Banks warn of 'severe plunge' in recoveries after bankruptcy ruling

A group of lenders led by State Bank of India, the country’s largest, foresees further distress in the nation’s bad-debt laden financial sector unless a recent court ruling in a closely watched insolvency case isn’t overturned.
A court earlier this month allowed ArcelorMittal’s $6 billion purchase of Essar Steel, and also modified the distribution of the proceeds, saying the money has to be shared proportionately. A petition filed by the banks in the country’s top court seeks to quash the bankruptcy tribunal’s ruling, court filings seen by Bloomberg show.

The ruling that placed secured creditors like banks at par with unsecured ones such as vendors to the insolvent company, would lead to a “severe plunge” in the rate of recoveries and expose the banks to “grave financial distress,” they said in the petition filed Friday.
Banks are joining foreign funds including SC Lowy in predicting risks from the Essar Steel sale to India’s attempts to clean up one of the world’s worst pile of soured debt. Banks claim that the tribunal’s ruling may lead to higher lending rates with increased risk of capital, resulting in further unavailability and inaccessibility of credit in the market. To read about how Essar ruling will deter India bad-loan clean up
“This will result in serious damage to the Indian Economy as a whole and dilapidate the entire banking system,” lenders said in the petition.
Further distress in banking may force the government to make contributions to maintain required capital adequacy, they said. To be sure, lenders are not opposed to the sale of Essar Steel to the company controlled by tycoon Lakshmi Mittal but are against redistribution of funds ordered by the tribunal and taking away of lenders’ powers in making a commercial decision about bids during the insolvency resolution process. A spokesman for SBI didn’t immediately respond to a phone call and email seeking comments.
The current ruling says that financial lenders would get 60.7% of their claims, and operational creditors, or suppliers to the plants, will also get around 60% on a pro-rata basis. The banks are seeking an immediate stay on the National Company Law Appellate Tribunal’s ruling. The supreme court has not yet allotted the case date of hearing.

SBI to raise $1 bn in perpetual debt to boost capital ratio, bolster loans

State BankState Bank of India, the nation’s largest lender by assets, is planning to raise as much as Rs 70 billion ($1 billion) through a perpetual debt sale as it seeks to boost capital buffer and bolster loans.
The Mumbai-based lender’s board approved a sale of the Basel III-compliant debt instrument in the year to March 31, the company said in an exchange filing on Monday. The perpetual debt is a lender’s first line of defense against financial shocks after equity, as its value can be written down and interest payments can be deferred.

SBI is opting for an AT1 bond sale to augment capital ratios as the bank plans to defer any equity market fundraising till its share price and valuations improve, Jaikishan Parmar, a research analyst at Mumbai-based Angel Broking Ltd. said by phone. State Bank of India’s valuation as measured by trailing price-to-book ratio is 1.37 per cent, less than half that of the 10-member Bankex Index.
The state-run bank will also need the government’s approval for the sale, the filing showed. Shares of the lender that were little changed in Mumbai trading on Monday have gained more than 22 per cent this year compared to a 16 per cent gain in the Bankex index.

In a bid to attract buyers, banks ask govt to protect Jet's prime slots

The lenders’ consortium, led by State Bank of India, has sought protection of prime airport slots of Jet Airways so that the value of the suspended airline does not erode further. In a communication to the Ministry of Civil Aviation, the lenders have made a case for protecting the Jet slots.
"Adequate number of slots at metro airports will be protected by the government. These will only be given temporarily so that adequate number of seats are available,” said a person aware of the development. "The investors and prospective buyers of Jet Airways are aware of this and they will do their due diligence on what they can get and what they cannot," he added.

Another source said the lenders had asked the government to retain 40 per cent of Jet Airways' slots at all airports to ensure a new owner can kick-start operations soon after taking over. “The new owner can have concerns about restarting operations if enough slots are not available," he said.
As many as 106 pairs of slots at Mumbai airport and 79 at Delhi airport are primary resources of Jet Airways, and bankers believe these will attract bidders.
Airport slots in India are allocated by a slot coordination committee of airport operators, according to the Worldwide Slot Guidelines drawn up by the International Air Transport Association.
According to these norms, an airline can keep a given slot from the previous season as long as it has used the slot 80 per cent of the time. Also, 50 per cent of slots freed up under this “use it or lose it” policy are provided to new airlines and the rest to legacy carriers.
ALSO READ: Birla MF looks to parachute out of Jet Airways' crashing stock
The SBI-led consortium had called for Expressions of Interest to buy a controlling stake (51-75 per cent). Following that, Abu-Dhabi based Etihad Airways, which currently owns a 24 percent stake in the airline, private equity fund TPG Capital, Indigo Partners, and India’s government-owned sovereign fund National Investment and Infrastructure Fund (NIIF) have been shortlisted to bid for the airline.
ALSO READ: Real estate firm owner comes to Jet employees rescue, offers jobs
According to an executive of a bank with exposure to Jet Airways, the lenders expect to take at least 50 per cent haircut on the debt. “In such cases, normally banks settle for a 50 per cent haircut. The exact picture would be clear after binding bids come,” he said. Jet Airways has a debt of Rs 8,500 crore.
chart While the lenders are working to keep Jet attractive for prospective bidders, executives of private airports said it would be commercially unattractive for them to hold on to slots. It could also result in a further rise in air fares. “Construction work taking place at major airports (Delhi, Mumbai and Bengaluru) anyway is impacting the infrastructure. At this point, it would not be prudent to hold slots,” an executive of a private airport said.
Another executive pointed out that even after releasing slots, availability of parking bays may not be adequate to add extra capacity. “Jet Airways planes are taking space across many airports. We often have to park our planes in Nagpur at night and do a ferry flight in the morning to Mumbai, causing a huge loss,” he said.
ALSO READ: Jet Airways loses IATA membership; refund process may get affected
Civil Aviation secretary Pradeep Singh Kharola, however, said Jet Airways would have the first right to slots once it revives. “Airlines are getting 30 new planes by July. Slots will be allocated for a period of three months. Airlines getting extra capacity will get preference in slot allocation,” he added. After instructions from the government, some airports have given slots to other airlines to fill the gap after grounding of flights by Jet.

Jet Airways likely to get Rs 1,000-crore emergency fund on Monday

The lenders’ consortium, led by State Bank of India, is actively considering a proposal to infuse Rs 1,000 crore into Jet Airways immediately to keep it afloat, despite a lack of consensus among banks on emergency funding. The money is expected to be disbursed after the Jet management submits an operational plan on how it intends to use the money till May 7.
Clearly trying to fast-track the resolution process after the intervention of the Prime Minister’s Office (PMO), lenders have asked the airline management to give a plan by Monday (April 15), outlining the operational requirements.

The earlier banks-led resolution plan announced on March 25 included disbursing Rs 1,500 crore through long-term debt instrument. But only 5 per cent of it was disbursed in small tranches, putting the survival of the airline in question.
The revised plan to infuse Rs 1,000 crore comes after a meeting of civil aviation secretary Pradeep Singh Kharola and top officials in the PMO Friday evening. The high-level meetings were prompted by a warning signal from the Jet management that the airline was left with funds to survive only till April 15.
Jet is currently flying seven planes out of its original fleet of 120. It has repeatedly defaulted on payment to aircraft leasing firms, oil companies, vendors due to a severe cash crunch and a piling debt of over Rs 8,500 crore. Earlier, this week, the airline suspended all its international flights, while its employees organised a protest march for non-payment of salaries.
The lenders expect that by May 7, the process of selection of bidders will be completed and clarity will emerge on the future of the airline. The SBI-led consortium had called for expression of interest to buy a controlling stake (51-75 per cent) in Jet Airways. April 30 is the last date for submission of binding bids.
ALSO READ: Etihad eyes driver's seat at Jet in bid to boost west Asia ambitions
Abu Dhabi-based Etihad Airways, which currently owns 24 per cent stake in the airline; private equity fund TPG Capital; government-owned sovereign fund National Investment and Infrastructure Fund (NIIF) and ousted chairman Naresh Goyal are among those to have formally submitted EoIs. Etihad is the only airline, making it the sole strategic player to express interest.
“By May 7, it would be clear if the airline has found a credible investor ready to pump in money. So the current plan of supporting the airline is till that time,’’ a senior executive of a public sector bank said. Emergency fund, which is known as priority funding in banking parlance, involves extending credit to sick companies to keep them as going concern until a new investor or a restructuring plan is finalised. Banks enjoy higher security on this credit as they are given priority during the payout phase, once the turnaround is effected or the company is liquidated.
However, for Jet Airways, the lenders’ consortium has been unable to come to a consensus on whether such a funding should be given to the airline. Promoter Naresh Goyal has pledged 41 per cent of his shares to the lenders which was a pre-condition to release the funds.
“The lenders’ consortium met thrice on the subject but has been unable to finalise a decision,” the executive said. Apart from SBI, which is the lead member of the consortium, Punjab National Bank (PNB) has significant exposure to the airline followed by Indian Overseas Bank, Syndicate Bank, ICICI Bank, Canara Bank and Yes Bank.
ALSO READ: Naresh Goyal submits EoI as crisis-hit Jet Airways stares at closure
PNB Chairman Sunil Mehta on Friday had said the Jet resolution was being done under the Inter Creditors Agreement (ICA) framework for which approval of lenders with 66 per cent share of exposure in aggregate is enough to pass a decision. Once resolution plan is approved by majority lenders, it will be binding on all lenders that are party to ICA. “Jet Airways could be the first case to be resolved under the ICA framework,” Mehta said. Meanwhile, airline officials have confirmed that the Jet management is framing a plan which will be submitted to the lenders on Monday, adding that any delay would ground the airline. According to the plan, the airline intends to operate with 26 aircraft.
“The major head of expenditure will be partial payment of salary, lease rentals to get some planes up in the air and restart the routes and payment to oil marketing companies. But the infusion should be swift. Till now we have submitted plans to the lenders but money was not released,” an airline executive said.

Small deposits, loans will continue to be MCLR based, says Rajnish Kumar

A day after State Bank decided to link its short-term loans and large savings deposits rates to the repo rate, chairman Rajnish Kumar Saturday said loans and deposits below Rs 1 lakh will continue to be linked to the present MCLR to protect retail customers from market vagaries.
In a first, the nations largest lender had Friday said from May 1, it would link its savings accounts with deposits over Rs 1 lakh and all cash credit accounts and overdrafts or short term loans with limits above Rs 1 lakh or short-term loans, to the repo rate, which currently is at 6.25 per cent.

At present some banks like Kotak Mahindra, Yes Bank, RBL Bank and Singaporean lender DBS Bank pay higher interest to the tune of 5-6 percent on savings deposits regardless of the balance, while large players like SBI and other state-run lenders, and private players like HDFC Bank, ICICI Bank and others pay 4 per cent per annum.
From May 1, the savings bank deposits with a balance above Rs 1 lakh will earn an interest of 3.5 per cent, 2.75 per cent lower than the repo rate and lower amounts in balance will earn 4 per cent.
The bank has also linked all cash credit accounts and overdrafts with limits above Rs 1 lakh to the repo rate plus a spread of 2.25 per cent.
"The category which we have linked to the external benchmark is the best category--all cash credits and overdrafts above Rs 1 lakh. Here also, for accounts with Rs 1 lakh and below, we've kept out of the purview as we believe that retail customers should not be forced to suffer from the market vagaries," Kumar told reporters on the sidelines of an event organised by Indian Chamber of Commerce.
He also said, across the world, retail loans are not left to the market forces alone when it comes to pricing and that it is mostly corporate accounts that are left to the market conditions.
He also said the move is in accordance with the RBI guidelines on the MCLR (marginal cost of fund-based lending rates) and other loan pricing norms. Kumar said SBIs retail loans are currently priced as per MCLR and the system is working well and will continue to remain so.
"Retail loans will continue to be linked to MCLR for the time being. If the loan is long-term in nature, you cannot re-price it very frequently...that way MCLR is a good solution," Kumar said.
He said by linking savings bank deposits rate to the repo rate, MCLR will get adjusted automatically as and when there is a change in the repo rate.
He, however, said MCLR will not move by 25 bps if there is a similar reduction by the RBI in the repo rate.
"It will depend on what portion of our savings banks gets repriced and its consequent impact on MCLR. To that extent the MCLR will get repriced," Kumar said. Currently, the bank is offering a rate of 3.50 per cent for savings bank deposit rates up to Rs 1 crore, and 4 per cent above Rs 1 crore.
As much as 33 per cent of its savings account-holders will get the benefit of the new pricing system, the bank said.
On the thorny issue of swift monetary transmission, Kumar said liabilities are mostly fixed for banks and transmission on the asset side alone cannot happen. "Transmission cannot happen only on one side. If transmission has to happen it has to happen on both sides and that is why SBI came out with this solution that the deposits savings bank account with 1 lakh and above, we will link it to repo rate and all the working capital loans which are theoretically payable on demand.
Talking about NCLT clearing ArcelorMittal's Rs 42,000-crore bid for Essar Steel rejecting the Rs 54,389 crore offered by a company run by the Ruias of Essar group, Kumar said they are awaiting the final order.
"The written order is yet to come. But our stand, as well as that of the committee of creditors, is that we abide by the order. The final process of the resolution of Essar Steel began with the NCLT order yesterday," he said.
Kumar said in the case of Jet Airways, whatever is the resolution plan, it will be implemented if all the conditions by all stakeholders--Naresh Goyal, lenders, Etihad and approval from the government, are met.

Jet's lenders awaiting Sebi decision on exemptions to Etihad: SBI chairman

The State Bank of India-led consortium of lenders has not rejected Etihad Airways’ bailout offer for financially stressed Jet Airways and is waiting for the Securities and Exchange Board of India’s (Sebi’s) decision on granting exemptions to the foreign player, SBI Chairman Rajnish Kumar said on Saturday.
Etihad, which holds a 24 per cent stake in India’s second-largest airline, has made an offer to invest only at Rs 150 per share, which is 53 per cent of Jet’s closing price of Rs 281.35 on Friday. The UAE-based carrier is also seeking an exemption from Sebi on preference pricing and open offer guidelines to invest more for the bailout.
“We are nobody to reject anybody’s resolution plan. We are saying that there is a regulation governed by Sebi. What we have to see is that what Sebi says,” Kumar said on the sidelines of an event at Gujarat International Finance Tec-City (GIFT City) in Gandhinagar. “If no regulatory exemption is required, then it is easier (to resolve). If a regulatory exemption is required, then they have to approach the regulator and we need to know the regulator’s view," he added.

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ALSO READ: Naresh Goyal sets terms for Rs 700-cr infusion into debt-laden Jet Airways
Jet owes over Rs 8,000 crore to the SBI-led consortium. The lenders are now wary of a Kingfisher-like situation, after the airline defaulted on loan repayments in December. Etihad’s offer comes with riders, that Jet’s founder and chairman, Naresh Goyal, who holds a 51 per cent stake, give up the board seat and reduce his stake to 22 per cent, and that the debt is not allowed to be converted into equity.
Goyal, on the other hand, has told SBI that he is ready to invest up to Rs 700 crore and pledge all his shares if he retains at least 25 per cent of the airline.

ALSO READ: Lenders of debt-laden Jet Airways likely to write off up to 25% of loans
On whether the promoters’ stance could delay the resolution, Kumar said, “They have their own differences. If these were not there, we would have resolved it by now. These are all complex problems and they do not get resolved in one day. But we are very close to resolution.”
Kumar also reiterated that since insolvent Essar Steel's case in the National Company Law Tribunal (NCLT) had crossed the 270-day window for long, SBI could not keep its capital locked. Recently, SBI put up its Rs 15,431-crore bad loans in Essar Steel for sale at a discounted reserve price of Rs 9587.64 crore. “We were expecting the resolution and recovery to happen in September and later December, but it has not happened. We don’t know whether it will happen in March or not. The bank cannot afford to keep its capital locked for such a long time,” said Kumar.
ALSO READ: I will strive to transform Jet Airways into a viable business: Nivaan Goyal
On the Insolvency and Bankruptcy Code (IBC), he said it was a good process and lenders were committed to making it a success. “The spirit of the IBC is quick resolution and there is a time period of 270 days. So till we are able to adhere to that time frame, there is no problem," he added.
Commenting on Essar Asia Holding Ltd's offer of over Rs 54,000 crore for bailing out Essar Steel, Kumar said the lenders were not in favour of the same. "It is not just about Essar promoters, but anybody coming after the process is over, the lenders are not in favour of that. When the entire process is over and suddenly you wake up and come to pay... then the sanctity of the process is gone.”
On the Reserve Bank of India (RBI)'s interest rates, Kumar said that given the current scenario, it was unlikely that the rates would be raised. "One thing is certain in this scenario, that interest rates are not going to go up. Whether they will cut or not is very difficult to predict at this stage."
The SBI chairman was at the BSE’s India International Exchange (India INX) for bond issuance worth $1.25 billion for listing on its Global Securities Market (GSM), India’s first and leading capital raising platform for international investors in any currency, at GIFT City's International Financial Services Centre (IFSC). SBI has also listed a $650-million green bond issuance on India INX.

SBI increases fixed deposit rates by up to 10 bps on select maturities

The country's largest lender State Bank of India on Wednesday increased the fixed deposit rates by up to 10 basis points or 0.10 per cent to 6.80 per cent on select maturities.
The new rates ranging from 5 to 10 bps are applicable for deposits below Rs 10 million and are effective immediately, the bank said on its website. One basis point is one hundredth of a per cent.

ALSO READ: Govt may have to cut capital spending by Rs 700 bn, says SBI report
This follows an increase in deposit rates by HDFC Bank by up to 0.5 per cent and ICICI Bank by up to 0.25 per cent on select maturities earlier this month.
For fixed deposits maturing in one to less than two years, SBI has revised its rate to 6.80 per cent from 6.70 percent earlier. For senior citizens, the new rate for the same maturity has been increased to 7.30 from 7.20 per cent.
For deposits maturing in two to less than three years, the rate has been increased to 6.80 per cent from 6.75 percent.
Senior citizens will get a rate of 7.30 per cent as against 7.25 per cent on deposits with tenor of two to less than three years.
The lender has kept deposits rates unchanged for other maturities.
It is offering a deposit rate of 6.80 per cent for tenure three years to less than five years.

Resolution soon on 7-8 stressed power assets worth Rs 170 bn: SBI MD

State Bank of India managing director Arijit Basu said on Friday that about 7-8 power sector projects worth Rs 170 billion (Rs 17,000 crore) are expected to be resolved soon as lenders are nearing consensus on these.
There are about 34 stressed power projects and the combined value of their outstanding loans is about Rs 1.74 trillion (Rs 1.74 lakh crore).

"We have looked at 13-14 accounts which would entail changes in management, investment etc. Out of these, 7-8 accounts we are looking at very closely, to get some consensus among the banks," Basu said on the sidelines of an event here.
"There are investors who have expressed interest and we are in very very advanced stage as far as these accounts are concerned. Some of these we should be able to conclude very soon," he said.
When asked how many cases are being referred to NCLT by the end of the August 27 deadline, he said: "We don't see major spurt in accounts being referred to National Company Law Tribunal (NCLT). We have been bringing out the stress in the system...we have worked at resolution. We have not waited for deadline."
Banks have already referred many cases to NCLT, he said.
The Reserve Bank of India (RBI), in a circular in February, mandated banks to identify projects with even a day's default as stressed asset and conclude the resolution proceedings in 180 days. The circular came into effect on March 1 and the 180-day deadline concludes on August 27.
On provisions against non-performing assets (NPAs) or bad loans, Basu said that some guidance has been given and the bank has already provided for them significantly in the first quarter and will continue to provide as per the norms.
"As far as recoveries are concerned this particular financial year has been significantly better than what we were doing in 2017-18. It is almost 80-90 per cent more than what we were doing in 2017-18," he said.
Asked about talks of public sector banks being given more autonomy, Basu said SBI is a well governed bank with a very strong board.
"The board has not only strong internal directors but strong external directors. So all decisions are board driven. Corporate governance in SBI is strong and regulator is also very clear on how bank should be regulated," he said.

SBI posts third straight quarterly loss at Rs 48.76 bn on higher provisions

The country's largest lender State Bank of India, posted a loss of Rs 48.75 billion in the first quarter ended June 2018, on sharp rise in provisions and contingencies.
This is the third consecutive quarter in which the lender has booked a loss. It had posted a loss of Rs 77.18 billion in the fourth quarter ended March 2018.

This is the first comparable quarter for the merged entity after the bank integrated associate lenders and Bharatiya Mahila Bank with itself in April 2017.
It had posted a net profit of Rs 20.05 billion in April-June 2017 (Q1FY18), the first quarter after the merger.
Its net interest income (NII) was up 23.81 per cent at Rs 217.99 billion in Q1FY19 from Rs 176.06 billion in April-June 2017 (Q1FY18).
Its other income consisting of treasury income, commissions etc declined to Rs 66.79 billion in the April-June 2018 period from Rs 80.05 billion a year ago.
Gross non-performing assets (NPAs) improved to 10.69 per cent as on June 30, 2018, from 10.91 in the last quarter (March 2018), indicating stabilisation in NPA levels. They stood at 9.97 per cent in June 2017. Net NPA ratio declined to 5.29 per cent from 5.49 per cent in the last quarter. They were at 5.97 per cent at end of June 2017.
The total provisions and contingencies more than doubled to Rs 192.28 billion in Q1FY19 from Rs 89.29 billion a year ago. Of this, provisions for NPAs rose marginally on year-on-year (Y-o-Y) basis at Rs 130.37 billion in Q1Fy19 from Rs 121.25 billion in Q1FY18.
On a sequential basis, NPAs provision bill feel sharply from Rs 240.8 billion in the quarter ended March 2018.
The bank's capital adequacy ratio at 12.83 per cent and CET-1 at 9.8 per cent continue to be above regulatory norms. Its stock was trading higher by 2.6 per cent at Rs 324.8 per share on BSE late afternoon.

24 lenders sign an inter-creditor agreement for faster NPA resolutions

Two dozen lenders including State Bank of India and Punjab National Bank on Monday signed an inter-creditor agreement (ICA) to speed up the resolution process of stressed assets in the range of Rs 500 million to Rs 5 billion under consortium lending.
The ICA is to be signed by 22 public sector banks (including India Post Payments Bank), 19 private sector banks and 32 foreign banks. Besides, 12 major financial intermediaries, like Life Insurance Corporation, Power Finance Corporation and Rural Electrification Corporation, are also signatories, according to the agreement.

V G Kannan, chief executive, Indian Banks’ Association (IBA), said the ICA had been executed by 24 lenders, primarily those who had obtained their board approvals. Others are expected to execute the ICA shortly after getting approvals from the respective boards.
The IBA is expected to form an oversight committee in a month. The first review of progress made under ICAs might happen after three months, bankers said.
ALSO READ: Can Project Sashakt take off in time to prevent NPAs from moving to IBC?
The faremwork is part of the Project Sashakt (or the report on bad bank submitted earlier this month), drafted by the Sunil Mehta committee. Mehta, also non-executive chairman of PNB, said foreign banks had to go to their headquarters for consent to sign the ICA. They may sign the overarching ICA or opt to sign on a transaction basis.
Under the pact, each resolution plan will be submitted by the lead lender (for the borrower account) to the overseeing committee.
The lead lender, with the highest exposure, shall be authorised to formulate the resolution plan, which shall be presented to the lenders for approval. Under the ICA framework, decision making will be by way of the approval of 'majority lenders', that is those with 66 per cent shares in aggregate exposure.
Once the majority of the lenders approve a plan, it will be binding on all the lenders that are party to the ICA.
Each resolution plan will have to be in compliance with Reserve Bank norms, applicable laws, and guidelines.
The lead lender will submit the resolution plan, along with the recommendations of the overseeing panel, to all the relevant lenders.
The framework authorises the lead bank to implement a resolution plan in 180 days. The lead lender could empanel specialists and other experts for turning around assets within the RBI's stipulated time-frame of 180 days. In case a lender dissents, the lead lender will have the right but not the obligation to arrange for buying out the facilities of the dissenting lenders. It could be bought at a value equal to 85 per cent of the liquidation value or resolution value, whichever is lower.
The dissenting lenders could exercise such rights of buyout in respect of the entire facilities held by other relevant lenders, it said. This agreement will be terminated in case there is any such guidance or prescription from the RBI or any other regulatory or governmental authority.
Public sector executives said the ICA did provide room for speedy resolution. But it had risks like unsecured creditors, which are not part of the ICA, mounting legal challenge.
Finance Minister Piyush Goyal tweeted: “A massive step taken to resolve NPAs. 24 public, private& foreign banks have signed inter-creditor agreements under Sashakt to resolve stressed assets. This resolution over dissolution approach will strengthen banks and businesses, protect jobs and help economy grown even faster.”
Non-performing assets (NPAs) or bad loans crossed Rs 10 trillion at the end of March last year and the RBI has warned of the situation worsening. The gross NPA ratio of banks is likely to rise from 11.6 per cent in March 2018 to 12.2 per cent by the end of the current financial year, according to the Financial Stability Report released in June.
FIGHTING BAD LOANS
24 lenders including State Bank of India and PNB sign inter-creditor agreement (ICA)
ICA is being signed by 22 public sector banks (including India Post Payments Bank), 19 private sector banks and 32 foreign banks
12 major financial intermediaries, like LIC, Power Finance Corporation and Rural Electrification Corporation, also signatories
Others expected to execute the ICA after getting approvals from respective boards
First review of progress made under ICAs might happen after three months
Framework authorises the lead bank to implement a resolution plan in 180 days
The ICA replaces the joint lenders’ forum and prevents minority lenders from blocking resolution plans

SBI's plan to invoke guarantees on companies under NCLT unlikely to succeed

A proposed plan of the State Bank of India (SBI) to invoke personal and corporate guarantees of defaulting companies is unlikely to pass legal scrutiny, having been barred from doing so in previous cases. The country’s largest bank is likely to issue about 200 notices invoking personal guarantees, even in cases where insolvency proceedings were underway.
Apart from numerous smaller companies, at least 40 large accounts are facing insolvency. The Reserve Bank of India (RBI) had in June last year come up with 12 names for immediate bankruptcy referrals. Later, it brought another list of 26 large accounts.
Such promoters might have personal guarantees running into tens of billions, but may not be in a position to pay. And, in case, the SBI plans to invoke these personal guarantees, the bank will be sued by these promoters.
The promoter of a company on the RBI’s first list said he was aware that a plan of invoking personal guarantees was in the works, but added it was completely against the spirit of the Insolvency and Bankruptcy Code (IBC).
Another promoter on the second list said that it won’t stand on grounds of law. “Invoking guarantees is effective of liquidation, and we have not reached that stage yet. Once you go to the National Company Law Tribunal (NCLT), there is a moratorium.”
IBC provides 180 days for a resolution, which can be extended by 90 more days. If a resolution is not achieved within this timeframe, the company is liquidated.
“In case the SBI does go ahead with its plan, it will be legally challenged,” said the promoter.
So far, promoters on the first and second list have refrained from challenging the ordinance that barred them from bidding. However, any such move would be challenged, they say. It is likely that the promoters would prevail in such cases, say senior lawyers.
In fact, any ambiguity on the matter has been cleared in two earlier cases, with SBI asked to back off when insolvency proceedings were on. A legal expert said the situation would unlikely to change, irrespective of what SBI's interpretation of the law was.
In one such case, Veesons Energy Systems versus SBI, the Chennai bench of the NCLT stopped the bank from invoking the personal guarantee of V Ramakrishnan, director of the company. SBI notified Veesons and Ramakrishnan on November 12, 2016, that the personal assets would be sold. The firm challenged it, stating it had applied to the Board for Industrial and Financial Reconstruction (BIFR) and till its application was decided, dues could not be recovered.
The IBC became operational in December 2016. The NCLT bench ruled that in case a guarantor’s personal property is sold to realise a portion of debt dues against a company in default, it would create a charge on assets of the company, “which shall amount to ‘encumbering’ the properties of the corporate debtor”. Meaning, if the bank tried to sell off the assets, the promoter would be deemed a creditor to the company, since his assets had been sold to pay off debt. The IBC says when a firm is going through insolvency proceedings, “transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein” is prohibited.
Beside, there are several cases that spurned the banks’ claim whenever the lenders went to invoke personal guarantees of the promoter, simultaneously with insolvency proceedings going on. In the case of Sanjeev Shriya verses SBI & others, the Allahabad High Court turned down SBI's move.
“The argument advanced by Shri Navin Sinah is also fortified on the ground that once the liability is still in a fluid situation and the same has not been crystallised, then in such a situation, two parallel/split proceedings in a different jurisdiction should be avoided, if possible,” the court ruled in early September 2017.
Similarly, in the case of Axis Bank versus Edu Smart Services, the Delhi NCLT ruled against the bank. Stating it could not invoke such guarantees when there was an insolvency proceeding on and the mandatory limit of 270 days had to be honoured.
The Insolvency and Bankruptcy Board of India was trying to change these through tweaks in the law to help banks invoke such guarantees. It is unclear if the recommendations on favouring of creditors have been accepted by the board or not.
Even if accepted, it is highly unlikely that the law would be changed in favour of bankers as far as guarantees are concerned in a relatively short span. Therefore, lawyers say, SBI’s credit recovery team will have to wait for a while.

SBI to raise Rs 200 bn for affordable housing, infrastructure projects

State Bank of India on Wednesday said its board has given nod to raise Rs 200 billion for financing affordable housing and infrastructure projects through long-term bonds.
"The executive committee of the Central Board in its meeting held today has inter alia approved, the proposal for issuance of long-term bonds of Rs 200 bill the on for financing of infrastructure and affordable housing in domestic and overseas market in FY 2017-18 and FY 2018-19," the country's largest bank said in a BSE filing.
The bank did not specify whether the borrowing would be in rupee denomination or foreign currency.
Earlier this month, SBI had announced plans to raise up to $2 billion by issuing bonds in the US dollar or other convertible currency to fund overseas expansion.
It had said that the fund-raising would take place through a public offer and/or private placement of senior unsecured notes in US dollar or any other convertible currency during 2017-18 and 2018-19.
Shares of State Bank of India (SBI) closed 3.44 per cent higher at Rs 306.35 apiece on BSE today.
Although the real estate sector is facing multi-year slowdown, the affordable housing segment has gained momentum after the government provided infrastructure to it in the last year's budget.
The government is also providing interest subsidy to buyers on the low cost homes under Pradhan Mantri Awas Yojana.
Recently, HDFC Capital Advisors, an arm of mortgage leader HDFC, closed its second affordable housing fund, creating a USD 1-billion corpus.

SBI's Apr-Nov earning from this fine was over 50% of its net profit in H1

State Bank of India, the country’s largest lender, made a whopping Rs 17.7 billion in charges levied on customers failing to maintain their minimum monthly average balance during the April-November 2017 period, according to media reports quoting finance ministry data.
Annual growth in the bank’s revenue on this count cannot be arrived at as SBI had collected no money from customers for not maintaining average balance during the comparable period in 2016. However, the Rs 17.7 billion figure is bigger than the bank’s net profit of Rs 15.82 billion in the July-September quarter and almost half the Rs 35.86 billion it earned in the first half of the financial year (April-September 2017).
According to an Indian Express report, 1.3 billion of SBI’s 4.2 billion savings bank accounts are those under the Pradhan Mantri Jan Dhan Yojana or basic savings bank deposits accounts – both of which are exempt from penalty for not maintaining average balance. So, these charges would have been levied on defaulting accountholders among the remaining 2.9 billion.

On Monday, the first day of the new calendar year, SBI had surprised its customers by announcing a 30-basis-point reduction in benchmark prime lending rates (BPLR) with effect from the same day.
The bank had said it would also extend its ongoing waiver on home loan processing fee until March 31 for new customers and for those switching their loans from other banks to SBI.
SBI Managing Director (retail and digital banking) P K Gupta had said the move would benefit about 8 million customers.
The revised base rate for the bank is now 8.65 per cent, while the BPLR is 13.40 per cent. The base rate is the minimum rate that a bank can offer to its customers.
“The reduction in the base rate is a New Year gift to the bank's loyal customers, as a large number of consumers who have their loans linked to the base rate will benefit. This reduction is part of the bank's efforts to ensure transmission of the reduction in policy rates of the recent past,” Gupta had said.