Gross NPAs up at Rs. 60,841 crore

The gross non-performing assets of the banking industry have increased by Rs. 2,119 crore for the year ended March 2000 to Rs. 60,841 crore from Rs. 58,722 crore the previous year. However, gross and net NPAs as a percentage of advances have declined to 12.8 per cent (14.7 per cent) and 6.8 per cent (7.6 per cent), respectively. 

The incremental increase in net NPAs for all scheduled commercial banks was at 2.7 per cent (10.3 per cent) while that of gross NPAs was at 2.8 percent (16.9 percent). In absolute terms, the increase in net NPAs was at Rs. 2,131 crore (Rs. 4,260 crore) and that of gross NPAs was at Rs. 2,118 crore (Rs. 7,908 crore).

Sub standard, doubtful and loss assets are NPAs

The Centre on October 17 informed the Delhi High Court that the “sub standard, doubtful and loss assets” have been declared as non performing assets (NPAs) by it since 1992.   

“A debt becomes non-performing when it ceases to generate income for the banks”, the finance ministry in an affidavit told a division bench comprising Justice Usha Mehra and Justice K. Ramamoorthy, which had issued a notice to it asking how NPAs worth Rs. 51,000 crore had been created by various public sector banks. The notices were issued to the ministry and Reserve Bank of India (RBI) in August following a public writ petition by Social Reforms Welfare Association (SRWA) seeking CBI probe against bank officials, who advanced loans without proper guarantee.   The petitioner alleged that Rs. 51,000 crore public money was “misappropriated” by those who were supposed to manage the affairs of the public sector banks and attempt was not being made by the government to declare this huge amount as NPAs.

However, Additional Solicitor general (ASG) Shri R.N. Trivedi told the bench that a  similar petition filed by common cause director Shri H.D. Shourie was pending before the Supreme Court.

This was opposed by SRWA counsel Shri K.K. Sareen, who said the issue raised by his client was different as he had given atleast 12 specific instances of bank officials’ negligency. 
The RBI in its reply stated that it had initiated various measures for the recovery and to “curtail fresh incidents of NPA”. 
Decks cleared for setting up of FRAs for weak banks

The ministry of finance has cleared the decks for the constitution of bank specific Financial Restructuring Authorities (FRAs) for undertaking the restructuring plans for the three weak banks - Indian Bank, United Bank of India and UCO Bank.

The three banks will have separate FRAs to undertake the restructuring exercises of the banks very soon.

For the formation of FRAs each of which will take over the management of the three banks in place of their respective boards; the Government of India is bringing the necessary amendments to the Banking Regulation Act.

IDBI plans interest rate cut to 14% across all sectors

Industrial Development Bank of India (IDBI) has decided to reduce its interest rates across all sectors to 14 per cent.

“The decision to lower interest rates from 17 per cent to 14 per cent in case of Dabhol power project can be extended to all sectors if the borrower agrees to 50 per cent pre-payment premium”, IDBI Chairman Shri G.P. Gupta said.

According to the plan worked out by IDBI for renegotiating interest rates, a borrower has to pay a certain proportion of the total interest burden which varies from about 35 per cent to 75 percent of the interest amount due, to avail lower interest rates on the remaining loan amount.

The decision is a part of IDBI’s strategy to retain borrowers and reduce non-performing assets.

SIDBI selloff fixed at Rs. 30 per share

Bank chiefs have agreed to a divestment price for SIDBI’s share wherein IDBI would divest 51 percent of its shareholding in SIDBI at Rs. 30 per share.  Since the paid up equity of SIDBI at the time of the divestment would stand at Rs. 450 crore - the current paid up equity would be expanded through a preferential offering to Rs. 450 crore–IDBI stands to make about Rs. 660 crore as a result of this deal. 49 percent stake divested by SIDBI would be apportioned to the buyers based on their profitability.

SFCs (amendment) Act, 2000 - general regulations

Small Industries Development  Bank of India (SIDBI) vide its circular dated 17.11.2000 has advised all SFCs that pending framing of the general regulations by them as per the amended Act, the SFCs may follow the existing General Regulations which are already approved by the Board, IDBI and the State Government, so long as they are not inconsistent with the provisions of the amended Act.   However, SFCs in course of time, may frame suitable Regulations to include, interalia, additional matters as provided in section 48(2) of the SFCs (Amendment) Act, 2000.

As section 47 of the SFCs Act, 1951 under which the voting Rights Rules were earlier framed stands omitted under the SFCs (Amendment) Act, 2000 the voting rights would now have to be incorporated under the General Regulations, in conformity with the amended Act.  

FIs, banks to share SEB renenues from new projects

The government has agreed to allow financial institutions to share revenues from the state electricity boards with banks in all upcoming projects in the power sector.  This will facilitate speedy financial closure of the mega power projects and the 20 small projects.

The power ministry will take steps to strengthen the Power Trading Corporation to give counter guarantee.

Under the existing arrangement, the banks provide the working capital and, in turn, corner the revenue from the SEBs, depriving the FIs, providing term loans, of their dues.

PSU banks can buy equity in other banks  

The Centre is to allow state-owned banks to buy its stake in other banks as part of its proposed banking sector reforms. The move forms part of the bill to reduce government stake in state-run banks to 33 per cent from 51 per cent.

According to the bill, the government will remove restriction on transfer of its shares to allow mergers and acquisitions of state-run banks. However, this will be allowed on a case-to-case basis. Currently, only the shares not held by the government are freely transferable. Also, the government’s stake in the 20 nationalised banks will be allowed to go down to 33 percent through a fresh issue of shares. However, this will not apply to the SBI and its subsidiaries.  
The bill the Banking Companies (Acquisition and Transfer of Undertakings) and Financial Institutions Laws (Amendment) Bill 2000 also proposes to empower the government to supersede the board of a nationalised bank for three years, if it persistently defaults in complying with government orders.