Everyone in the deal knew how to add, subtract and multiply. So the deal only adds up if both parties profited from the over-pricing of Kingfisher shares. The real bosses of public sector banks are those who run the finance ministry. They are supposed to represent us, the ultimate share-holders. They are the ones who can pressure bank directors to make sub-optimal loans, and then to roll them over.
They come and go with elections, and have no long-term interest in the health of the banks. When NPAs mushroom, they order recapitalisation, meaning that our taxes get used to compensate for Modi and Mallya frauds, and make sure the balance sheets have enough capital for the next round of bad loans. When things go really bad, they point fingers at the previous government. But the patronage machine rolls on. And it is because of this love of patronage that there is no hurry to privatise public sector banks.
The opinions expressed in this essay are those of the authors. They do not purport to reflect the opinions or views of CCS. Home Banking Loans Go Bad. Loans go bad. A central bank panel has suggested an overhaul of the rules governing Asset Reconstruction Companies ARC to enhance the availability of bad loans for transactions and bring in a wider set of investors to the market for distressed assets.
Outstanding non-performing loans in the banking sector stood at 3. The corporate segment is expected to be more resilient as a large part of the stress in the corporate portfolio was already recognised during an asset quality review initiated by the RBI in , CRISIL said.
The numbers would have trended even higher but for write-offs, primarily in the unsecured segment," said Krishnan Sitaraman, senior director and deputy chief ratings officer. IFCI is a lender to the core sector and infrastructure finance companies. Nabard is the refinance bank for the country's agriculture needs, while Sidbi primarily supports small and medium enterprises. In response to a query from ET, a Srei Group spokesperson said the economic downturn and loan moratoriums provided by the regulator had affected operations.
The group is now in discussions with banks to implement a restructuring scheme. Financial creditors led by SBI had admitted claims of Rs 87, crore. Of this, SBI alone had an exposure of Rs 7, crore to the distressed home financier. The finance company has said that the 62 loans will be sold all together for an upfront cash payment. The bad bank should not be a one-off deal to clean up banks' books. The cabinet has approved the establishment of a bad bank, another tool to resolve the bad debt dogging banks that has constrained the flow of credit to the economy, said a government official aware of the matter.
An announcement is expected soon. First, by selling their stressed assets to NARCL, leading to the release of management bandwidth and capital. Along with the banking sector reforms driven by the development partners with the active support from the Bangladesh Bank, credit goes to the risk managers at private and foreign commercial banks, who contributed significantly towards the improvement of their asset portfolio despite large growth. My background as a risk officer for almost 15 years with global banks taught me one fact: loans usually go bad due to improper or weak need assessment, wrong structuring of the facilities, security or collateral shortfall, and weak internal cash generation in the business leading to recurring past dues.
Other factors include lending on the basis of names of the borrowers without looking into their business fundamentals or future potentials or even succession, ignorance about competition or emerging competition, and economic downturn or investment in the business segments other than the core ones having relevance to the future or the economy. Added to these are, of course, weak loan appraisal, failure to understand foreign exchange risk where cross-border exposures are taken, corruption or failure of the lending officers, and weak or no approval condition or covenant compliance or monitoring.
A client may always be desperate to get the loan approved or disbursed. It is the job of the lending officer to make sure that he or she has recognised all risks associated with that portfolio or specific business and taken enough measures to mitigate those risks. We have seen how a large textiles client went through recurring past dues due to the wrong repayment structure of the loan.
While the trade cycle dictated that end-to-end transactions would take days, the loans disbursed for 90 days period created all these troubles for both parties. In the same way, we have seen how a large local bank had to provide a large sum of money due to the sudden demise of a large tannery client, having no identified succession. The Chattogram branch of a foreign bank suffered a lot due to the day bullet repayment facility granted to a ship-breaking client, whose sales proceed started to come in from 30 days but were diverted to other businesses, not deposited with the bank account.
A large borrower of a state-owned bank became a defaulter right after disbursement of the term loan as his project cost went through the roof for his failure to cover himself against the exchange rate fluctuation in German Mark in those days. Entire operations in the banking industry were hit badly. In the micro-finance institution segment, gold loans and commercial vehicle loans were affected the most because customer touchpoint is very important here…non-housing retail loans were also affected.
Setting aside provision helps banks to recognise a loss on the loan ahead of time and uses their capital to absorb these defaults. The situation at non-banking lenders and microfinance institutions, which provide loans and other financial services to poorer sections of society, is even more worrisome.
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