Column: The NPA conundrum

One of the highlights of the BANCON held in Mumbai was the verbal assault launched on banks’ non-performing assets (NPAs) by RBI, quite clearly out of exasperation. This is a continuation of the point made forcefully by the Governor of RBI when he took over. There are actually two parts to this sordid development. The first is that NPAs have been increasing and that something has to be done by banks quite seriously. The second is the growing phenomenon of debt restructuring, which in a way can be termed an euphemism for the same, padded up to look different. In the olden days, this used to be called ever-greening when banks overlooked NPAs by giving fresh loans. Critics aver that Corporate Debt Restructuring (CDR) is similar in direction though the mechanism is different.

To begin with, let us look at the conventional definition of NPAs. Ever since the economy started slipping, companies have found it difficult to service their loans leading to NPAs’ volume increasing from 2.4% in FY11 to 3.0% in FY12 and around 3.6% in FY13. In absolute numbers, they stood at around R1.9 lakh crore in March 2013. The usual reasons are high interest rates and low corporate performance due to pressure on sales and costs resulting in inability to repay loans or service interest payments. One may assume that there is less of mala fide intent and that the ‘wilful defaulters’ category is not predominant.

The restructuring story is even more interesting. The CDR website shows that the volume of restructured debt has increased continuously, touching R2.72 lakh crore as of September 2013 from R0.9 lakh crore in FY09, and was at R2.29 lakh crore by March 2013. In terms of a ratio as a percentage of total advances, CDR was higher at 4.4%, and even traditionally this ratio has been higher than the declared gross NPA ratio.

The argument given in favour of CDR is that loans have to be restructured when the project cannot take off due to extraneous conditions. We all know that several projects are held up when the government’s policy changes

Kinks in the non-performing assets of public sector banks

It is generally accepted that directed lending by public sector lenders is one of the major causes for rising bad loans in the banking system. Gross non-performing loans as a percentage of total advances in the priority sector is close to 5.5%; it is only about 3% for the non-priority sector.
However, given the tricky bye-laws and categories of credit management in the Indian banking system, headline numbers can be misleading. As a presentation made by Reserve Bank of India deputy governor K.C. Chakrabarty at a recent conference shows, Indian lenders have resorted to devices such as technical write-offs and restructuring loans to show a reduction in their non-performing assets.
If one looks at the impaired assets ratio, which also takes into account restructured advances and write-offs, then the asset quality is worse for the non-priority sector. The impaired assets ratio for the priority sector is about 9%, while for the non-priority sectors, it is close to 13%.

The largest beneficiaries of these largesse from lenders have been big firms. About 91% of total restructured loans on 31 March was accounted by large and medium industries. Thus, about 14% of large and medium industry loans have been recast compared with 5.8% of overall bank loans.
The deterioration in asset quality is the highest for the industries segment, and within it large and medium enterprises, a segment which accounts for nearly half of the bank credit. Sectors such as aviation and textiles are the worst offenders.
Needless to say, public sector banks are at the receiving end with their impaired assets ratio at 12.1%, more than double that of the larger private banks. On Monday, Mint published an article titled Who pays when India’s billionaires don’t go bust?
With a majority of these impaired assets being borne by public lenders, who have to repeatedly go with a begging bowl to the government for recapitalization, the answer to that question is clear: it is the taxpayer.

Bank Auction properties in India – seven steps for buying properties in Auctions – foreclosureindia

The real estate investments are broadly three types.

1. Self-occupied – To live peacefully and to pass on the property to future generations along with sweet memories.

2. Long term Investment – Buying the properties as a long term investment and getting rental income as pension and to keep the property for future generations.
3. Short term investment – Buying the property and after attending some minor repairs / modifications etc selling for profit.
Buying properties in Bank Auctions is an intelligent financial decision.The following are the seven steps required to buy properties in Bank Auctions / Foreclosures.

i. Read The Auction Notice Carefully,
ii. Verify Documents,
iii. Inspect property ,
iv. Make Finances ready,
v. Submit tender,
vi. Participate in Auction,
vii. Get Sale certificate. 

1. Read The Auction Notice / Sale Notice Carefully: Advised to take a print out of Auction notice  and read the details mentioned in the advertisement carefully and note down the important aspects like contact details, inspection date, reserve price, earnest money deposit ( EMD), cost of auction forms, tender submission time & date, and finally auction date & time. All these are very important aspects for participating in the Auction and to Buy properties successfully.

2. Documents verification: Enquire with the bank / financial institution about further information of the property. Visit the Bank and see all the documents such as registration documents of the present borrower, link documents,  latest encumbrance certificate pertains to the property, approved layout for plot by the competent authority, approved plan for flats / houses by competent authority etc. If the Encumbrance certificate available with Bank is old one, please take a latest Encumbrance certificate from the Sub registrar concerned or from online portals, so as to confirm that the property is safe to buy. Make sure that there are no encumbrances for that particular property other than the Bank / financial Institution auctioning the property. If necessary request the Bank to give copy of the documents for showing them to the legal adviser and get the legal opinion.  Get clarifications from the Bank, if any other information is required about the property. If required, consult with a solicitor / advocate before the auction.  Once this aspect is clear, you can proceed further.
3.  Inspection of the property :  Visit the site of the property as per inspection schedule given in Sale notice. Consult people around the property to know the price prevailing in that area. While inspecting the property  observe the present physical condition of the property,  enquire about the pending  property taxes, electricity dues, welfare associations maintenance dues.  The property comes as is, as such any pending dues should be added to your consideration price before quoting.
4. Get your finances right:–  Please make sure that  you are prepared for the price to be paid for the property. If you have ready cash, you can clinch the deal faster and possess the property fast. If you are thinking of availing Bank Loan,  you should first  approach the bank  and get sanction of pre approval loan.  SBI (Home Loan PAL – Pre-Approved Limit),  HDFC,  Axis Bank and Kotak Mahindra Banks are sanctioning the pre-approved loans. This pre-approved loan is to complete the transaction in the specified time frame very smoothly.
5. Submission of tender: Some of the Banks / financial Institutions are selling the Bid forms / tender forms. Buy the tender forms from the specified branches duly mentioning the name of the purchaser clearly. It is important to take into account, pending dues when deciding how much to bid. Submit the bid at the specified branch before the due date and time,  along with demand draft / Banker cheque as EMD ( earnest money deposit ), copies of purchasers PAN card, photo identity card and residence proof. In most of the cases the EMD amount is 10 % of the reserve price.
6. Participating in Auction: Based on the data & statistics of the foreclosure properties / bank auction properties in India,  around 40 % of the Bank auction properties are unsold, due to various reason.  Around 40 % properties are getting one bid only. Around 20 % properties are getting two or more bids.   There is an exception to the Bank auction properties in Mumbai, where more number of bids are coming for almost all properties. Arrive early to the venue of the Auction, meet the Authorised officer and get familiarized about the auction process and participate in the Auction. You will be successful if you are the highest bidder. You need to pay another 15% on the same day of the auction.
7. Sale certificate & registration: After payment of total amount either on your own sources or through Bank loan, a sale confirmation certificate will be issued. You have to pay the stamp duty and get the property registered on purchaser name. The Authorized officer will register the property on be half of the Bank. After completion of registration, take the physical possession of the property immediately. & – New experienced team is formed for Disposal of NPA’s

Source: & BankAuctions.IN
Dated: Oct. 31, 2013

ForeclosureIndia is Worlds No.1 free foreclosure listing service provider & BankAuctions.IN is one among the seven E auction service providers in India. Retired AGM & Retired Chief Manager of State Bank of India have joined our new team.
HYDERABAD, India – – India’s one and only internet portal exclusivey listing auction properties of the banks and financial institutions, has made great progress in serving both the banks and public. It is Worlds No. 1 free foreclosure listing service provider and their another portal BankAuctions.IN is one among the seven E auction service providers in India. State Bank of Hyderabad, Eluru Regional office has certified that their services of E Publicity & conducting E Auctions are Excellent and Central Bank of India, Visakhapatnam has certified that their services are commendable.

Based on the research made during the last four years on non performing assets and its disposal trends, it found very interesting aspect / game changing aspect on disposal of non performing assets. It has roped in senior State Bank of India AGM & Chief Manager for fine tuning the research finding and to develop and implement the ideas in innovative ways. The whole idea is to disseminate various kinds of NPAs and bring back the funds into the banking system to improve the economy at macro level lest these huge NPAs will be a drag forever.

Sri S S H Satyanarayana, retired Asst. General Manager of SBI, worked in Banking Operations, Credit Appraisal, Project Appraisal and Audit. He is a Specialist in Credit & Operational Risk Management and was instrumental in implementing Risk Management policies at all-India level across SBI. As Regional Manager, he studied the concept of Assets leading to NPA status and led his team from front in reducing NPAs and earned accolades from Top Management. He has joined our team as Chief General Manager.

Sri Babu Rao, retired Chief Manager, SBI, worked in Banking Operations, Inspection & Audit. He has joined our team as General Manager. These two senior officers supported by another three member team is formed to work on a special assignment to develop, & implement the research findings on disposal of non-performing assets of Banks including restructuring/ rehabilitation of NPAs and , one time settlement of NPA’s.

As per the “ Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances of Reserve Bank of India” Restructuring of advances could take place in the following stages:

(a) before commencement of commercial production / operation;
(b) after commencement of commercial production / operation but before the asset has been classified as
(c) after commencement of commercial production / operation and the asset has been classified as
‘sub-standard’ or ‘doubtful’.

One Time Settlement can also be considered, wherever necessary, when the unit becomes unviable on

account of various factors.
The new team will focus on E Auctions, special assignments, viz. Restructuring/ Rehabilitation and OTS activities.

The website is on its way to fulfill its mission of creating a market for auction of properties in India by educating more and more people who were oblivious to the auction property market and giving them an alternative to the conventional properties.

Team acknowledges the support being given by all the Banks and financial institutions. They wishes Happy Deepavali to all the visitors of their portals, borrowers, Investors,Officers & staff of the Banks.