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