Showing posts with label NIIF. Show all posts
Showing posts with label NIIF. Show all posts

Sunday, October 4, 2015

Indian Finance: Updated 14th Sept.16:Tackling Infrastructure Co's Bank NPA- byNIIF:

14th September2016:- Formation of National Infrastructure Investment Fund(NIIF): with Two dedicated Funds One for Road(Highways) and another for Clean(Renewal) Energy.
High Initial Corpus Rs.40000Crores.

5th Sept.2016: Latest RBI Guidelines for Sale of Assets with a view to sell early and during Life Cycle of the Assets & Continued Responsibility  of the Bank concerned:-

  1. RBI has now permitted sale of Stressed Assets to  Other Banks, Non banking Financial Companies & other Financial Institutions including ARCs.
  2. If sale of Assets Value is Rs50Crores or more: than Valuation from Two Independent Valuers are required.
  3. ARC must pay 15% upfront of the Sale Value.
  4.  For balance Payments: In case ARC is issuing Security Receipts (SR) for redemption afterwards, From F.Y.2017-18 Value of such SR is more than 50%(10% from 2018-19) Provision is required.    
  5. Valuation Rates used by Banks are normally Discounted Rates based on Cost of Equity/Average Cost of Funds/Opportunity Cost.
  6. At present their are 16ARC & 3 More Licences are issued by RBI. 

_________________________________________________________________________________
The Jaypee Group & Banks have found a Noble way out to Settle IBank Outstanding: Land & Buildings are offered by Jaypee Group to Banks to Settle.To avoid Stamp Duty the Land would be Ist transferred to a Separate Company and thereafter acquired by Lenders under SARFAESI Act dealing with Bad Debt

April 14,2016:
The Ministry of Finance, Govt of  India is keen to create a Political & Economic Enviornment  for amicable Settlement of NPA. Accordingly proposing to Amend Sarfaesi & DRT act in tune with Bank Kruptcy Law.

March 31,2016:
Today the RBI has expanded definition of Infrastructure by including More Sectors like mine etc. Moreover Now Infrastructure and other Companies are now eligible for Foreign Currency Loan. For more details see post of ECB.

March25,2016

A. Steel loans worth 50k-cr may turn bad in few months

 Requirement of A specialized funding body for the steel industry on the lines of the Power Finance Corporation for the power sector.
Last week, lenders met highly leveraged steel manufacturers and
put them on notice. Although classifying loans to these companies as non-performing assets (NPAs) will mean banks taking a hit on their profits, it will shift the balance of power in favour of the lenders as they will now stop coaxing borrowers and instead initiate recovery proceedings. 

The companies that banks are holding discussions with include Essar, Bhushan, Visa and Electro Steel.

Ironically , some of these lenders have had their loans restructured under the 5/25 scheme. The scheme was introduced in 2014 by Reserve Bank of India governor Raghuram Rajan, where loans were extended to 25 years with a condition that interest rates would be reset after every five.The 5/25 scheme involved zero sacrifice from lenders but it made repayment easier for the borrower by reducing the installment size.

Around 21% of the restructured loans as of December 2015, amounting to Rs 54,051 crore, were from the iron & steel industry. The gross non-performing assets in the steel sector as of September 2015 stood at 8.4%. This is expected to rise to nearly 12% by March 2017.The steel industry is the highest leveraged sector in India and banks are not in a position to extend fresh loans.

In a recent industry note, SBI M.D. B.Sriram had said, "We think time has come for the government to seriously
look into the possibility of setting up a funding agency for the steel sector, as well, on the same lines of PFC or REC for the power sector. 

The 26 nationalized banks, which are expecting a Rs 25,000 crore government bailout in the coming financial year, have lost at least Rs 30,873 crore to frauds in four years 2011-12 to 2014-15. According to finance ministry documents, these losses are only due to frauds of Rs 1 lakh or more. Some of these cases are being probed by investigating agencies.


B.Vijay-Mallya and his advisers are working to revise a debt repayment
Offer that has been rejected by banks to make it more acceptable to them, people aware of the development said.

He's conducting a review of his assets in consultation with a legal firm that has financial expertise and may make an offer of staggered payments or a one-time settlement.
Banks are ready for the negotiation if he is willing to pay the entire principal amount that he owes banks,"should also tell us how much of the interest component he can repay, we
can't waive that off. His settlement offer should include a significant portion of the interest component too as it has crossed over Rs 3,000 crore."
Pledged his assets and given his
personal guarantee, but he is not even willing to give his assets under oath; that matter is also pending at DRT (debt recovery tribunal)," said

Mallya's statement, banks have already recovered Rs 1,244 crore from the sale of pledged shares.
An additional Rs 600 crore has been held as a deposit by the Karnataka High Court since July 2013 and a further sum of Rs 650 crore belongingto United Breweries Holdings has been similarly held since early 2014.
A.
In an airfield in southern India, seven planes of the failed Kingfisher
Airlines rust away -- relics of a former billionaire's ambition and
emblems of the complex regulations that hamper Indian aviation.
The decaying aircraft, damaged by floods in Chennai late last year, were
part of the fleet of India's once second-largest airline.
India
is one of the world's most under-penetrated aviation markets.
Provincial taxes of as much as 30 percent mean jet fuel prices in some
Indian cities are the highest in the world. A liter (.26 gallons) costs
77 cents in New Delhi, versus 52 cents in New York and 62 cents in
Sydney.
Higher airport tariffs also means the Indira Gandhi
International Airport, which services India's capital, generates the
most aero revenue from an Airbus A330's international turnaround after
London's Heathrow. 
also hurt by a regulation that prevented foreign carriers
from owning stakes in domestic operators.

B.New Asset Management Fund:-

kotak-mahindra-canada-pension-to-buy-out-npas/
 To set up $525 million stressed asset fund
The move is aimed at tapping the opportunity in the growing stressed
asset market in India  The move is aimed at tapping the opportunity in the growing stressed asset market in India
The Kotak Mahindra group and Canada Pension Plan Investment Board
(CPPIB) have decided to set up a stressed asset fund with a total
investment of $525 million, with the CPPIB having the ability to invest up to $450 million. The fund will buy big-ticket non-performing assets (NPAs) from banks and help the units turn around. The fund will be jointly set up by the Kotak Investment Advisor, a wholly-owned subsidiary of Kotak Mahindra Bank, and CPPIB. The move is aimed at tapping the opportunity in the growing stressed asset market in India. Stressed assets — gross non-performing assets plus restructured advances in the countrys banking system were at 11.1 per cent of gross advances as of end September. Public sector banks recorded highest level of stressed assets at 14.1 per cent.
NPAs in the banking system surged in the October-December quarter with
the Reserve Bank of India identifying certain accounts that banks were asked to classify as NPAs. The January-March quarter is expected to throw up more bad loans as most banks had classified only 50 per cent of what RBI mandated in Q3. The banking regulator is forcing banks to come clean on NPAs, and said it will clean up bank balance sheets by March 2017. S Sriniwasan, CEO, Kotak Special Situations Credit Fund, said: The current environment has created a much larger opportunity that requires significant capital commitment. We are delighted to have a world-class
institution such as CPPIB put patient capital to work, backed by strong and active asset management, to capitalise on the stressed assets market.
The asset reconstruction industry has limited capital and there is an urgent need for substantial capital to buy NPAs from banks, as and when these loans get sold at fair value. This pool of capital with a flexible mandate will work alongside the ARC, and positions us to comprehensively address the capital needs of both the borrowers and the selling lenders,” said Eshwar Karra, CEO, Phoenix ARC. Phoenix, which manages assets worth Rs 4,000 crore, will provide advisory services to KIAL.
C.NEW DELHI:March 2016 Domestic rating agency Crisil has downgraded eight public sector banks and revised the outlook to negative for five others.
Crisil joins a long list of rating agencies which have either downgraded the public sector lenders or have projected a negative outlook for them.
"Actions are driven by expectations that asset quality problems being faced by PSBs will remain acute and continue through most of the next financial year. The resultant impact on profitability and capitalisation can further dent their credit profiles over the medium term," the rating agency said in a report.
The banks that were downgraded include
 Bank of India         (AA+/Negative from AAA/Negative), 

Central Bank of India  (AA-/Negative from AA/Negative),

Syndicate Bank         (AA from AA+/Stable; placed on rating watch with negative implications),

 UCO Bank             (AA/Negative from AA+/Negative),

 Indian Overseas Bank (A+/Negative from AA-/Negative), 

Corporations Bank     (AA- from AA+/Stable), 

Dena Bank 

"A significant stress in the corporate loan book
of PSBs is expected to result in their weak assets ballooning to Rs 7.1 lakh crore by March 31, 2017 (11.3 percent of total loan book) from around Rs 4.0 lakh crore as on March 31, 2015 (7.2 percent of loan book)," the agency said.

Crisil' s move is the latest in the sling of rating downgrades that Indian public sector lenders have witnessed from domestic and global rating agencies. 

Standard & Poor's, New York termed the Budget credit negative for the public sector lenders after the government fell short of the market's expectation on capital infusion. 

The government has allocated only Rs 25,000 crore for recapitalization of the banks compared with expectations of Rs 35,000 crore. 

The NPA pain in the sector may not be over post the
fourth quarter numbers as it sees the bad loans ballooning to Rs
7,00,000 crore by the end of this financial year. 

"Over the next few quarters, slippages to NPAs will remain high drivenby stretched cash flows of highly leveraged companies (mainly in the vulnerable sectors such as infrastructure, metals and real estate continued proactive recognition of stressed assets by banks, and limited ability of banks in the current environment to recover from exposures to large companies that have slipped into NPAs," Crisil said.

Foreign brokerage Morgan Stanley did a stress test on the Indian
banks to assess the exact impact should the banks record their bad loans properly and provide for them by FY19. 

The brokerage found that as collateral[a1]  values stay weak and revenues remain under pressure due to weak nominal GDP larger companies may start defaulting over the next few quarters.

 The high pre-provision operating profit (PPoP)
margin at these banks would help them manage significantly higher badloans without big dilution.  

Dharmesh Mehta,Axis Capital.
"I still want to be in private banks and SBI as a whole. I do not need to go elsewhere because the fear there is much more and we do not evenknow what is happening. At least in private sector banks, you have got a very strong retail push, which is also insulating some part of their balance sheets.423.90.


 [a1]Sufficient collaterals are not taken at the time of Sanction of  Loan

Long Term Investment in Share Market may be a boon to an alert Investor

Few of the things are very clear and each Investor can take advantage as under:-
  • Over the period of time lot many effective reforms are carried out in the Banking Sector.  Reforms like Effective Branch Computerization. Specialized branches like branches for Small Businesses to Corporate Accounts to Industrial Finance Branches .
  • Stringent norms for declaring a debt as NPA. Provisioning of Debts, Corporate Debt Restructuring have resulted in Controlling NPAs
  • Under valued Stocks of Nationalized Banks like Oriental Bank of Commerce & Dena Bank are very good buy. To create a Strong Portfolio over a period of time.
  • Their Commercial Property valuation is also not Considered. Very Large Branch Net Work. Trained Staff members. Fool proof working Systems.
  • Powerful Internal Controls supported with various  Internal and Statutory Audits have created a comfortable enviornment for Growth.
  • Very high frequency of introducing New Products, attractive, cost effective and competitive with Contemporary Foreign and Private Banks.
  • Extra Ordinary Net work of Branches and ATMs. ensuring Service Quality."SBI is having Branches and ATMS at every nook & corner of the Each and Every City and Village". In a light vein  SBI ATM's are frequently used as Land Mark for Addresses.
  • These Banks are also Meeting Capital Adequacy norms.
  • ICICI Bank are other good buy.

  • Improving operating environment, Stable Asset Risk and Capital,Stable Funding and Liquidity.Also stable profitability and efficiency and the government support has supported a stable outlook for the sector, it said adding the recovery in the asset quality would be U-shaped rather than V-shaped, because corporate balance sheets remain highly leveraged
    • Low inflation and the Gradual implementation of Structural Reforms. An accommodative Monetary policy should support the growth environment,"

    • The capital levels of public sector (PSU) Banks are low and the government's announcement of injecting Rs 70,000 crore into PSU banks  over the next four years is "clear positive".


    • Ability to access equity capital markets remains key if
      the PSU banks have to address their capital shortfall," it said, adding high capital levels are a credit strength of the private-sector banks.
     

C. Power Companies:-The National Democratic Alliance (NDA) government at the Centre is likely to put on states the onus of restructuring the debt of power distribution companies. Under the new financial restructuring plan (FRP)for discoms, the state governments are to take over the entire debt of these firms.
The biggest advantage of this Scheme is Onus on State Govt. and not on Banks. 
Banks and other lenders would not be asked to restructure any part of the loans, said senior central and state government officials.
To enable states to take over the entire debt, the Centre will also relax the borrowing limit for state governments. "States are being given a relaxation of 25 basis points to one percentage point in their FiscalResponsibility and Budget Management (FRBM) limit. This will help them absorb the losses and issue bonds in the short term," focusing on the eight states that together account for the biggest chunk of the total accumulated debt of Rs 3.17 lakh crore. These
are Rajasthan, Andhra Pradesh, Uttar Pradesh, Tamil Nadu, Haryana,Jharkhand, Bihar and Telangana.
if a state government failed to honour the bond
terms or defaulted on the dividend payment, the Centre would divert the tax devolution amount from that state's kitty to the bond owners.
The tax devolution from the Centre to states is 42 per cent of the total divisible pool offered. A portion of it will be deducted from the Centre's share in the state's revenue and used for paying dividends.
Centre was ready to relax the borrowing limit for states.
FRBM places limits on the deficit a state can have. A relaxation on this will translate into states being allowed more fiscal deficit in their public accounts. The current FRBM limit is three per cent. The amount of relaxation could vary on the basis of the amount of debt held by the state concerned. For instance, if a state gets 3.25 per cent relaxation,its borrowing limit will be close to six per cent.
"There is no debt servicing by the Centre; only the borrowing limit is increased.
interest payment that we will have to make annually could cause the state's finances to slip into the red,"
  * 100% debt to be taken over by states; if less is taken over, the     balance to be serviced through reforms and tariff hike
    
  * State governments to issue sovereign guarantee bonds
    
  * No part of debt to be serviced by banks or financial institutions
    
  * Centre to relax borrowing limit for states
    
  * If states default on dividend payment to bonds owners, part of their tax devolution fund to be used for payment to bond owners