, the bank logged a growth of 6 per cent in net profit to Rs 17,826 crore as against Rs Rs 16,811 crore in Q2FY24. SEE ALSO:<a href="https://www.businessinsider.in/personal-finance/news/best-credit-cards-for-online-shopping-in-india/articleshow/114354358.cms" target="_blank"></a> <a href="https://www.businessinsider.in/personal-finance/news/best-credit-cards-for-online-shopping-in-india/articleshow/114354358.cms" target="_blank">Best credit cards for online shopping this festive season</a><a href="https://www.businessinsider.in/tech/mobile/webstories/best-smartphones-under-25000-in-india-in-october-2024/slidelist/114339207.cms" target="_blank"></a> <a href="https://www.businessinsider.in/tech/mobile/webstories/best-smartphones-under-25000-in-india-in-october-2024/slidelist/114339207.cms" target="_blank">Best smartphones under ₹25,000 in India in October 2024</a><a href="https://www.businessinsider.in/stock-market/webstories/waaree-energies-ipo-price-band-to-risk-factors-all-you-need-to-know/slidelist/114350114.cms" target="_blank"></a> <a href="https://www.businessinsider.in/stock-market/webstories/waaree-energies-ipo-price-band-to-risk-factors-all-you-need-to-know/slidelist/114350114.cms" target="_blank">Waaree Energies IPO – Price band to risk factors, all you need to know</a>

You Searched For "non performing asset" and got 6 results

HDFC Bank’s Q2 Profit Surges 20%

BI India Bureau

New provisioning rule too harsh to handle for bank loan defaulters

BI India Bureau

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

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

BI India Bureau

HDFC Bank Q2 profit soars 5% to ₹16,821 crore

PTI

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