Banks needn't fear the 'three Cs' of investigation: FM Sitharaman

Banksneed not fear government investigators for “genuine, bonafide decisions", said Finance Minister Nirmala Sitharaman on Saturday, reiterating her government’s commitment that businesses will need not be harassed.
Sitharaman said bankers have no reason to fear the "three Cs", referring to the Central Bureau of Investigation (CBI), Central Vigilance Commission, and Comptroller and Auditor General—agencies often called to investigate finance crimes.

ALSO READ: Govt's reform measures restored PSBs to health, 13 banks posted profits: FM
The CBI director met leaders of state-owned banks this morning to allay fears, said Sitharaman at a press conference, adding that she will meet with the Enforcement Directorate, Directorate of Revenue Intelligence, Income Tax Department, and the Customs department to help banks in their concerns about their decision-making.
Prime Minister Narendra Modi, in a speech on December 20, had asked companies to "invest boldly", saying they will not be harassed for business failures. "I want to assure no inappropriate action will be taken in case of genuine commercial decisions,” he said at a function organised by industry body Assocham.
ALSO READ: Nirmala Sitharaman press meet live: FM says banks need not fear '3 Cs'
Sitharaman said that the government’s reform measures have helped bring the banks back to shape.
"Extensive reforms carried out by the government have restored banks to health, with the gross NPAs of PSBs declining from Rs 8.96 trillion in March 2018 to Rs 7.27 trillion in September 2019, their provision coverage ratio rising to their highest level in seven years, and banks returning to profitability, with as many as 13 banks reporting profits in H1FY20," said a statement by the finance ministry.

Total frauds at banks rise 74% to Rs 71,543 crore in 2018-19: RBI

Banksreported a total fraud of Rs 71,543 crore in 2018-19, a 74 per cent increase as against Rs 41,167 crore in the previous financial year, according to a report by the Reserve Bank of India.
The number of fraud cases reported by lenders also jumped to 6,801 in 2018-19, compared to 5,916 cases in 2017-18.

"Public sector banks accounted for a bulk of frauds reported in 2018-19 -- 55.4 per cent of the number of cases reported and 90.2 per cent of the amount involved -- mainly reflecting the lack of adequate internal processes, people and systems to tackle operational risks," the RBI's report on 'Trends and Progress of Banking 2018-19' showed.
In February 2018, the government had issued a framework for timely detection, reporting and investigation of frauds in public sector banks (PSBs).
It required these lenders to evaluate non-performing accounts exceeding Rs 50 crore from the angle of possible frauds, to supplement the earlier efforts to unearth fraudulent transactions.
This appears to have caused the sharp jump in reported frauds in 2018-19, the report said.
Private sector lenders and foreign banks accounted for 30.7 per cent and 11.2 per cent, respectively, of the total number of reported fraud in 2018-19. Their share in the amount involved in the frauds reported were 7.7 per cent and 1.3 per cent, respectively.
PSBs' share in the value of large frauds was even higher at 91.6 per cent in 2018-19.
In the bank advances category, there were 3,606 number of fraud cases involving Rs 64,548 crore reported in 2018-19.
The banks reported 13 cases of fraudulent foreign exchange transactions worth Rs 695 crore. There were 1,866 fraud cases involving Rs 71 crore related to card or internet transactions.

From banks to automakers: Hiring slowing across most sectors, says Care

India's jobs scene -- with unemployment at a 45-year high -- is looking gloomy with hiring activity slowing across most sectors.
Banks, insurers, auto makers and logistics and infrastructure companies are among those hiring at a slower pace, according to the study by Care Ratings Ltd that relied on annual reports for the year ended March from nearly 1,000 companies. The services sector, which accounts for a bulk of the economy, was the lone sweet spot that displayed robust jobs growth, the study by the credit assessor showed.

The sluggish pace of hiring lends itself to a vicious cycle in an economy already reeling from weak consumption demand, which has dragged growth down to a five-year low in the March quarter. For Prime Minister Narendra Modi, rising joblessness risks stoking social tensions and tarring India's image as an attractive investment destination.
ALSO READ: Jobs grew at medium and large companies, but at a slow pace: Study
Total employment increased from 5.44 million as of March 2017 to 5.78 million in 2018, which is an increase of 6.2%, according to the Care. In the year ended March, that increase was lower at 4.3%, with the total number of employed personnel standing at 6.03 million.
Care said that while sectors like hospitality saw increased outsourcing, there was a decline in headcount for iron, steel and mining companies due to lower growth in production and increased bankruptcy related issues. India's banking sector boasts of one of highest stressed asset ratios, a factor that has also weighed on hiring.
"Banks have resorted to both outsourcing as well as rationalisation -- both compulsory and voluntary -- to control headcount," Care said, adding that some weak state-run banks were barred from new hiring because they were ring-fenced while boosting their capital base and bringing down their non-performing loans.

Project delays to defaults, bankers flag issues on realty sector exposures

Banks have highlighted issues like delay in project completion, lack of fund sources, divergence of money, governance and defaults as reasons for their hesitation to take up additional exposure to the real estate sector.
This comes after Union cabinet minister Piyush Goyal’s statement that bankers will meet real estate players in a forthright.
The sector has been hit hard by demonitisation and the Real Estate Regulations (RERA). This is in addition to challenges like delays in project completion, questionable sources of funds and divergence of money and weak project management practices, bankers said.
A few days ago, while addressing a Confederation of Real Estate Developers' Associations of India (CREDAI) event in Delhi, interim finance minister Piyush Goyal had said that within the next 7-15 days, the Indian Banks' Association (IBA) will hold a meeting with the real estate players to help increase funding to the sector.
The minister also assured that goods and services tax (GST) rates would be brought down soon for the sector, which has been facing a demand slack.
“There is a real problem (being faced by the realty sector),” Goyal said.

ALSO READ: Banks manage reward points costs with hike in slabs, explicit cuts
Public sector bankers dealing in housing finance said the sector is in transition, showing the effects of RERA. Many of the builders have taken huge exposures and inventories (housing units and commercial places) are piling up. The returns are coming down. Some of them are defaulting, which is matter of concern for lenders.
After Reserve Bank India’s (RBI) February 12, 2018, circular on restructuring of stressed loans, which is more stringent, things have become tight. So, there is hesitation to take additional exposure to the already risky sector, pointed out a private banker.
The loans to commercial real estate sector from banks have grown by just 4.1 per cent in 12 months in December 2018. The outstanding loans to commercial real estate stood at Rs 1.9 trillion, according to RBI data.
Rating agency ICRA, in its outlook on the real estate sector, said the residential realty segment has been increasingly relying on non-banking financial companies (NBFCs) and housing finance companies (HFCs) to raise debt financing. This is owing to the risk perception attached with the segment by banks.
The liquidity crunch faced by the NBFC and HFC segment towards the mid of FY2019 has impacted fund availability to the real estate sector. If the current scenario persists in FY2020, it may cause credit stress to developers who are reliant on refinancing to support balance sheets on land assets or slow-moving inventory, ICRA added.

Cash crunch: Bank unions threaten agitation, blame RBI, govt for shortage

The All-India Banks Employees Association (AIBEA) has threatened to launch an agitation on the cash crunch issue, its general secretary CH Venkatachalam said on Thursday.
"Mere statements will not help. Concrete, immediate action is needed to improve the supply of currency notes," Venkatachalam said.

For the past few weeks, banks in many states, especially those in Uttar Pradesh, Madhya Pradesh, Rajasthan, Gujarat, Telangana, Andhra and the poll-bound Karnataka have been facing severe cash shortages, with many ATMs showing 'no cash' signboards. Because of this, bank employees are facing the wrath and anger of the public, said Venkatachalam.
"Customers are shouting at and abusing bank staff for no fault of theirs," he added.
While the RBI has claimed that there are enough printing and supply of cash in the system, the government tried to blame it on the unusual spike in cash demand due to the ongoing farm procurement.
Blaming the government and the Reserve Bank for an inadequate supply of currency notes, he said in fact the problem started with the decision to print Rs 2,000 notes after the note-ban announcement in November 2016.
"If the Rs 1,000-notes were withdrawn to prevent black money and cash hoarding, it is only obvious now that both have become easier with the Rs 2,000 notes," he said.
Blaming the central bank for the poor cash management that has lead to the present shortage, he wondered if the RBI governor is to be believed where has all the money gone.
"The RBI governor has made a statement that adequate amount of currency notes are printed. But then where have these notes gone? Are they not to investigate? Are they not to ensure that banks have enough cash to meet the requirements of customers?" he asked.
He also alleged that even 16 months since the demonetisation, many ATMs are still not re-calibrated for the newly designed banknotes.
"This is adding to the problem," he said, and noted that the Financial Resolution and Deposit Insurance (FRDI) Bill, pending for Parliamentary approval, has also added to the problem.
The FRDI Bill seeks to bail out a failing bank with the depositors' money if the proposed resolution corporation deems it to do so and can refer a bank for liquidation. He said there is fear among the public about the proposed bail-in clause in the Bill.
Therefore, he demanded that government immediately withdraw the Bill.
The present cash shortage has created more doubts and fears among the public whether all is well with banks. "It is the duty of the RBI and government to dispel these fears," he said.

Year-end rise in yields puts banks in the soup

With yields rising sharply, banks are caught between a rock and a hard place. And as the quarter for the banks ends on Friday, the treasury departments are hoping the yields scale back so that their losses, even nominal, can be minimised.
The yields on 10-year bonds have risen about 96 basis points since August even after a rate cut by the Reserve Bank of India (RBI) in that month.
From the start of this quarter, the yield movement so far has been about 73 basis points. One basis point is a hundredth of a percentage point.

What makes the situation miserable for banks is that the December quarter is also one in which banks must provide at least 50 per cent for stressed assets referred for bankruptcy proceedings, or accept haircuts through resolution.
The provisioning needed on account of this is about Rs 2 lakh crore, roughly the same amount the government has promised to be put in banks over three years.
The yield on the 10-year bond closed at 7.396 per cent, about 18 basis points higher than its previous close. This is the sharpest intra-day movement in yields since February 8, and triggered stop-losses in some banks.
Mid- and long-term debt mutual funds suffered heavy single-day losses on Thursday, with net asset values (NAVs) of some schemes losing as much 130 basis points in a single day. A Balasubramanian, CEO, Aditya Birla Sun Life Mutual Fund, said, “The increase in government borrowing created uncertainty in bond yields, pushing up the yield by 20 bps and resulting in the fall of bond prices. This is likely to gradually push up yields on other securities.” He sees some volatility in the short term.
Deepak Agarwal, debt fund manager, Kotak Mutual Fund, said that till the Budget presentation, the 10-year G-Sec yield would hover between 7.3 and 7.5 per cent. “Currently there is a perception that interest rates will not go up in the next six months. Unless that perception changes, there will be no impact on short term funds.”
The RBI will auction bonds worth Rs 15,000 crore on Friday. Much depends on how successful the auction would be. Bankers are hoping that there would be no “devolvement”, which is a term used for unsold bonds.
However, chances of that happening are slim. First of all, the view in the market is that the yields could rise to 7.50 per cent, or even 7.80 per cent, around the Budget before cooling. And therefore, the bids to be placed for the auction would ask for higher yields, which is lower prices offered for a bond unit.
Bond dealers say the yields the market would ask for in the present situation the RBI is unlikely to accept. Being the money manager of the government, it is also the RBI’s job to see that the government borrows cheap.
Nevertheless, the market would be keenly watching the cut-off set by the RBI because that would be a kind of signal as to what yield level the central bank sees is appropriate at this current juncture. That directly should cool yields by a few basis points.
“The RBI must spell out where the yields should be. The market will be looking for a signal on Friday,” said a foreign bank treasury head.
“Under the present circumstances, much of the movement in yields has happened already. Now if the RBI finds the levels okay, the yields will rise further,” said a treasurer. According to the bond dealer, there could be a technical correction of about 10 basis points after the auction results are out.
There is also an outside chance that the government would tell the banks it owns to have an understanding among themselves and bid at a low yield level. That will not only cool the yield levels, it would also save banks the pain at the end of the book closure. After all, nationalised banks are used all the time to intervene in the currency markets.
A tell-tale sign of that happening would be if the cut offs significantly vary from the market yields. However, chances of that happening too are low because irrespective of banks buying huge amounts of bonds for now, the yields will rise eventually. And considering the outlook for the yields, the very bonds bought in the auction would be sold as quickly as possible in the market to cut losses.
“That kind of rigging doesn’t happen these days. The market is huge and transparent. Besides, nobody wants to book losses just to make one quarter look good,” said a bond dealer.
One of the reasons for not taking too aggressive a position in bonds is that banks are sitting on huge amounts of bond holding. The central bank has reduced the statutory liquidity ratio (SLR – the share of deposits to be maintained in government bonds) to 19.5 per cent from the usual 24 per cent. The idea is to slowly replace the SLR with the liquidity coverage ratio (LCR), an international practice. But currently both are operational and therefore banks have to maintain extra bond holdings. Even then, in the absence of healthy credit growth, banks are sitting on an extra SLR of 8-10 per cent of their deposit base. Clearly, they are going slow on accumulating more bonds on their books and that is putting pressure on the yields.
But bankers also say these levels are value-buying ones as yields have moved too much in too short a period.
“Around 7.40 per cent should be the top for the yields for now, but it is not likely to come down in a hurry either,” said Jayesh Mehta, head of treasury, Bank of America Merrill Lynch.
Meanwhile, the recent rise in bond yields has not triggered a sudden shift from debt to equity in India's mutual fund sector from the investors' perspective. Debt investors continue to prefer debt schemes. However, fund managers said that funds which are balanced in nature (debt as well as equity) may have seen a slight tilt towards equity than debt instruments in their portfolio over the last few days. Going forward, they say fund managers would attempt to reduce duration in short-term and dynamic bond funds to 1.5 to 3 years to maximise gains given the upcoming slippages in the fiscal deficit.
Bond dealers largely blame communication from the government for the sharp yield movement. Even a month or two ago, top government officials maintained that they would honour the fiscal discipline set for themselves. Now with the short-term savings rate cut, chances of deficit financing through savings deposits also get hit. While the government has collected about Rs 1 lakh crore through small savings, how much of redemption would happen in the fourth quarter is not known. The net extra borrowing works out to about Rs 73,000 crore for this fiscal, including through treasury bills, which may push the fiscal deficit to a minimum of 3.5 per cent of gross domestic product, higher than the 3.24 per cent budgeted.
“Even if you take government’s argument that it is adjusting dated bonds with treasury yields, in a rising interest rate scenario nobody wants duration risk,” said a senior bond dealer with a primary dealer, explaining the sharp yield movement post government's borrowing plan.