Banking News Dated 27th April 2018

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Banking News: April 27, 2018

Wage Revision for Bank Employees  Next meeting is on May 5 at Mumbai

Wage Revision for Bank Employees
Next meeting is on May 5 at Mumbai

Mumbai, April 26: The next Wage Negotiation meeting is scheduled to  be held at Mumbai on May 5, 20018 between Negotiating Committee of Indian Banks’ Association (IBA) and the representatives of United Forum of Bank Unions (UFBU).

United Forum of Bank Unions (UFBU) is the umbrella organisation of all major unions and associations, representing about Ten lakh employees and officers of the banking Sector in the country.

The constituents of UFBU are All India Bank Employees Association (AIBEA), National Confederation of Bank Employees (NCBE), Bank Employees Federation of India (BEFI), Indian National Bank Employees Federation (INBEF), National Organisation of Bank Workers (NOBW), All India Bank Officers’ Confederation (AIBOC), All India Bank Officers’ Association (AIBOA), Indian National Bank Officers’ Congress (INBOC) and National Organisation of Bank Officers (NOBO).

The wage revision for the employees and Officers of the Banking Sector remains pending since November 2017.

Regional Rural Bank employees to get
pension at par with nationalised banks

Atmadip Ray
The Economic Times
Published on April 27, 2018

RRB employees will be eligible for pension
with retrospective effect from November 1991

Kolkata, April 26: A Supreme Court verdict has on Wednesday paved the way for regional rural bank (RRB) employees draw pension at par with nationalised banks, ending a two-decade long legal battle.

The Supreme Court has dismissed a special leave petition filed by the government in 2012 and directed the government to implement a pension scheme in all RRBs uniformly as available in nationalized banks as per the bipartite settlement in 1993.

About 27,000 retired RRB employees are set to gain from this verdict, which the bank association torch bearers dubbed as historic. RRB’ current cumulative manpower is 95000.

The country has 56 RRBs delivering loans primarily to small and marginal farmers and creating financial access in rural belt.

“A dream comes true, the battle for justice triumphs and the long cherished desire of entire RRB fraternity realised,” All India Regional Rural Bank Employee Association said in a note to its members.

The employees will be eligible for pension with retrospective effect from November 1991.

The verdict was in line with the direction given by the Karnataka High Court in 2011, AIRRBEA general secretary Abdul Sayeed Khan told ET.

RRB employees enjoy parity of wages with nationalised banks employees following an award by the Justice S Obul Reddy Tribunal in 1990, which came into effect retrospectively from 1987. But when the employees of the nationalised banks were granted pension, the staff of the RRBs did not get it despite vociferous demands.

The rate of basic pension will be 50 percent of the average pay as defined in pension scheme for full time employees.

The united forum of regional rural bank employees, which observed three day strike in the last week of March, was also demanding parity of service regulation and allowances at par with their sponsor banks.

“We are planning to postpone further agitation for the time being,” said the AIRRBEA note jointly signed by president C Rajeevan and secretary general S Venkateswar Reddy.

SBI may integrate broking biz with
SBI Caps as part of restructuring

Abhijit Lele
The Business Standard
Published on April 27, 2018

The broking business of the SBI group is managed by SBI Caps Securities, a wholly owned subsidiary of SBI Capital Markets

Mumbai, April 26: State Bank of India (SBI) might integrate its broking business with SBI Capital Markets as part of restructuring the latter’s business.

If this happens, SBI Caps will focus on investment banking (debt and equity) and broking, while the project advisory and structured finance divisions will be transferred to the parent company.

SBI began the process of restructuring SBI Caps after the Reserve Bank of India (RBI) flagged the duplication of functions at the bank and its investment banking subsidiary.

The restructuring is linked to a revamp in the corporate banking business at the parent company. The organisational recast will cover the large corporate, mid-corporate and stressed asset management units.

SBI is evaluating which business model it will adopt.

This would be finalised in two to three months, said executives of the SBI group.

Two different models are adopted by competitors ICICI Securities and Axis Capital. ICICI Securities, a listed subsidiary of ICICI Bank, is in charge of the debt and equity market businesses as well as the broking business, ICICI Direct. The debt market segment is with Axis Bank and Axis Capital looks after the equity market business.

The broking business of the SBI group is managed by SBI Caps Securities, a wholly-owned subsidiary of SBI Capital Markets.

Another trigger for SBI to take the project finance division of SBI Caps into its fold was complaints from other lenders that many loans assessed by it had become stressed assets.

A senior public sector bank executive said many banks, especially government-owned ones, sanctioned credit for infrastructure and large project loans without doing much ground work and depending on the SBI group’s assessment.

SBI Caps posted a gross income of Rs 5.4 billion in 2016-17, with a net profit of Rs 2.17 billion. It had posted revenues of Rs 6.83 billion in 2015-16, with a profit of Rs 2.83 billion.

ICICI Securities is a technology-based firm offering a wide range of financial services, including investment banking, institutional broking, retail broking, private wealth management, and financial product distribution. It was listed on the exchanges in 2017-18.

ICICI Securities’ revenues went up 32 per cent to Rs 18.59 billion in 2017-18 from Rs 14.04 billion in 2016-17. Net profit rose by 65 per cent to Rs 5.58 billion in 2017-18 from Rs 3.39 billion in 2016-17.

About future strategies, an SBI group executive said SBI Caps would get into marketing of innovative products such as InvITs, overseas bonds, masala bonds, infrastructure and real estate investment.

It will also work closely with high-end small and medium enterprises and mid-corporate entities for growth, as large firms are already leveraged.

It will also bank on its credentials to set up a mergers and acquisitions business.

IDBI Bank fraud: CBI books two bank
chiefs, ex-Aircel promoter Sivasankaran

Arindam Majumder
The Business Standard
Published on April 27, 2018

List of bankers booked includes Kishor Kharat, current MD & CEO
of Indian Bank; Melwyn Rego, MD & CEO of Syndicate Bank

New Delhi, April 26: The Central Bureau of Investigation (CBI) on Thursday registered a case against former Aircel promoter C Sivasankaran and his company’s executives in an alleged Rs 6-billion bank fraud case. The agency also booked 15 senior executives, current and former, of IDBI Bank.

The list of bankers booked includes Kishor Kharat, current managing director (MD) and chief executive officer (CEO) of Indian Bank, and Melwyn Rego, MD and CEO of Syndicate Bank. Kharat was MD and CEO of IDBI Bank between August 2015 and March 2017.  Rego, who also served as the chief of Bank of India before heading Syndicate Bank, had served as deputy MD of IDBI Bank till August 2015.

Both Kharat and Rego were shuffled to other banks by the government in April-May 2017 for failing to do enough for the improvement of their organisations. The move at that time was unprecedented.

Other executives booked include the former CMD of IDBI Bank, M S Raghavan, and the bank’s former deputy MD, B K Batra.

IDBI Bank in a statement said it had given a loan to Axcel Sunshine in February 2014, which became a non-performing asset (NPA) in December 2015.

“The loan has been fully provided for. The bank initiated actions to recover dues from the borrower in August 2016,” the bank said.

“The CBI has, in this context, been examining certain documents relating to the loan given by IDBI Bank and has spoken to the senior officers who had handled the case. The officers are providing the requisite information and clarification to the investigating authorities,” the statement said.

Earlier in the day CBI searched 50 locations in Delhi, Faridabad, Mumbai, Gandhinagar, Chennai, Bengaluru, Belgaum, Hyderabad, Jaipur and Pune. Senior CBI officials said Sivasankaran’s firms, Axcel Sunshine and Win Wind Oy, allegedly defaulted on loans worth Rs 6 billion from IDBI Bank.

Axcel is based out of the British Virgin Islands while Win Wind Oy is based in Finland. Both counties are considered tax havens.

“The case was registered under sections relating to criminal conspiracy, cheating and corruption against Axcel Sunshine on allegations of perpetrating fraud through the loan accounts,” a CBI official said.

Other group companies include Lotus Ventures Investment, and Indian Telecom Holdings of Mauritius, Siva Palm of Singapore, Chennai-based Siva Industries and Sterling Agro Product and Processing.

According to the official, the FIR lists the modus operandi of Sivasankaran’s companies.

In October 2010, the bank had sanctioned Rs 3.2 billion in loans to Win Wind Oy. The firm later applied for bankruptcy in Finland, due to which the loan was declared an NPA.

Despite that, IDBI in 2014 sanctioned another loan of Rs 5.23 billion to Axcel Sunshine. Allegedly, the loans were used to repay loans of Win Wind Oy.

“This is in gross violation of the Reserve Bank of India (RBI) guidelines on foreign investments in India, which amounts to fraud committed by top executives of the company and banks to derive illegal gains, leading to a loss of about Rs 6 billion to IDBI Bank,” the CBI official said.

As NPAs rise, banks strengthen
credit monitoring departments

K Ram Kumar
The Business Line
Published on April 27, 2018

Mumbai, April 26: Banks are strengthening their credit monitoring departments to ensure that loans don’t get into restructuring mode, with attendant provisioning consequences, as the Reserve Bank of India’s revised framework for resolution of stressed assets does not brook even a day’s default.

SMA-0 accounts

Under the revised framework, which was unveiled on February 12, banks are expected to pick up signs of incipient stress even before they get classified as special mention account (SMA)-0, say bankers.

SMA-0 accounts are those which throw up early warning signals of stress and where the principal, or interest payment, or any other amount – wholly or partly – is overdue between 1-30 days.

Accounts are classified as SMA-1 and SMA-2 where the principal or interest payment or any other amount, wholly or partly, is overdue between 31-60 days and 61-90 days, respectively. When interest and/ or instalment of principal remain overdue for a period of more than 90 days, a loan is classified as non-performing.

“We are now very particular in assessing the cash flows, ensuring that a project gets implemented properly. We are building a very strong credit monitoring team.

“In between the credit sanction and the recovery departments, the credit monitoring department (CMD) follows up on all SMA accounts. In the first phase, we are going to cover (under monitoring) all above ₹100 crore accounts,” said Union Bank of India Managing Director and Chief Executive Officer, Rajkiran Rai G.

The moment the loan sanction happens, the public sector bank’s CMD will monitor for compliance purpose whether all sanction conditions are fulfilled or not. And then it will monitor whether all (project) assumptions relating to sale/ turnover are being achieved or not. So, the accounts will be tracked on a monthly basis.

“Resolution plans, including restructuring, under the revised framework kick in from day one of loan default. So, we should be able to identify an account even before it becomes SMA-0. We are building mechanisms to recognise this,” said a top executive of another public sector bank.

Rai observed that the RBI rules are so strict now that unless banks build mechanisms for early identification of stress, it will be very difficult to lend in future.

“It is not that we did not monitor accounts earlier, but it started from SMA-0 onwards. Now, much before an account slips into the SMA-0 category, we should be able to pick up signals of stress.

“We need to build very strong monitoring mechanism...By April-end, we will have the mechanism implemented,” said the Union Bank chief.

A treatment for the bad loan disease

K K Kothari
The Business Line
Published on April 27, 2018

There are five important antidotes that the government
can administer to banks to prevent a relapse

There is a depressing similarity between the Vijay Mallya and Nirav Modi cases. Both of them cheated the Indian banks of over ₹22,000 crore and are enjoying their ill-gotten gains after fleeing India. But to put the matter into perspective ₹22,000 crore is a small fraction of the total Non-Performing Assets (NPAs) of banks that runs into lakhs of crores.

The figures are astronomical and mind boggling. A very large percentage of these NPAs are loans to corporates. Defaults by retail borrowers are small. From this it is obvious that the banking system is being exploited by wilful defaulters — mainly large borrowers — capable of “pulling strings’’ to get their loans passed without a thorough scrutiny or project appraisal. These unscrupulous borrowers either exploit the inefficiencies in the banking system or collude with bank officials to defraud the system.

It may not be possible to completely eliminate NPAs. But structural reforms in two areas could definitely improve the situation significantly: One, the management of PSBs, and two, handling of cases of bank frauds by investigating agencies. The scope of this article is limited to suggesting five steps which, if implemented, would go a long way in reducing NPAs over a period of time.

Selection criteria

First, the system of selection and appointment of top officials-  executive directors, board members and chairperson— in banks needs a complete overhaul.

The person at the helm of the affairs can make or break an organisation. The quality of top management is one of the main problems in PSBs. There is political interference in the selection process. Merit is seldom considered as the main criteria. Expecting an official who paid for his or her promotion to be upright or righteous is asking for too much. His or her priority would be to recover the cost with interest and make as much as possible for the future.

Such officials would also be compelled to advance loans whenever ‘a request’ is received from his or her mentors in ‘Delhi’, often without an appropriate credit appraisal. Inevitably many such loans become NPAs and at some stage have to be written off.

The accountability systems in banks are practically non-existent, which works to the advantage of all concerned— the borrower, senior officials and the powers to be in Delhi.

The country has had very competent and honest bankers such as R K Talwar, former Chairman of SBI, who stood their ground notwithstanding the consequences. Since he refused to toe the line, he was shown the door. But he chose to go rather than hurt the interests of the organisation he served. But Talwar was an exception.

So, the first reform should be to put in place a mechanism to ensure selection of competent and honest bankers.

Skilling senior staff

The second step should be to ensure that senior bankers are well trained in project appraisal. Project finance requires different skill sets than those acquired by bankers in routine banking operations. Earlier, development financial institutions such as ICICI and IDBI had strong project appraisal departments. Large international banks have specialised set-ups for every industry where employees are trained in assessing long-term trends and the viability of the project for which the loan is proposed to be advanced.

The public-sector banks have no institutional mechanism to develop such skills.

Most of the financing is, therefore, balance sheet financing which come with their associated problems. In some cases, branch managers or officers, whose careers are mostly spent at the branch level, clear large loans. Without the required skill sets, even with the best of intentions, these loans will turn NPAs.

In the context, it is relevant to recall what SS Nadkarni, another brilliant banker, said on project financing: “I never finance a balance sheet; I finance a project and the people behind the project.”

Strengthening vigilance

The third step would be to strengthen the vigilance departments. There is no effective vigilance mechanism in PSBs. The vigilance department manages to net only the small fry, where many mid-level or junior officers are punished for small procedural lapses.

Even if the vigilance finds any lapses on the part of top officials, they are seldom reported. An effective vigilance department would be able to detect a ‘quid pro quo’ in awarding a loan or a nexus between a bank official and a rogue borrower in flouting the norms.

Time-bound probe

Fourth: There is a need for time-bound investigations. Some cases of large NPAs which are in the public domain or there is evidence of wilful default are referred to Central Bureau of Investigation (CBI). The agency takes years to conclude a case, by the time many witnesses would have retired and forgotten the details of the case or even be dead. It should be made mandatory that every case should be concluded in two years. In exceptional (more complicated cases) situations, it could be extended to three years.

Raising accountability

Fifth: The government is the majority owner of PSBs and it has a big say in their management. Usually, the government is represented on bank board by bureaucrats from the Ministry of Finance. These officers often come with little experience or knowledge in banking. They may be brilliant officers but by the time they learn the elementary lessons in banking and financial services their term usually ends. But being the representatives of the owner as well as being closer to the political powers, they exercise a disproportionately large influence on the decisions taken by the Board. Yet the irony is that they are never held responsible for the decisions which they foist upon the Board.

So the system needs to change. One way could be to appoint officers for a longer period of time in the same ministry and provide them with training in banking and financial services. Another option could be to induct of professionals from the industry who could bring in necessary expertise.

Finally, the regulator — the Reserve Bank of India — has a major role in safeguarding the health of banks. It cannot absolve itself from this responsibility just by ` announcing quick-fix-measures immediately after a fraud is unearthed. The RBI has enough powers even to replace a bank board when it comes to safeguarding the depositors’ money.

The rot in the Indian banking system is deep but it can be treated. Unless the measures suggested are implemented effectively, the banking system would continue to be a cash cow for the politicians, bureaucrats, and businessmen. And the people of India, including the poorest of the poor would continue to pay the price.

The writer is former Financial Director
 of Shipping Corporation of India

Merging associate banks with the SBI

Krishnadas Rajagopal
The Hindu
Published on April 27, 2018

On the State Banks (Repeal and Amendment) Bill of 2017

Mumbai, April 26: In August 2017, the Lok Sabha passed the State Banks (Repeal and Amendment) Bill of 2017 to amend the State Bank of India (SBI) Act of 1955 to remove references related to subsidiary banks.

After the acquisition of subsidiary banks by the SBI, subsidiary banks have ceased to exist. Therefore, the government found it necessary to repeal the SBI (Subsidiary Banks) Act of 1959 and the State Bank of Hyderabad Act of 1956.

The government has also found it unnecessary to retain certain provisions in the SBI Act, 1955, which apply to subsidiary banks. These subsidiary banks — State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Patiala, and State Bank of Travancore — were constituted under the SBI (Subsidiary Banks) Act of 1959.

The State Bank of Hyderabad was originally constituted as Hyderabad State Bank under the Hyderabad State Bank Act and renamed as the State Bank of Hyderabad under sub-section (1) of Section 3 of the State Bank of Hyderabad Act of 1956.

To rationalise resources, reduce costs, improve profits, for lower cost of funds leading to better rate of interest for the public, and to improve productivity and customer service, the SBI, with the sanction of the Central government and in consultation with the Reserve Bank of India (RBI), entered into negotiations with the State Bank of Bikaner and Jaipur, the State Bank of Mysore, the State Bank of Patiala, the State Bank of Travancore and the State Bank of Hyderabad for acquiring their business, including assets and liabilities.

The schemes relating to such acquisitions were agreed upon by the Central Board of the SBI and the respective boards of the subsidiary banks and approved by the RBI. In exercise of the powers conferred by sub-section (2) of Section 35 of the SBI Act, 1955, the Central government accorded its sanction.

Accordingly, the Central government issued the following orders, sanctioning the scheme of acquisition: (a) the Acquisition of State Bank of Bikaner and Jaipur Order, 2017; (b) the Acquisition of State Bank of Mysore Order, 2017; (c) the Acquisition of State Bank of Patiala Order, 2017; (d) the Acquisition of State Bank of Travancore Order, 2017; and (e) the Acquisition of State Bank of Hyderabad Order, 2017. As per these, the business of these subsidiary banks is to be carried out by the SBI in accordance with the SBI Act, 1955, with effect from April 1, 2017.

SBI Life Q4 profit up 13% to Rs 381 crore

The Press Trust of India
Published on April 26, 2018

New Delhi, April 26 (PTI):  SBI Life Insurance Co Ltd today reported 13.4 per cent rise in net profit at Rs 381.21 crore in March quarter of 2017-18.

The company's net profit was Rs 336.05 crore in the January-March quarter of 2016-17.

The total income of the private sector life insurer however came down to Rs 10,052.32 crore in the fourth quarter of last fiscal, as against Rs 10,775.70 crore in the year ago period.

For the entire fiscal 2017-18, SBI's net profit increased to Rs 1,150.38 crore, from Rs 954.65 crore in 2016-17, SBI Life said in a regulatory filing.

The total income last fiscal grew to Rs 33,760.54 crore, compared to Rs 30,276.42 crore in the previous fiscal.

The value of new business (VNB) stood at Rs 1,390 crore for 2017-18, up by 34 per cent. The embedded value increased to Rs 19,070 crore, registering a growth of 15.3 per cent year on year.

New business annualised premium equivalent increased by 26.9 per cent in 2017-18 to Rs 8,540 crore from Rs 6,730 crore in preceding fiscal, the company said in a statement.

Based on individual rated premium (IRP), SBI Life said its market share increased from 20.7 per cent in 2016-17 to 21.8 per cent in fiscal ended March 2018. While the overall market share (on IRP) grew to 12.3 per cent from 11.1 per cent.

SBI Life is joint venture between country's largest lender State Bank of India (SBI) and BNP Paribas Cardif SA, a global insurance companies of the Europe.

Taxes, petrol prices and pedal power

Raghuvir Srinivasan
The Business Line
Published on April 27, 2018

It was a hot summer’s day and Motabhai was furiously pedalling his rickety bicycle cursing the OPEC under his breath when he spotted the upstart, Chotu, waving at him. I’m not giving him a lift now, he told himself.

So, what’s up Chotu?

Motabhai, surprising to see you on a cycle. And why’re you so sullen?

Don’t rub salt into my wound now, Chotu. You know what the price of petrol now is na?

Oh, that way... I thought you took to the cycle to shed some of that fat you carry on yourself.

Stop needling me now, will you? Modibhai is doing enough of that already...

Arrey, why do you blame Modibhai for everything. Petrol prices are high because crude oil price is rising daily...

Oh, stop talking like a bhakt now. I read in ‘BusinessLine’ the other day that petrol price is now higher than in 2014 even though crude oil prices are much lower than what they were then.

Not bad, Motu, I’m impressed.

Yeah, and I also know that Modibhai and our local CM are responsible for this

Spot on, Motu. Are you aware that Modibhai increased excise duty on petrol nine times between November 2014 and January 2016? And our local CM increased the VAT.

Is that right, Chotu?

Yes, and it was done cleverly without you realising it. As crude oil prices fell, Modibhai quietly appropriated the benefit as excise duty. The total increase was as much as Rs. 11.77 a litre of petrol and Rs. 13.47 a litre of diesel.

So, how much is the total tax that we now pay on petrol and diesel?

Hold your breath, Motabhai. Taxes, including excise duty and VAT, are about half of the Rs. 74 a litre that you pay for petrol and a little over third the price of diesel

So, Chotu, are you then saying that taxes account for 100 per cent of the refinery price of petrol?

Exactly, Motu. I think the hot sun has had a beneficial impact on your brain power... you seem to be more intelligent today.

I’ll ignore that wisecrack for now. Tell me, is that why they are not including petrol and diesel in GST?

Absolutely. Imagine, the highest tax in GST is 45 per cent and that is for the stuff that you often chew and spit, dirtying the streets. How can they justify charging 100 per cent for an essential product like petrol?

But Chotu, why can’t they charge 45 per cent GST on petrol?

Motabhai, now you’re talking business. How much do you think the Central and State governments earn from taxes on fuel?

A few thousand crores?

Rs. 4.09-lakh crore. If that’s difficult to understand this is how much they earn — Rs. 4090000000000

Baap re, wait, let me count the number of zeros...

Oh, stop that now Motu and get serious. If you were earning that sum, will you agree to have it cut?

I’m tempted to say that I will agree to cut one zero because zero has no value but you’ll call me a dunce again...

Precisely, and I’m glad you’re learning. How do you think Modibhaiand our CM will agree to bring petrol and diesel under GST?

You mean, Chotu, they’re all in it together? Irrespective of the party?

Yes, Motu, that’s the sad situation. Tell you what, I’ll join you in my bicycle from tomorrow. Pedal power is better than petrol power.

 Source: Inernet News papers and Anupsen Articles.