Money & Banking
Obstinate NPAs That Refuse To Go Away
Non-performing Assets (NPA) are a dynamic statistic, moving from Rs2.50 lakh crore in 2013 to nearly four times in four years! 
The corporate debt restructuring (CDR) measures suggested after the 2008 crisis, corrective action plans, Joint Lenders’ Forum (JLF), 5:25 scheme, strategic debt restructuring (SDR), sustainable structuring of stressed assets (S4) have all proved a damp squib. Now the Reserve Bank of India (RBI)-led action, by amendment to the Banking Regulation Act to invoke the provisions of the Insolvency and Bankruptcy Code (IBC) against wilful defaulters, is made to appear as a surgical strike at bad debts.
Any credit decision is bounded by certain forecasts or predictions about the future. It is unlikely that every such decision would end up as expected. Hence, NPAs are inevitable in lending. However, credit assessment for corporate entities requires finesse. The promoters and directors should be put to the rigor of scrutiny.
Environment and economic risks should be part of enterprise risk assessment. When we look at the largesse in lending to the corporate sector, hindsight and individual appraisal of the directors and promoters as well as monitoring post-disbursement appear to have taken a beating. 
The banks, the government owning most of them, and the RBI have been in the know of the problems. After development banks were wound up and universal banking came into being, when banks started selling credit, mutual funds and insurance, and bank-participated rating institutions began rating the companies, credit risk assessment has become farcical. Lenders are aware that they are lending short-term resources for long term investments prone to very high risk of losses. Banks say they were forced to lend to public sector undertakings (PSUs). 
Bank executives eyeing for the top post or those in such high post keen to hold on to their positions, compromised institutional interests. The other reason for such credit for infrastructure, real estate, housing, and retail was arm chair lending, necessitated by staff shortage. They earned profits at the cost of efficiency.  
Bank Boards, having government representatives as directors, liberally sanctioned loans. Risk management committees, audit committees of Boards, regular audits and inspection reports at annual intervals should have been the instruments of Board oversight mechanism.  Unfortunately, all these would appear to have been muted. 
The CDR mechanism helped in greening the balance sheets of banks. The postponed debt obligations returned with a vengeance to the banks after the CDR ended. Banks realised that they had to provide 30% of the secured portion and 100% of the unsecured for all the doubtful accounts. By the time the CDR ended, banks realised that the tangible securities have all vanished. To save the banks, RBI introduced SDR. 
Under SDR, banks can convert 51% of debt into equity to be owned by them and also change the management. New investors could hardly be found, as the amount involved is over Rs2 lakh crore.  Management changes could hardly be seen. In the consortium of bankers, another peculiarity noticeable was that while one bank declared the asset as standard asset, another bank declared it as doubtful, calling for action, due to the former finding ways to push the ghost of NPA under the carpet. 
S4 can be termed a non-starter. Unanimity in restructuring effort proved a rarity. On top of this, banks started showing ‘vigilance’ from agencies like the Central Bureau of Investigation (CBI) as villains.  Skeletons in the cupboard of such banks came out and some executive directors and chairpersons were exposed.
The latest RBI measure to invoke the IBC and also provide for deep haircuts without fear of the ‘vigilance’ bodies has to prove itself, as the Code requires thorough understanding of the art and science of negotiation and arbitration. Until all the stakeholders, advocates and the jury fully acquaint themselves with the terms used in the IBC, resolution through this process would be a long and difficult journey, given the fact that the banks have not been able to make use of the easier Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act). 
It is time for the RBI to step out of the Bank Boards. Regulatory arbitrage shall not take place to preserve the sanctity of the central bank. In more than one way, dynamics of NPAs thus far have defied sensitivities in resolution. Hopefully, the RBI will be able to provide a remedy to the sick five-star hospital patient.
(Dr B Yerram Raju is a risk management specialist and a former senior executive of SBI.) 



Ramesh Jaradhara

3 months ago

What we learn from all said and done is that the infection in the banking system is so deep that a surgery is seems impossible at this juncture. A medication with an Indian mentality will not bear any fruit. IBC could be effective medicine at this moment. But chances are that resistance may develop against this too. Where corruption is a normal rule, an exception to this would be an exception.

Ashok m Rane

3 months ago

In this article it is stated that the Top Bank Executives ( Board Members- CMDs/EDs/CEOs)I would say that NPAs are essentially a product of the unholy nexus between corrupt Bank executives and their political-cum-bureaucratic (i.e., the IAS) bosses (and also with the support of the CVC/CBI). it is clear that High Value Loans r sanctioned under pressure or taing into consideration some hidden interests. This is possible only because as they are Presidential Appointees, they are free of criminal action, they r not accountable for their misdeeds, or they r deliberately kept like that to help Top Politicians.They r also out of purview of Vigilance. It is d root cause of growing NPA, large scale writing off of Bank Loans etc. In this context the 39th Report of Standing Committee on Finance submitted to the Parliament is very important. The Report has been submitted by the Standing Committee under the Chairmanship of Dr. M. Veerappa Moily, MP, on 1st December, 2016.The Committee as per its recommendation No. 2 has strongly recommended that "Accountability of nominee Directors of RBI /
Ministry on the Bank Boards as well as the CMDs / MDs of banks should also be fixed
in the matter.." The Parliament has been made aware for the need for fixing accountability of Bank Heads for controlling NPA menace. Hope, the Govt. accepts the recommendations and brings legislation so that the NPAs r controlled.


3 months ago

“Banks say they were forced to lend to public sector undertakings (PSUs).
Bank executives eyeing for the top post or those in such high post keen to hold on to their positions, compromised institutional interests....
Bank Boards, having government representatives as directors, liberally sanctioned loans. Risk management committees, audit committees of Boards, regular audits and inspection reports at annual intervals should have been the instruments of Board oversight mechanism. Unfortunately, all these would appear to have been muted.”
How rightly put by the author.
From my experience of thirty-five years in the Indian Revenue Service, mostly investigating tax evasion cases inter alias of corrupt officials, and also as Director (Fin) in a very important economic ministry, I would say that NPAs are essentially a product of the unholy nexus between corrupt Bank executives and their political-cum-bureaucratic (i.e., the IAS) bosses (and also with the support of the CVC/CBI).
In a large number of cases of fly-by-night investment companies with fake and bogus shareholders that were floated in the early eighties, the complicity and connivance of bank officials were unearthed by us. There is no doubt that, if the top management were not greedy and pliable, and they themselves were honest, the banks would not have been saddled with this huge problem of unrecoverable NPAs.
This is like the ever mounting problem of recovering the outstanding taxes over the years, also due to the connivance of the political and bureaucratic bosses of the corrupt tax authorities.

Beware: Registration with RERA doesn’t mean the project is authentic
The basic object of the Real Estate Act (REA) was to ensure accountability towards allottees, protect their interest, infuse transparency, ensure fair play and reduce frauds and delays. However, it seems promoters and builders have decided to challenge the competence and power of the Regulatory Authority established under the Real Estate (Regulation and Development) Act, 2016 (RERA). 
The RERA also has seems to have succumbed to builders’ tactics or does not have the infrastructure to verify the validity of documents provided by builders. As far as Maharashtra RERA (MahaRERA) is concerned, many builders have not provided authentic documents while registering their projects. MahaRERA also has not verified those. Despite this, many builders and promoters have obtained registration certificate from MahaRERA.
Already the RERA rules have been diluted in Maharashtra and now builders are not providing authentic and full information. This raises a serious question on the authenticity of projects, even after obtaining RERA registration. After complaints, MahaRERA may take action on defaulting builders. For buyers, it was not easy to obtain detailed information about projects from builders. This has not been made easy by REA in Maharashtra. However, even after obtaining information, understating and analysing it is a huge task for buyers. So forget about anyone filing a complaint before the MahaRERA.
The various agencies in Maharashtra shy away from any accountability, causing serious damage to the basic objectives of proactive Acts, be it the Registration Act, The Right to information (RTI) Act, Maharashtra Right to Public Services Act or Maharashtra Land Revenue Code. MahaRERA seems to be no exception and the reason is that builders and promoters do not want REA to succeed, so that they can continue to cheat consumers.
It is possible that MahaRERA may not have adequate infrastructure to verify the authenticity of the documents that builders provide. But it is their responsibility to ensure builders provide all the necessary documents as required under the REA. Many builders either have not provided mandatory information or have provided irrelevant information. Despite this, they have received registration certificates from RERA. It is now the consumer’s duty to obtain the legitimate documents from MahaRERA, study it and lodge a complaint, if necessary.
Under REA, the builder/promoter has to provide and publish:
a) Important details of his enterprise, including its name and photograph/s of the promoter/s;
 important details of the projects launched by him in the past five years, details of cases pending, details of type of land and payments pending;
b) an authenticated copy of the approvals and commencement certificate
c) the sanctioned plan, layout plan and specifications of the proposed project or the phase thereof, and the whole project as sanctioned by the competent authority;
d) the plan of development works to be executed in the proposed project and the proposed facilities to be provided, including fire-fighting facilities, drinking water facilities, emergency evacuation services, use of renewable energy;
e) the location details of the project, with clear demarcation of land dedicated for the project, along with its boundaries, including the latitude and longitude of the end points of the project;
f) proforma of the allotment letter, agreement for sale, and the conveyance deed proposed to be signed with the allottees;
g) the number, type and the carpet area of apartments for sale in the project, along with the area of the exclusive balcony or verandah areas and the exclusive open terrace areas, if any;
h) the number and areas of garage for sale in the project;
i) the names and addresses of real estate agents, if any, for the proposed project;
j) the names and addresses of the contractors, architect, structural engineer, if any, and other persons concerned with the development of the proposed project;
However, in Maharashtra Real Estate Rules, promoters and builders have been exempted from publishing details provided under clauses (b), (e), (g), (h), (i) and (j). Taking full advantage of the diluted rules and working of MahaRERA, promoters and builders have suppressed lot of vital information.
As per the REA, for on-going projects builders have been given three months’ time from the date of commencement of the Act to apply for project registration. However, some promoter/builders are found using this as an ‘amnesty scheme’ to revive their dead projects. Some builders who have started their projects some 15–20 years ago, which they were supposed to have been completed before 2005, have now given the proposed date of completion as 2022! That means the project, if completed, would take 22 years to complete.
Every commencement certificate or plan has a limitation period. After expiry of this period, the documents have to be re-validated. However, some builders have uploaded expired documents on the MahaRERA website. As per REA, builders and promoters have to provide and publish brief details of the projects launched by them in the past five years and the payments pending. However, hardly any builder has submitted these details.
There are several other violations by builders/promoters while providing information to MahaRERA. Even so, they have received registration certificates. But this does not mean the projects are authentic or the builders/promoters have all the required and legitimate documents to start or continue the project. Therefore, it is now the consumers’ responsibility to be vigilant.



Vikram Korade

1 month ago

Please confirm that how soon builder get the RERA registration no. once they complete registration on RERA website?

N. E. Ookabhoy

3 months ago

I agree. These are all paper authorities for making tall claims by the State Govt. without first putting in place the requisite infrastructure or manpower to tackle the issues. The Buyers unfortunately will continue to be at the mercy of unscruplous builders who have the last laugh

Is Trump Administration’s Visa Push a Way to Win Health Care Votes?

For months, Sens. Susan Collins, R-Maine, and Lisa Murkowski, R-Alaska, have been pushing the Trump administration to expand the number of foreign guest-worker visas issued to help businesses in their states prepare for their summer peak. The two senators are also considered crucial votes on the health care bill currently floundering in Congress.


So career staff at the Departments of Labor and Homeland Security took note last week when senior political officials ordered them to immediately draft a rule that would increase the number of H-2B visas, specifically mentioning innkeepers and fisheries in Maine and Alaska, according to three people with knowledge of the discussions.


Paul Ray, counselor to Labor Secretary Alexander Acosta, has been pressing staffers inside the agency for a rule to come out as early as this week, the sources said. While no one in political leadership invoked the health care bill specifically, they said, the sudden urgency and apparent desire to tailor the rule to specific states has drawn concern.


Career staffers have bristled at being told to find the data to justify the rule, the sources said, and have raised questions about whether a regulation benefiting specific industries over others would hold up in a court.


As a result of the pushback, some of the specific details have been scaled back and the latest draft would target a broader set of industries that experience a late summer spike and, as a result, missed out on the first round of visas earlier this year. In addition to certifying they've attempted to hire American workers, businesses would also have to attest that they would likely fail or suffer serious financial harm without hiring guest workers.


As an interim final rule, what's being drafted would take effect immediately without the long period of public comment that usually precedes new regulations.


A Labor Department spokesman referred questions about the rule to DHS, which declined to comment on whether there was any connection between the timing of the work and the health care bill.


"The administration and the department are committed to protecting American jobs and U.S. workers," DHS spokeswoman Joanne Talbot said in a statement. "DHS is only seeking to provide visas to truly seasonal industries that would be severely/significantly harmed by not receiving H-2B visas, which would adversely impact U.S. workers employed by these seasonal businesses."


Staff for Murkowski didn't immediately respond to requests for comment. A spokeswoman for Collins said, "There is no link — and there has been no attempt to link — this issue with the health care bill."


On Monday evening, Collins said she wouldn't support the health care bill as currently written. And on Tuesday, Collins and Murkowksi were part of a group of Republican senators who met with President Trump at the White House to discuss health care.


The H-2B issue has been politically incendiary for years. Even as Trump made promoting American workers the centerpiece of his presidential campaign last year, he has secured H-2B visas for foreign guest workers to serve as waiters and cooks at his Mar-a-Lago resort.


Conservative outlets such as Breitbart and the Washington Times have been hammering the Trump administration for what they see as a potential betrayal in any increase in the number of H-2B visas.


At an appropriations hearing last month, Murkowski pressed Secretary of Homeland Security John Kelly on the importance of the visas for Alaska.


"For most of these communities, for most of these regions, if there is no one to process the seafood when it comes in, there is no place for the boats to deliver," she said. "If the boats can't deliver, there is no economy to that community at all."


Kelly responded: "This is one of those things that I really wish I didn't have any discretion. And for every senator or congressman that has your view, I have another one that says, 'Don't you dare. This about American jobs.'"


The issue came to a head in January when the agency in charge of administering the H-2B program received more than 80,000 applications for 33,000 slots available during the first half of the year. In previous years, that quota had not been filled until March. In the face of increasing demand, Congress had allowed additional workers who had received H-2B visas in the past to return without counting against the quota. But Congress failed to renew that measure this year, significantly reducing the net amount of visas available for the full year.


In March, a bipartisan group of senators sent a letter to Kelly expressing concern that the cap had been reached, freezing out many employers with a need for labor in the late spring and summer.


"In recent weeks, numerous businesses across the United States have contacted our offices expressing concern that the H-2B statutory cap will be reached soon," the senators wrote. "As a result, small and seasonal businesses across the country, such as seafood processors and other critical hospitality and service businesses that are vital to the local economies in our states will be locked out of a necessary program that they rely on during their busiest seasons."


For example, Maine businesses were awarded 2,500 visas last year, but received only 700 this year before the cap was hit, said Julie Rabinowitz, director of policy, operations and communication for the Maine Department of Labor.


In response to heavy lobbying, in early May, Congress included a provision in a government spending bill giving DHS the authority to roughly double the number of available H-2B visas if it decided that "the needs of American businesses cannot be satisfied in fiscal year 2017 with United States workers."


But there was little movement, as senators continued to push for help — until last Wednesday, when DHS announced it would expand the number of seasonal worker visas available this summer. Politico reported the visas wouldn't be available until at least late July and would only be a fraction of the amount authorized by Congress.


If the Trump administration does issue a rule tailored to certain industries or areas of the country, experts believe it could be vulnerable to legal challenge.


"I wouldn't be surprised if industry groups sued to open up any increase in visas to other occupations and the rest of the country," said Daniel Costa, director of immigration law at the labor-oriented Economic Policy Institute and a critic of the H-2B program.


Laurie Flanagan, who co-chairs the industry-backed H-2B Workforce Coalition, echoed that sentiment. "It's not appropriate to pick and choose [which state or industry] should be winners and losers," she said. "Any seasonal business that meets the criteria, they should be able to hire those H-2B workers up to the cap."


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