One Stop Solution

Veracity
Believe in Partnering
Leading
Nurture Startups
Edge
V L E
Bad Loan Crisis Continues
May - 2017

V L E
Contents

1 Overview

2 Understanding 35A OF Banking Regulation Act

3 Approaches followed Globally

4 Countries dealt with Stressed Assets Recently

5 India Story Different from Peers

6 Measures

Page 3 V L E
Contents

1 Overview

Page 4 V L E
 Overview
• Cabinet has approved ordinance to amend section 35A of Banking
Regulation Act NPA
accumulated
Section • It’s a move towards resolution of NPA crisis in PSBs. over 6.97 lakh
35A crores.

• Indian banks suffering from stressed assets incurring losses on mounting Large portion
bad loans. covered by top
Stressed • Credit growth of banking sector has exhibited a reduction due to this 50 defaulters.

Assets factor.

Address
measures needed
for valuation
• 1. Loss of income in the form of interest. mismatch

Impact on • 2. Provisioning of Assets.

Profits
Address legal
issues to attract
foreign
investors
• NPAs in non priority sector has outstripped in priority sector with Industry
exhibiting highest level of stress.
Stress
Sectors

Page 5 V L E
Recognition of Loans by Private Banks
Asset Quality Review & Recognize 3

NPAs that they had not recognized

kinds of Loans

Projects not commenced at the time as

per plans that were submitted to banks

Axis Bank
Movements of DCB Bank
Gross NPAs of HDFC Bank
9 private
sector banks ICICI Bank
Restructured Loans have been Indusind Bank
shown namely:
Kotak Mahindra Bank
Federal Bank
Laxmi Vilas Bank
Yes Bank Ltd.

Page 6 V L E
 Gross NPA to Total Advances
Gross NPA to total advances for 9 banks from Dec16- Mar17
List of Banks Dec-16 Mar-17

Axis Bank 5.22 5.04 It shows Banks have

Gross NPA increased
from 1.93% to 3.91% DCB Bank 1.55 1.59 reached the level of
Mar 15 to Mar17 where HDFC Bank 1.05 1.05 recognizing NPA to
banks were ordered to Total Advances by
ICICI Bank 7.91 7.89
clean up their balance Dec16 where Gross
sheets with AQR.
Indusind Bank 0.94 0.93 NPA looks unchanged.
Kotak Mahindra Bank 2.42 2.59
Federal Bank 2.77 2.33
Laxmi Vilas Bank 2.78 2.67
Yes Bank 0.85 11.52

Delta 80% form Mar 16-

Overall Gross NPA Mar17.
increase from 26455
crores to 78991 Highest NPAs
crores.Delta 66% from witnessed in Qtr ended
Mar 15 to Mar 16. Sep16 when it grew by
around 105%.

Page 7 V L E
Contents

2 Understanding 35A OF Banking Regulation Act

Page 8 V L E
Understanding 35A of Banking Regulation Act

To a bank in order Investors

It Empowers RBI to issue Directives to manage or
prevent any affair Public Interest
of Bank that may be
detrimental to Interest of Bank itself

However it misses out on 2 aspects

Time bound Actions: Valuation of Assigning Haircuts

Section does not provide for timely
and speedy recovery of NPAs , thereby
Central Bank feels helpless on bad
asset resolution
It may give additional power directing
time bound actions on NPAs & clean
up of their balance sheet
Single biggest bone of contention between
RBI & Banks as bankers fear of levelling of
corruption & investigation.
New provision may be added to give
more teeth to RBI to assign final haircuts,
Rating agencies to be given mandate
evaluation on specific NPAs.

Page 9 V L E
Contents

3 Countries dealt with Stressed Assets recently

Page 10 V L E
Countries dealt with Stressed Assets Recently

Sweden
Norway

Turkey

Mexico

Korea
Indonesia

Japan

Chile

Argentina

Page 11 V L E
Contents

4 Approaches followed Globally

Page 12 V L E
 Approaches followed Globally
Buying bad assets using
Recapitalization of Banks Government Guarantees
Public Funds
Challenges Challenges Challenges

Objective assessment of economic Creation of Bad bank or Sate run

Pricing of bad assets
situation management company

Volume of bad debts & identification Share of losses split between

Pricing Of Bad Assets
of potential banks. Government and banks.
Low pricing will invite more
Ensuring banks actually clean up additional requirement and Higher Opportunistic behaviour by banks.
their Balance Sheets. pricing means will higher allocation
of funds.

• Lending decision are

Indian crisis • Saw no major dip in mainly linked to
• Large Infra projects
have some Economy during and
are funded by PSBs
government for
after crisis promoting large
resemblance to promote Infra companies
with Norway rather a commercial
and Korea decision.

Page 13 V L E
Contents

5. India story different from others

Page 14 V L E
India story Different from Peers

India unlike other countries not experienced a decline in GDP growth rate. We still continue be fastest growing
economy in the world.

Peak NPL ratio at 12.3% still lower than most other countries, but a case of high concern.

Other countries saw the private banks as major contributors of NPA unlike India where public sector banks
plays the spoil spot.

Loan to GDP ratio relatively low compared to other countries.

Most countries having NPA have pegged currency where India has partially convertible currency and
partially pegged.

Fiscal deficit under control.

Page 15 V L E
Contents

6 Measures

Page 16 V L E
Measures
Foremost component of mechanism is to resolve bad loan, i.e
correct assessment of problem or Recognition of total
Asset Quality Quantum of Bad Loans implemented through AQR (Asset
Review Quality Review)

Indra Another component of Asset Recapitalization. However the

Dhanush same has not been able to kick start credit cycle for the banks.
Program

Strike balance between restructuring plan approval, haircut

Private Asset provisions for banks, incentives for new managing investors, fair
Management clearing price for stressed assets. Works where asset has economic
Company
value in short run and contingent upon moderate level of debt
forgiveness

Quasi National Raises debt for its funding needs, also pay off banks for haircut, keep
Asset minority stake for govt., bring in Asset Managers such as ARCs &
Management
Company Private Equity to TURNAROUND assets, individually or as portfolio.

Page 17 V L E
Thank You

V L E