NPAs
Todo
4R - Recognition, Recapitalization, Resolution, and Reform
PUBLIC CREDIT REGISTRY
high-level task force by RBI - deostali comt
What is it?
database of credit information which is accessible by all the stakeholders
generally captures all the relevant information in one large database on the borrower
managed by a public authority as RBI
lenders will have to mandatorily
How will it help RBI?
Credit assessment and pricing by the bank
Risk-based, countercyclical and dynamic provisioning of bank
Supervision and early intervention by regulator
Understanding the transmission of monetary policy working and its bottlenecks.
Restructuring the stressed bank credit
Classification (on time)
NPA:
Normal loans
Interest/ Principle
overdue for period of 90 days
Agri loans
Short duration crops
principal or interest overdue for 2 crop seasons
Long duration crops
principal or interest overdue for 1 crop seasons
Sub-standard assets
substandard category for <= 12 months
Doubtful assets
substandard category for 12 months
Loss assets
uncollectible/little or no value
continuance as a bankable
asset is not warranted
SMA
Special Mention Accounts
show earlier sign to fall between the Standard and Sub Standard (NPA) category
Agri NPA
Inc 23% bw 2016-17
Why?
Decreasing Landholding
Farm distress
Farm Loan Waiver (willful loan default by other)
using Loan Amount for Nonfarming Purposes
Depressed global prices for farm commodities
What was done ?
BR Act ameneded
RBI can issue directions to banks for initiating proceedings in case of a default
proceedings would be under the Insolvency and Bankruptcy Code, 2016
Power sector stress
Rs 3.5 trillion is already under stress
Why ?
Paucity of funds
lack of interest of promoters
state fiscal capacity
Lack of power purchase agreements by DISCOMS
Fuel shortages in form of shortage of coal and reduced nuclear power generation
Lack of Demand due to solar and wind alternatives
slower industrial growth
Transmission and Distribution (T&D) losses also referred to as Aggregate Technical & Commercial (AT&C) losses are above 20% (2015-16)
PARIWARTAN Scheme
POWER ASSET REVIVAL THROUGH WAREHOUSING AND REHABILITATION
warehouse stressed power projects totalling 25,000 megawatts
under an asset management and rehabilitation company (AMRC) jointly owned by the financial institutions (Power finance corporation and lending banks)
Why ?
to protect the value of the assets and prevent their distress sale under the insolvency and bankruptcy code till demand for power picks up
These projects will be transferred to the AMRC at net book value
AMRC will have 51 percent stake in the projects while the remaining 49 percent will be held by the lenders
inspired by the Troubled Asset Relief Program, which was introduced in the US during the 2008 financial crisis
similar to SAMADHAN (Scheme of Asset Management and Debt Change Structure
SBI led bankers' consortium took over unsustainable debt of stressed power plants to avoid their liquidation
Project Sashakt
Objective
strengthen the credit capacity, credit culture and credit portfolio of PSB
five-pronged strategy rc by sunil mehta comt
Small and Medium Enterprise (SME) resolution approach < 50 cr
resolution plan within 90 days
Bank-led resolution approach - 50 to 500 cr
banks would sign inter-creditor agreement
lead bank
resolution plan has to be approved by voting by lenders holding at least 66 per cent of the debt
independent steering committee appointed by the Indian Banks Association (IBA) has to validate the process within 30 days
AMC/AIF led resolution approach - above Rs.500 crore
AIF would raise funds from foreign and institutional investors
Banks may also invest if they wish
Besides, AIFs can also bid for assets in NCLT.
NCLT/IBC approach
Asset-trading platform
Cabinet sec rc
Termination of PPAs: A generator should be able to terminate PPA in case of default in payment from the DISCOM
NTPC as an aggregator of power
E-auction of coal
Linkages to be provided at notified prices without bidding for incremental coal production
Old and high heat rate plants not complying with new environment norms may be considered for retirement
Late Payment Surcharge be mandatorily paid in the event of delay in payment by the DISCOM
PCA
early warning exercise
RBI has set trigger points on the basis of
CRAR - 3, 6, 9%
NPA - 10-15, >15
Return on Assets (ROA) < 0.25%
Banks have to follow mandatory action plan and discretionary plans of RBI
After PCA banks cannot
re new or access costly deposits
take steps
to increase their fee-based income
not allowed to enter into new lines of business
Indradanush plan 7 elements
Appointment
Sep MD and CEO for professionalism
Bank boards bureau
body of eminent professionals and officials
recommending for selection of heads
helping banks in developing strategies and plans
advising banks on strategies of consolidation etc
Capitalization
Infusion of equity capital
The government had budgeted ₹65,000 crore for infusion into (PSBs) through recapitalization bonds this fiscal, of which ₹42,000 crore is still to be allotted.
With the additional ₹41,000 crore of capital infusion by 31 March, the government will be infusing a total ₹83,000 crore into public sector banks this year
Concerns
at what cost, for how long
whether recapitalisation alone is enough
budgetary deficit benchmarks
Bankers become lackadaisical toward debt recovery and tend to escalate provisions and contingencies to be adjusted against the fresh capital
implies cross-subsidization: dividend-paying PSU banks subsidizing the non-dividend paying. Ultimately, systemic efficiency suffers
Destressing
Strengthening ARCs
Establishment of six New debt
recovery tribunals (DRCs)
creation of a Central
Repository of Information on Large Credits (CRILC)
By RBI
to collect, store and disseminate credit data
to banks
Empowerment
Independence, Non interference in PSBs
Framework for accountability
KPIs for PSBs
Governance reforms
Gyan Sangam - conclave of PSBs and FIs