WEDNESDAY WORDS: SHARING BANKING NEWS OF 03.09.2014 COMPILED BY SHRI.D.S.GANESAN 1. Kingfisher to seek legal remedies as apex court dismisses special leave petition Business Line / Bangalore / Sept 2: Kingfisher Airlines has said that it will pursue all legal remedies after the Supreme Court on Tuesday dismissed its special leave petition following United Bank of India declaring the airlines chairman, Vijay Mallya, and three others as willful defaulters. The Supreme Court observed that the SLIP filed by KFA against UBI seeking legal representation before the grievance redressal committee of the bank had become infructuous as the committee had already made a decision. The court said that it was up to KFA to pursue such legal remedies as are available. In light of this ruling, the airline in a statement said it will vigorously challenge the decision of UBI. Prakash Mirpuri, Vice-President, Corporate Communications of the UB Group, said the airline as well as its directors strongly deny the allegations of willful default for alleged non-payment of Rs. 7.5 crore to the bank. 2. One year on, RBI Governor Rajan going strong Business Line / Mumbai / September 2: On assuming charge as Governor of the Reserve Bank of India on September 4, 2013, Raghuram Rajan said: “I hope to do the right thing, no matter what the criticism, even while looking to learn from the criticism.” And buttressed his statement with a line from Rudyard Kipling’s poem ‘If’: “If you can trust yourself when all men doubt you, But make allowance for their doubting too..” Well aware of the pitfalls ahead, he said that any central bank governor probably starts at the height of their popularity and added, “Some of the actions I take will not be popular. The Governorship of the central bank is not meant to win one votes or Facebook ‘likes’.” Propping up the rupee On Wednesday, when Rajan completes a year in office, even critics will acknowledge that he has steered monetary policy, development and regulation of financial markets, as well as regulation and supervision of banks and non-banking finance companies, with aplomb. If his baptism was by the fire of a crisis of confidence, he came through it well. The 23rd RBI Governor took charge in the backdrop of the rupee coming under severe pressure (it touched an all-time low of 68.85 to the dollar on August 28, 2013) after the US Federal Reserve signalled in May 2013 that it would gradually scale back its purchases of securities which, in turn, led to outflow of money from emerging economies to the US. Rajan took up head on the challenge of propping up the weak domestic currency by announcing that the central bank would offer a forex swap window (September 4 to November 30, 2013) for banks’ overseas borrowing and non-resident deposit funds, resulting in capital inflows of over $34 billion. The opening of the forex swap windows, coupled with gold import curbs, helped the rupee stabilise to 60.50 now. Coming to monetary policy, Rajan has emphasised that it is important to break the spiral of rising price pressures and inflation expectations in order to curb the erosion of financial savings and strengthen the foundations of growth. Despite the clamour among India Inc and Government functionaries to cut interest rates, the Governor has stood his ground. Inflation focussed He raised policy rates (the interest rate at which RBI lends short-term money to banks) thrice — by 25 basis points each — to 8 per cent over the last year as he felt bringing down inflation would create the best conditions for sustainable growth. Rajan has clearly outlined that the central bank remains committed to the disinflationary path of taking retail inflation to 8 per cent by January 2015 and 6 per cent by January 2016. “We are not against growth but we do think that growth will be most benefited if we disinflate the economy and we don’t have to fight this fight again. “Let’s fight the anti-inflation fight once and let’s win; that will create the best conditions for sustainable growth,” he told the media, after announcing the last monetary policy statement. Meanwhile Rajan has not lost sight of the development measures that are part of the RBI’s remit. He has outlined five development pillars to improve the financial system: Clarifying and strengthening the monetary policy framework; strengthening banking structure through new entry, branch expansion, encouraging new varieties of banks, and moving foreign banks into better regulated organisational forms; broadening and deepening financial markets and increasing their liquidity and resilience so that they can help absorb the risks entailed in financing India’s growth; expanding access to finance for small and medium enterprises, the unorganised sector, the poor, and remote and underserved areas of the country through measures to foster financial inclusion; and improving the system’s ability to deal with corporate distress and financial institution distress by strengthening real and financial restructuring as well as debt recovery. Development measures On each of these pillars, the RBI has made some headway. For example, it granted “in-principle” approval for banking licences to IDFC and Bandhan Financial Services in April. Going forward, the central bank intends to use the learning from this licensing exercise to revise the guidelines appropriately and move to give licences more regularly, that is, virtually “on tap”. It has also come up with draft guidelines for setting up differentiated banks, such as payments banks and small banks, to further financial inclusion. Under the framework for revitalising distressed assets in the economy, the RBI set up the Central Repository of Information on Large Credits (CRILC) in April 2014 to collect, store and disseminate credit data to lenders. CRILC’s objective is to enable banks to take informed credit decisions and recognise asset quality problems early by reducing information asymmetry. However, the utility of banks constituting a joint lenders forum for distressed borrowers engaged in any type of activity, with aggregate fund-based and non-fund based exposure of ₹100 crore and more remains to be seen. When it comes to recovery of loans, Rajan has told bankers that company promoters do not have a divine right to stay in charge when they have badly mismanaged an enterprise, nor do they have the right to use the banking system to recapitalise their failed ventures. Taking on FSLRC Rajan, like his predecessor D Subbarao, pulled no punches when it came to expressing his views on the recommendations of the Financial Sector Legislative Reforms Commission. In one of his speeches, the Governor said: “Not everything the regulator does can be proven in a court of law. Courts do not interfere in the specific decisions of a corporate board – using the business judgment rule, they do not second-guess business decisions, and only pull up boards when there is a violation of the legal process of arriving at a decision. In the same way, there is a range of regulatory decisions where regulatory judgment should not be second-guessed.” One reading of the FSLRC, according to the Governor, is that almost everything the regulator does, not just the framing of regulation or the process by which decisions are reached but also the exercise of regulatory judgment as well as policy decisions, is to be subject to legal appeal. For that, it wants to create a Financial Sector Appellate Tribunal. “The intent is to place more checks and balances on regulatory actions. Note that the process by which the regulator reached a decision, as well as the conformity of the decision with basic principles such as natural justice, can already be challenged through a writ petition in High Courts. Even now, some regulatory decisions can be appealed against with the Central Government. But how much checking and balancing is enough? Do we want even policy decisions to be appealable? Can legal oversight become excessive?” he questioned. Two more years at the helm 51-year old Rajan has two more years to go as RBI Governor, going by the tenure given to him last year. It is expected that the under his leadership, the central bank will become more dynamic, responding quickly to meet the needs of the emerging economy, which is seeing green shoots of recovery under the new Government. 3. Jan Dhan: No foreign trips till Jan 26, FinMin tells public sector bank chiefs Business Line / New Delhi / Sept 2: As mission mode project needs full attention of PSB chiefs Call this the Pradhan Mantri Jan Dhan Yojana (PMJDY) effect. The Finance Ministry has advised chief executives of public sector banks (PSBs) to avoid foreign trips till January 26 next year, the target date for completion of PMJDY project. Unless very much essential, foreign travel should be avoided as the PMJDY is being implemented on a mission mode, the Department of Financial Services in the Finance Ministry has conveyed to the chief executives of PSBs. The main idea of this finance ministry advisory is to ensure that PSB chiefs pay full attention to the PMJDY project, which is billed as the flagship programme of the Modi-led Government. Under the PMJDY, the Modi-led Government seeks to bring banking access to 7.5 crore unbanked families in the country, leading to opening of atleast 7.5 crore basic accounts and preferably 15 crore accounts by January 26 next year. Already, this financial inclusion has got off to a flying start with about 2.5 crore accounts opened on the launch date on August 28. VIDEO CONFERENCING The DFS has advised PSB chiefs to extensively use video conferencing to accomplish their tasks rather than go on foreign trips to their branches abroad. The latest advisory from finance ministry to desist foreign trips until PMJDY targets are accomplished could affect chief executives of large PSBs with several overseas branches. This could be a problem for those who have to manage an international bank like Bank of Baroda or a large bank like State Bank of India or a Bank of India, sources in the banking industry said. MONITORING PROGRESS The Financial Services Secretary G S Sandhu will Wednesday take a meeting of all chief executives of PSBs through video conferencing. The meeting will take stock of the basic bank accounts opened by the PSBs under the financial inclusion project against the targets handed out to them for the launch date. 4. Axis Bank launches Shopaholics Online Festival Business Line / Mumbai / Sept. 2: Axis Bank, India’s third largest private bank, today announced the third season of its 3-day ‘Shopaholics Online Festival’ starting September 2. The bank has tied up with 52 reputed online merchants across 8 different categories, to offer online flash sale exclusively for Axis Bank Credit & Debit Cardholders,” the bank said in a statement. Offers will be available on categories such as travel, bill payments & recharge, mobiles & electronics, entertainment, apparel & accessories, books stationery & gifts, food & groceries and homes & lifestyle. Jairam Sridharan, President, Consumer Lending and Payments said, “E-commerce spends on Axis Bank cards have grown over 100% year on year over the last couple of years. Since online shoppers are constantly on a lookout for the best deal, the Axis Bank Shopaholics Online Festival offers the deepest discounts at over 50 shopping sites, covering more than 10,000 brands.“ 5. Corp Bank launches festival offer Business Line / Mangalore / September 2: Corporation Bank has launched the ‘Grand Festival Dhamaka’ offer on home and vehicle loans, and loans for medical and business professionals. The offer will be on till December. A press release issued by the bank said that ‘Corp Home’ housing loan will be offered at a floating rate of 10.25 per cent (base rate of the bank) for loans up to ₹2 crore with a repayment tenure of 30 years and at 10.50 per cent for loans above ₹2 crore. The processing charges are fully waived under this offer. ‘Corp Vehicle’ scheme for four-wheelers will be offered at 10.65 per cent for amounts up to ₹50 lakh, and at 11.15 per cent for amounts above ₹50 lakh up to a maximum period of seven years. Fifty per cent of the processing charges applicable would be waived off. 6. Cibil data a key tool for banks Business Standard / Vishakhapatnam / September 2, 2014 Borrowers with a credit score of 700 and above have a higher chance of getting their loan and credit card applications approved by banks, according to a report released by Credit Information Bureau (India) Ltd (Cibil). Speaking about it, Harshala Chandorkar, senior vice president- Consumer Relations and Communication, said, this indicated that the Cibil report and the Cibil Trans Union Score have today become an integral risk assessment tool for banks and financial institutions for sanctioning any new credit. According to Chandorkar, the range of the score is between 300 and 900, where a score closer to 900 indicates the least risky borrower and lowest chance of the borrower defaulting. 7. Banks capital adequacy ratio at 6-year low Business Standard / Mumbai / September 3, 2014 PSU banks worst hit with average CAR falling to 10.67% as on quarter ended June vs 11.18% in March 2014 With a rise in non-performing assets exerting pressure on their profitability, Indian banks’ capital adequacy ratio (CAR) has fallen in the aftermath of the global economic slowdown of 2008 — to 13 per cent as of March 2014 from 13.88 per cent a year earlier, according to data compiled by the Reserve Bank of India. The ratio — a measure of banks’ capital to their risk — was 13.01 per cent as of March 2008. Public-sector banks have been the worst hit, with their average capital adequacy ratio falling to 10.67 per cent as of the quarter ended June, compared with 11.18 per cent in March. The situation is worrisome, as bad loans continue to mount amid a slowing economy, where interest rates have stayed elevated. Gross non-performing assets (NPAs) of public-sector banks increased to 4.1 per cent as of the end of March from 3.6 per cent a year ago. Their net NPA as a proportion of net advances were 2.2 per cent, compared with 1.7 per during the same period a year earlier. “The obvious choice would be getting rid of the NPAs, which necessitate steep provisioning and prevent new credit growth. But that has not been easy. If the excess statutory liquidity ratio (SLR) — the amount commercial banks are required to maintain in the form of gold or government bonds — is converted into loans as business picks up, the risk weights will further shift from government securities to corporate bonds, making the capital adequacy ratio look even worse,” said Shinjini Kumar, leader for banking and capital markets at PricewaterhouseCoopers India. Banks are sitting on a pile of restructured assets, with the ratio of recast assets to gross advances standing at 5.9 per cent as of the end of March, compared with 5.8 per cent a year ago. Public-sector banks account for 92 per cent of the sector’s total restructured advances. Also, public-sector banks will need additional capital to comply with the Basel-III norms. According to government estimates, state-run banks would require Rs 2.4 lakh crore of equity capital by 2018 to meet these norms. The new norms, implemented in phases in India from April 1, 2013, will be fully implemented by March 2019. Besides, the present government is yet to allocate fresh funds for infusion in public-sector banks this financial year which has compounded these lenders’ woes. P Chidambaram, finance minister in the previous government, had in the interim budget allocated Rs 11,200 crore for capital infusion and the state-run banks were expecting the finance minister to announce additional capital infusion in the Union Budget. These banks are now planning to raise funds from the market through qualified institutional placements/follow-on public offers. Punjab National Bank Executive Director Ram Sangapure believes raising capital will be comparatively easy now, given that the economy is showing signs of improvement and the markets are bouncing back. “Apart from this, the NPA situation has stabilised a little and all banks are working towards it. With that in place, it will free up more capital and, probably, make the capital adequacy ratio situation better.” But Kumar says it might not be possible for all banks to raise capital smoothly, despite better sentiment and markets. “Banks will want to access fresh capital for Basel implementation, supporting provisions and growth and dealing with the new restructuring regime of no forbearance. Some might be able to access capital at reasonable costs, but others who might not would face a worse situation,” Kumar said. 8. CVC red-flags board-level appointments in PSU banks Financial Express / New Delhi / Sep 03 2014 The Central Vigilance Commission (CVC) has red-flagged the appointment process of some senior-level officers in public sector banks (PSBs) and sought clarification from the finance ministry. The CVC was approached for vigilance clearance against some of the names shortlisted for appointments in the banks. However, certain anomalies were found in the selection process, official sources said. A reference has been sent to the finance ministry, seeking clarification on the matter, they said. The names were shortlisted during the tenure of the UPA regime. The CVC has denied vigilance clearance to these recommended persons. The commission, prima facie, claimed to have found instances where more marks were given to some of the candidates in their interview allegedly without any basis to secure their entry into the banks, the sources said. The CVC, in its communique to the ministry, cited recent media reports about alleged irregularities in top-level appointments in public sector banks. The Appointments Committee of Cabinet approves board-level appointments in public sector undertakings, including banks. 9. Finance ministry asks RBI to tighten norms to check fund diversion Financial Express / New Delhi / Sep 03 2014 Against the backdrop of the Kingfisher Airlines case, the Union finance ministry has asked the Reserve Bank to tighten lending norms to prevent borrowers from opening multiple current accounts outside their consortium banks. There are a few instances where defaulting borrowers indulged in diversion of funds by opening multiple current accounts outside the members of the consortium, sources said. Therefore, the ministry has urged the RBI to tighten the norms, sources said. Kingfisher Airlines allegedly diverted funds by opening a current account in HDFC Bank, sources said, adding that this was not known to the consortium of lender headed by the State Bank of India. These banks have an outstanding debt of R6,521 crore from the now-grounded carrier. The RBI can monitor such diversion of funds as it is the sector regulator and there is a need to strengthen the monitoring mechanism, sources said. A spate of defaults have taken place in the banking system in the recent past. But, most were due to the economic slowdown and only a small proportion of defaults were intentional. 10. SC declines to give relief to Mallya, Kingfisher Airlines The Hindu / New Delhi / September 2, 2014 Tells them to go back to the High Court on the action of United Bank of India The Supreme Court on Tuesday denied relief to debt-ridden Kingfisher Airlines challenging the decision of the Grievance Redressal Committee (GRC) of United Bank of India (UBI) to declare the airline and its promoter Vijay Mallya as wilful defaulters. A Bench of Justices Anil R. Dave and U. U. Lalit refused to entertain the company’s petition seeking a direction to the government allowing liberty to make representation before the UBI’s grievance committee and right to a legal representative. The airline claimed that it was declared a wilful defaulter without giving it an opportunity to be heard. It submitted, through counsel, that the defaulter order by UBI “blacklists” the company leading to serious consequences. “Your grievance has been that Grievance Redressal Committee should not decide the matter but they have already decided it, therefore your plea is infructuous” the Bench observed. Kingfisher’s submission Kingfisher submitted that the committee passed the order despite being informed that it had filed an appeal in the Supreme Court against the Calcutta High Court order dismissing its plea that Mr. Mallya and the board of directors might be represented by its law officers or company secretary on a show cause notice by UBI for alleged wilful default on payment of dues of Rs.400 crore. However, Attorney General Mukul Rohatgi opposed the plea of Kingfisher saying it had been for months seeking adjournments in the High Court and allegedly indulged in diverting funds without paying salary to its employees. The Bench said since the petition here had become infructuous, Kingfisher could return to the high court and challenge the bank committee’s order. PTI reports: United Bank of India, on Monday, became the first lender to declare debt-ridden Kingfisher Airlines and its promoter Vijay Mallya as wilful defaulters. Assailing the GRC order, senior advocates Abhishek Singhvi and Parag Tripathi, appearing for Kingfisher, said the bank should have waited for the outcome of the appeal before the apex court as the airline was only seeking that its promoter and directors should be allowed to be represented by their counsel. They said the petition was, on Monday, mentioned before the bench headed by Chief Justice R. M. Lodha, which declined to give urgent hearing and listed the matter for Tuesday. The division bench had upheld an order of single judge delivered on July 10, directing the UBI authorities to give a 72-hour notice to Kingfisher for fixing a date for the meeting. 11. Software glitches in migration towards payment for ATM transactions result in machines rejecting withdrawl demands Economic Times / Mumbai / Sep 03 Ganesh Pavaskar, a retired public servant in Mumbai, was annoyed when an ATM machine would not allow him to withdraw Rs 10,000 at one go for his Ganapati shopping and forced him to take out the money in multiple transactions. Retail bank customers using the automated teller machines (ATMs) of banks where they do not have accounts are facing hardships as software glitches in banks migration towards payment for ATM transactions have led to many machines rejecting the demand for withdrawal, or dispensing less than half of what is sought, increasing the number of transactions. In a recent circular, the Reserve Bank of India said that from November 1, banks will be free to charge a fee if a customer transacts more than five times a month at its own ATMs. The number of free transactions on other banks ATMs would also be reduced to three from the five now, though this is applicable only in the six metros of Mumbai, New Delhi, Chennai, Kolkata, Bangalore and Hyderabad. Although no bank is yet to notify how much they would charge per transaction, bankers privately said it could be as high as Rs 20 a transaction. The new system could probably lead to higher cash withdrawals per transaction by consumers, especially the lower middle income ones, to avoid paying the fees. Justifying the fee, Romesh Sobti, managing director and chief executive officer at IndusInd Bank, said, Replenishment of cash at ATMs is a cost to banks. He, however, hoped the charges would stabilise and would not act as a disincentive. Every time a customer of a particular bank uses the ATM of a different bank, the customers bank has to pay an interchange fee of Rs 15 per transaction to the other bank. Kumar Karpe, chief executive officer at payment solutions provider TechProcess Payment Services, said the cost to set up an ATM is the range of Rs 50,000 to Rs 60,000, plus theres an operating cost that could increase based on the locality. The cost per transaction in the range of Rs 15 to Rs 20 is justified. This would encourage customers to use alternative channels like cards and Internet, said Karpe, whose company runs leading electronic bill payment site billjunction. Indian consumers, on an average, conduct 5-8 transactions every month on an ATM, though there are some who make as many as 80-85 small transactions per month. Consumer banking head of a private sector bank said consumers would rarely face the kind of hardships Pavaskar had to go through last week and can withdraw any amount within ones daily cash withdrawal limit set by the bank. At times, when the ATM is running short of cash, the ATM tends to limit the size of withdrawal, he said. 12. SBI eyes 15 per cent growth in credit offtake Economic Times / Hyderabad / Sep 02 SBI today said it expects 14 to 15 per cent growth in credit off-take during the current financial year even as economic indicators are improving. There has not been much momentum in big projects. It will take some more time because the economy green shoots have just started. GDP numbers and other IIP numbers started to improve. So it will take at least three of four quarters (for improvement in large projects). Retail lending will grow fast. In 2014-15, I cannot see more than 14 to 15 per cent (credit growth) for SBI, Sriram told reporters on the sidelines of a programme. Replying to query, on the loan waiver schemes announced by the Governments of Telangana and Andhra Pradesh separately, the banker said they need to study the orders issued by both the governments on the modalities of the scheme. We will wait for another week or so to find out the detailed terms mentioned in the GO and then we will work towards an amicable settlement for all. We will have to accept what has happened and move forward, Sriram said. In a setback to both the governments, RBI recently refused to reschedule farm loans in the states. After a lot of persuasion, the apex bank gave its nod for partly rescheduling farm loans in specified areas. Telangana and Andhra Pradesh governments have recently issued GOs for identifying the beneficiaries of the loan waiver scheme. He refused to comment on Vijay Mallya being declared as a wilful defaulter saying he does not deal with that account. 13. CVC refuses to grant vigilance nod to top public sector banks appointments Economic Times / New Delhi / Sep 03 The Central Vigilance Commission (CVC) has red-flagged appointment process of some senior level officers in public sector banks (PSBs) and sought clarification from the Finance Ministry. The CVC was approached for vigilance clearance against some of the names shortlisted for appointments in the banks. However, certain alleged anomalies were found in the selection process, official sources said. A reference has been sent to the Finance Ministry seeking clarification on the matter, they said. The names were shortlisted during the tenure of the last UPA government. The Commission has denied vigilance clearance to these recommended persons, the sources said. The Commission has, prima facie, claimed to have found instances where more marks were given to some of the candidates in their interview allegedly without any basis to secure their entry into the banks, they said. The CVC, in its communique to the Ministry, has cited recent media reports about alleged irregularities in top level appointments in the public sector banks. RBI Governor is the head of the board that selects state-run bank chiefs. The Appointments Committee of Cabinet approves Board level appointments in the public sector undertakings including nationalised banks. Finance Minister Arun Jaitley has recently said that government was taking steps to professionalise the management and help them strengthen their risk management system. Earlier last month, Syndicate Bank Chairman and Managing Director (CMD) S K Jain was arrested by CBI for allegedly receiving a bribe of Rs 50 lakh to enhance credit limits of Bhushan Steel and Prakash Industries. Besides, some officials of Oriental Bank of Commerce and Dena Bank were suspected of misappropriating funds worth Rs 436 crore from their fixed deposit customers. The government has initiated a forensic audit in the alleged scam.
Posted on: Wed, 03 Sep 2014 05:32:11 +0000
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