Mumbai: Around Rs 3.5 trillion or 3.9 percent of the stressed corporate loans continue to remain unrecognised on the books of banks and nearly 40 percent of them may become dud assets by September 2020, warns a report.
These accounts are part of the total stressed corporate exposure (interest coverage ratio of 1.5x) of 19.3 percent or Rs 13.5-14 lakh crore as of September 2018.
“Around 3.9 percent of the stressed corporate exposure of 19.3 percent total stressed corporate accounts are still unrecognised and are standard in banks’ books, while around Rs 1.5-2 lakh crore of them may slip into NPAs by H2 of FY20,” Jindal Haria, associate director for banking and financial institutions at India Ratings told reporters Tuesday.
Of the Rs 13.5-14 trillion stressed corporate loans, banks have recognised only Rs 10 trillion as of September 2018, he added.
Jindal said banks may need an additional f Rs 40,000 crore in provisions for these Rs 1.5-2 trillion loans, which may slip into NPAs.
Meanwhile, the agency has maintained a stable outlook on large private sector banks and just two of the 19–State Bank of India and Bank of Baroda-and has retained a negative outlook for the remaining state-run banks till FY20.
In FY20, all banks on which we have a stable outlook might see moderate write-backs of provisions on corporate assets, depending on the pace of resolutions, it said.
The top 40 assets under the NCLT resolution regime are worth Rs 4.50 trillion for which banks have made provisions for 70-75 percent, the agency said in a report.
Over FY19 and FY20, credit cost from stressed corporate assets will depend on ageing/resolution/ liquidation, if any, the report said, adding the cap on credit cost shall be established by ageing and will be around 4.4 percent, spread over FY19 and FY20.
The agency estimates the quantum of government capital infusion (Rs 1.94 trillion) in FY18 and FY19 to be around 33 percent of the state-run banks’ equity base as of the first half of FY19.
“This would largely cover the provisioning cost, especially on stressed corporate loans and meet the minimum Basel III requirements by March 2020,” it said.
The agency expects state-run banks would require incremental capital of about Rs 66,000 crore from the fourth quarter of FY19 through FY20, which is needed for a credit expansion of 10-11 percent in FY19 and FY20 each.
This capital infusion, however, is not adequate to cover the impact of Ind-AS which could be substantial, the agency said in the report.
As per the report, in the absence of Ind-AS, the credit cost of some state-run banks can be lower than their pre-provisioning operating profit due to ageing and fresh slippages, and these banks can report profit in FY20. In FY20, competition for deposits will intensify, as borrowings remains high, while system deposit growth remains muted at 6 percent.
In a separate report, the agency said it expects NBFCs to witness margin pressures in FY20. The sector will register a tepid growth in FY20 due to slower traction in segments such as auto and real estate.
The performance of collateral-backed MSME loans would continue to deteriorate, leading to the outlook for the segment being revised to negative from stable-to-negative.
“Lenders’ over-reliance on collateral comfort rather than business cash flows of prospective borrowers, which had been stretched during demonetization and formalisation of income post-GST rollout, has led to the current spate of continuing defaults,” it said.
For tractor loans, the agency does not anticipate any further improvement in delinquencies in the near term, as the borrowers continue to grapple with less-than-normal monsoons and falling farm goods prices, as evident from lower food inflation.
RBI asks banks to grout ATMs to wall, floor for security by September-end
Mumbai: The Reserve Bank asked banks to ensure their ATMs are grouted to a wall, pillar, or floor by September-end, except those installed in high secured premises such as airports, to enhance security of the cash vending machines.
In 2016, the RBI had st up a Committee on Currency Movement (CCM) to review the entire gamut of security of treasure in transit.
Based on the recommendations of the panel, the central bank has now issued instructions aimed at mitigating risks in ATM operations and enhancing security.
As part of the security measures, all “ATMs shall be operated for cash replenishment only with digital One Time Combination (OTC) locks”.
Also, “All ATMs shall be grouted to a structure (wall, pillar, floor, etc.) by September 30, 2019, except for ATMs installed in highly secured premises such as airports, etc. which have adequate CCTV coverage and are guarded by state/central security personnel”.
Further, banks may also consider rolling out a comprehensive e-surveillance mechanism at the ATMs to ensure timely alerts and quick response, it said.
The new measures to be adopted by banks are in addition to the existing instructions, practices and guidance issued by the RBI and law enforcement agencies.
The RBI also warned the banks that non-adherence of timelines or non-observance of the instructions would attract regulatory action including levy of penalty.
SBI refuses to disclose communication from RBI, govt on electoral bonds
New Delhi: The State Bank of India has refused to disclose any communication it received from the government or the Reserve Bank of India on electoral bonds, terming it “personal information” and held in “fiduciary capacity”.
Responding to an RTI filed by Pune-based activist Vihar Durve who had demanded copies of all letters, correspondence, directions, notifications or e-mails received from the RBI or any government department between 2017 and 2019, the SBI said it cannot be provided by it.
The bank cited two exemption clauses under the RTI Act to deny information — Section 8(1)(e) which pertains to information held in fiduciary capacity and Section 8(1)(J) which pertains to personal information of a person which has no link to any public activity.
“Information sought by the applicant cannot be disclosed as it is in fiduciary capacity, disclosure of which is exempted under Section 8(1)(e) and 8(1)(j) of the RTI Act, 2005,” the Central Public Information Officer of the bank said in his reply.
The bank also refused to give any details of action taken by it on such communications from the RBI and the government.
The electoral bonds, for giving donations to political parties, are being sold through SBI only. The sale opens in SBI branches when the Finance Ministry issues a notification of their sale for a given period.
The scheme of electoral bonds notified by the Centre in 2018 has been challenged in the Supreme Court.
Only the political parties registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951) and which secured not less than one per cent of the votes polled in the last general election to the House of the People or the Legislative Assembly of the State, shall be eligible to receive the bonds.
The bonds may be purchased by a person who is a citizen of India “or incorporated or established in India,” the government had said in a statement last year.
The bonds remain valid for 15 days and can be encashed by an eligible political party only through an account with the authorised bank within that period only.
A voluntary group working in the field of electoral reforms, Association for Democratic Reforms (ADR), has demanded a stay on the sale while the CPI(M) has challenged it before the Supreme Court in separate petitions.
ADR recently filed an application in the Supreme Court seeking a stay on the Electoral Bond Scheme, 2018 which was notified by the Centre in January last year.
Walmart’s Flipkart, Indian startup GOQii settle dispute over sharp discounting
New Delhi: Walmart unit Flipkart has settled a legal dispute with an Indian startup that alleged it suffered losses because its products were sharply discounted on the global retailer’s website.
GOQii, a seller of smartwatch-type health devices, sued Flipkart last month in a Mumbai court, alleging its devices were discounted by around 70 per cent to the retail price, much more than the two sides had agreed. The court had, as an interim measure, ordered device sales to be halted on Flipkart.
In a joint statement , the companies said the dispute had been resolved and GOQii health devices would again be available on Flipkart. They didn’t say how the settlement was reached.
Vishal Gondal, CEO of GOQii, told Reuters the company would withdraw the case against Flipkart. The e-commerce retailer’s “team worked on a resolution benefitting the brand and the customers”, Gondal said in the statement.
The legal spat was seen as a test case of the giant retailer’s operating strategy in the country.
Small traders and a right-wing group close to Prime Minister Narendra Modi’s ruling party have raised concerns about large e-commerce companies, saying they burn billions of dollars deeply discounting some products to lure customers onto their sites, in the expectation that they will also buy other goods.
GOQii said it signed an agreement last year with a Flipkart unit to sell two of its devices at a price not below 1,999 rupees (USD 28.63) and 1,499 rupees. It later found the devices were being sold for 999 rupees and 699 rupees, calling it “unauthorized” discounting.
In response, Flipkart said it reserved “the right to institute actions for defamation, both civil and criminal”, arguing it wasn’t responsible for any discounts which are determined by third-party firms which sell via its website.
The two companies struck a friendlier tone in their joint-statement on Friday as they brought the legal battle to an end.
“We have ensured constant engagement with GOQii to resolve any differences,” Flipkart said in the statement.
With a 19 per cent market share, GOQii was the second-biggest player in India’s so-called wearables market last year, data from industry tracker IDC showed. The market is dominated by China’s Xiaomi, with Samsung a small player.