Income Tax Departments may no longer have first shot in NPAs

It department India

The government is planning legislative changes to enable secured creditors having first right over defaulters’ assets to exercise the same, without being interrupted by the Income Tax Departments. The idea is to make use of the overriding nature of the Sarfaesi Act to virtually ensure that a lender gets to recover dues from a defaulter before others.

The proposed amendments include a provision to classify central and state authorities handling income tax, excise and value added tax as well as municipal corporations as secured creditors, so that the moment a taxpayer defaults, the authorities would need to register their charge on the assets. However, if the company has already taken a loan, the lender would have already registered his charge on the assets, giving the tax authorities only second charge on the assets.

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Lean Startup Machine at Hyderabad

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How Foreclosures Affect Your Health

A new study finds that a foreclosure next door or nearby in the neighborhood can elevate your blood pressure.
By  SANETTE TANAKA  June 5, 2014 9:11 p.m. ET

RBI will set NPA guidelines rules Gujarat HC


The Gujarat High Court has restored the Reserve Bank of India’s power to decide the period after which a bad loan can be called a non-performing asset (NPA).

Till 2004, RBI had set the NPA period for banks at 90 days, and at 180 days for Non Banking Financial Companies. But with the amendment, the financial institutions became free to have their own regulations for NPA. The NPA period was decided separately byeach firm.

The High Court’s ruling came on petitions filed by several defaulters of banks and NBFCs who had questioned every institution deciding its own NPA period, calling it violation of right to equality.

The bench of Chief Justice Bhaskar Bhattachrya and Justice J B Pardiwala said that the Section 2(1)(o) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act is held unconstitutional.
The High Court also observed that Parliament was wrong in taking the power to decide NPA guidelines away from the RBI. Before the amendment in 2004 to the Act, the RBI was the regulator for the banking, non-banking institutions and securitization agencies for deciding the period after which the loans can be treated as the NPA.

Further Reading – MoneyControl

FinMin to PSBs:Increase recovery of bad loans

Increase Recovery

The finance ministry has asked public sector banks (PSB) to increase the usage of Sarfaesi Act provisions to quickly recover bad loans.

Data for 2012-13 showed that out of the three methods for NPA recovery — Sarfaesi Act, Debt Recovery Tribunals (DRT) and Lok Adalats – Sarfaesi Act route was the most effective. In 2012-13, around Rs 18,500 crore was recovered through the Sarfaesi Act route, while DRTs helped in the recovery of just Rs 4,400 crore and Lok Adalats only Rs 400 crore.

Under the Sarfaesi Act, lenders have the power to enforce the security interest by taking possession of the assets from the defaulting borrower without court intervention, following the expiry of a 60-day notice period on the loan being classified an NPA.

The ministry has now said wherever possible the PSBs must exercise their rights under Section 13(4) of the Sarfaesi Act, which empowers the lenders to take possession of the secured assets of the borrower (whose accounts have turned NPA) and sell the assets before their value deteriorates. The section also empowers lenders to takeover the management of the business of the borrower and sell the assets if needed.

It also wants PSBs to adopt the latest sophisticated risk management tools (RMT) to effectively measure risks in lending and price loans accordingly so that there is an improvement in the asset quality. These were measures suggested by the new financial services secretary GS Sandhu to the PSB chiefs in a recent letter, banking industry sources told FE.

The ministry also wants PSBs to ensure that the companies do not divert loans for purposes other than the one for which the loans was taken. It has also pointed out the need to have separate RMTs for retail, wholesale, infrastructure and big-ticket loans.

The concern is because of the many instances of ‘quick mortality’, where within six months of the bank extending the loan, the company has become sick.

Further Reading – The Ffinancial Express

Top 50 NPA accounts of PSBs now being monitered by Finance Ministry


The finance Ministry has now increased the no, of NPA accounts it monitors to the top 50 from the previous top 30. It has alsoasked the banks to submit an an action-taken report on recovery for the ‘top 50′ NPA accounts as on December-end 2013.

At June-end 2013, gross NPAs with the top 30 accounts of 26 PSBs were worth R63,671 crore, which is around 35% of their total gross NPAs of R1,82,829 crore.

In the last quarterly meeting to review the performance of PSBs and financial institutions, finance minister P Chidambaram had expressed concerns over high NPAs in two segments — large corporates and small industries. The ministry had in October last year asked PSBs to set up a separate vertical headed by an officer of the rank of general manager for recovering money from bad loans.

GS Sandhu, The the new secretary of department of financial services (DFS), also sought a list of wilful defaulters and findings of prima facie diversion of funds by such borrowers. 

Gross NPAs of PSBs had surged to 5.17% of their advances in December-end 2013 from 3.84% at March-end 2013 (and 4.18% in end-December 2012) while their restructured assets increased to 7.44% from 7.18% during the period. A harder look at the NPA data reveals that at December-end 2013, maximum NPAs were in the small and medium enterprises loan segment with 7.21% of advances while agriculture loan NPAs were at 5.99%. NPAs in the corporate loan segment were 5.28%. In retail loans, NPAs were 2.74% and, in real estate, they were 1.83%.

In a report released on Thursday Fitch Ratings expressed concerns over stressed assets in India compared to other Asian emerging markets. Fitch said it “expects Indian banks’ asset quality to weaken further, with stressed assets (NPAs and restructured loans) to rise from 10% (at mid-2013) to around 15% during FY15 (by March 2015).”

Further Reading – Indian Express

Non-performing assets a big challenge: S Viswanathan

Non-performing assets will go up for sometime before it comes down: S Viswanathan, MD, SBI

Admitting that non-performing assets (NPAs) in the banking sector is a big challenge, SBI Managing Director S Viswanathan said the NPAs would start looking up once the economic situation gets better.

“Though the NPA stress will continue, it would start looking up in six months after the economic scenario improves,” the managing director (associates and subsidiaries)

at SBI said at an event organised by XLRI here today.

“It will go up for sometime before it comes down,” he said stating that NPAs would not cripple the prevailing banking system.

It is unfortunate to know that education loan contributed 20 per cent to total non-performing assets, he added.

Viswanathan said the country’s largest lender has taken adequate steps to recover loans.

In the rural and semi-urban areas, we have enough pportunities to grow, he added.

Viswanathan also shared plans to reach out to people in remote areas lacking connectivity and accessibility. He said there is a need to bring more and more poor people in rural pockets under banking system by adopting new technologies and electronic means.

The banking sector has opportunities as well as challenges to address, he said while emphasising the need for financial inclusive.

Appreciating PSU banks’ performances, he claimed that banking and insurance sectors were the only sectors where public sector firms continue to perform better than private players.

Viswanathan also spoke on proposals such as single demat account for all investments and credit cards for school students (above class 8th) to make them aware with the banking system.

Highlighting the growth of banking business since independence, he said the sector is currently valued at Rs 115 lakh crore and expected to more than double at Rs 288 lakh crore by 2020.

Viswanathan further said that about 70 per cent of business is being done by PSU banks, which were being accused of not providing the king services provided by the private banks.

He said the SBI group (SBI and its associates) holds 22 per cent of the market share in the country.

Pre-approved home loan & advantages.

  • What is a pre-approved housing loan?
    It is essentially an in-principle sanction given by a bank for a particular loan amount. A fairly robust process is followed by the banks to determine the loan amount. They will require you to submit a lot of information such as income-tax returns, bank account statements, income proof, salary slips, identity proof, and Pan details among various other things. Banks will also obtain data from CIBIL to check the credit history of the individual.
    Once the checks are in place and the bank pre-approves the loan, it will hand over a letter stating that an in-principle approval of a particular home loan amount has been granted and will be valid up to a particular period. Some banks will also state the rate of interest at which the loan will be provided, the rationale being the interest rate at the time of pre-approving the loan should be applicable. Please note that the pre-approved loan is valid only for a particular period- in most cases it is six months, post which the individual will have to go through the process again.
    Is the bank pre-obliged to provide the loan?
    Banks are not obligated to provide the loan as banks clearly state that the in-principle approval is subject to verification of property documents and the property itself.
    Does it come free of cost?
    Several banks do charge a pre-approval loan processing fee which is refunded if the loan is taken; on the other hand some banks do not charge any fee. Do evaluate your exact need before you opt for a pre-approved loan, it should not be a scenario where you are unable to locate the house of your choice for purchase within the stipulated period of six months.
    If the bank charges a processing fee, then that would be an incurred loss for you. Also, interest rates might change depending on market conditions during the time of the actual loan disbursal, which will not happen until you zero in on the property and the property documents are verified by the bank. Opting for a pre-approved property with a pre-approved loan might enable a quick home purchase process, the pre-approved status for your loan asserts your credibility and repayment capacity while the same for the property indicates the credibility of the builder.

Advantages of a Pre-approved Loan over Regular Home Loan

The key benefits in this arrangement include:

  • Reduced time for sanction as the preliminary verification of eligibility and credit rating would have been done by the bank and only the second stage of property assessment would be remaining.
  • It provides the customer the freedom to choose the property being sure in his mind that the loan would be sanctioned on application.
  • It also gives the customer some more room for bargaining as it is the bank which is interested in disbursing the loan to him and not vice versa.
  • Since in most cases the pre approval is valid for a period of 6 months it provides adequate time for the customer to choose or wait for the right property.
  • The customer can now bargain better with the property seller as he has the approval advantage already with him. Pre approval demonstrates financial strength of the home buyer which can be used when dealing with brokers.
  • Recently Allahabad Bank has come up with Very good proposal for Pre approved loans.
  • Pre approved loan

Make the most of online property auctions


Properties of defaulters, auctioned by banks, are usually cheaper


With the economy tottering, bad loans are piling up at many banks. This is forcing banks to put on the block assets pledged by defaulting borrowers. Therefore, in adversity lies an opportunity, even if it’s for someone else.

Scent a bargain

Properties auctioned by banks are generally available cheaper than the going market rate — prices could be 10-20 per cent lower. It also helps that bidding and buying property in bank auctions has got easier. Unlike the cumbersome physical auctions of the past in which bidders had to assemble at a pre-decided venue, banks these days mostly conduct online e-auctions.

The process

Banks tie up with service providers to auction properties online. Web sites such as, and are some such providers. Except for the bidding platform and process, online auctions are similar to physical property auctions.

You are allowed to inspect the property advertised by the bank, or get someone to do it for you. If interested, you have to pay a deposit upfront, called earnest money deposit to the bank to demonstrate commitment. This is usually around 10 per cent of the reserve price or the minimum price at which the bank will sell the property.

With this proof of payment, you can generate a login and password on the platform the bank has tied up with. Some banks may require you to obtain digital signatures to establish authenticity, especially with high-value properties. During the bidding window (a few fixed hours on the date mentioned in the auction notice), you punch in your bid which cannot be less than the reserve price. Others do the same. You can raise your bid based on the competing ones on the online platform. The minimum incremental amount by which the bids can be improved depends on the value of the property being auctioned. The bidding window may be extended if a higher quote is received in the last few minutes of the auction. The highest bidder wins the auction and the property. Unsuccessful bidders will be refunded the earnest money deposit within a few days, with no interest.

Advantage e-auction

With online auctions, it is now far simpler for individuals to scout for cheaper properties across the country.

Online auctions are also more transparent. Says DK Jain, owner of, “Online auctions reduce the chances of cartels manipulating the bids and cornering the property. Bidders, not known to each other, from across the country and the world can participate online — this results in better prices for the bank’s assets.”

Payment deadlines

If you win the auction, you have to pay 25 per cent of the purchase amount to the bank by the prescribed period, usually within the same day. The earnest money deposited earlier will be adjusted in this payment. But if you fail to make this payment, the earnest money already paid will be forfeited. The balance 75 per cent of the bid amount has to be paid within a prescribed time too — usually within 15 days from the date of the auction. Failure to comply with this will result in you forfeiting the 25 per cent already paid.

It may be possible to get loans from banks (other than the selling one) to pay for this property. But given the tight timelines, applying for one after winning the auction may be asking for trouble. If you intend borrowing, make arrangements beforehand.

Inspect first

Banks auction properties on ‘as is where is’ and ‘as is what is’ basis. So you, as the buyer, will have to bear the expenses pertaining to the property, including repairs and maintenance, pending statutory dues, and registration and stamp duty expenses.

So carry out a proper inspection of the house first. While the title to the property is likely to be clear, given that the bank is the seller, it’s better to be safe than sorry. Get the property documents vetted before jumping in.

Finally, the defaulting borrower has the right to settle the bank’s dues before the auction date. If this happens, the auction will be cancelled.

NPAs rise as slowdown persists

Bad loans of public sector banks surge to over 5 per cent by Dec-end; Chidambaram tells the lenders to focus on remedies
BS Reporters  | New Delhi,
March 7, 2014 Last Updated at 00:49 IST

The economic slowdown seems to have helped push the gross non-performing assets (NPAs), or doubtful loans, of public sector banks (PSBs) to 5.17 per cent of their advances by end-December 2013, against 4.18 per cent a year before.

However, the growth in restructured assets seems to be stabilising, according to the latest Union finance ministry data.

As of December-end, stressed assets, the sum of gross NPAs and restructured advances, was 12.61 per cent of gross advances, compared to 11.02 per cent at end-March 2013.

United Bank of India is under surveillance for NPAs at 10.8 per cent but State Bank of India, the country’s largest lender, is not far behind at 7.1 per cent. State Bank of Mysore’s is 6.5 per cent and Central Bank of India at 6.4 per cent. Only three banks — Vijaya Bank, Canara Bank and Dena Bank — have NPAs of less than three per cent. (STRESSED LOANS SHOOT UP)

If one looks at the total of stressed assets, Central Bank of India had the highest, at 19.75 per cent, followed by UCO Bank and United Bank. Punjab National Bank and Andhra Bank were the others in the top five in terms of this measure.

“NPAs have increased due to the sluggishness of the recent past, the slowdown in recovery in the global economy and continuing uncertainty in global markets,” said an official.

Total NPAs of all banks, including private and foreign ones, increased from 3.69 per cent of the total in December 2012 to 4.47 per cent a year later. At 5.17 per cent, the gross NPAs of PSBs are much higher than the 2.09 per cent of 2008-09. The gains over the years from a high of 17.8 per cent in 1997-98 had been arrested by the global meltdown of 2008.

In the first nine months of this financial year, gross NPAs of PSBs grew faster than restructured advances, with gross NPAs rising from 3.84 per cent in March-end to 5.17 per cent in December. Restructured assets rose from 7.18 per cent to 7.44 per cent.

Rupa Rege-Nitsure, chief economist at Bank of Baroda, said fiscal consolidation was also adding to the stress on banks. Since the government is controlling expenditure, its dues to the corporate sector are held up, which in turn is delaying payments to banks by industries.

“PSBs have a greater share of non-retail loans and are affected more. They have higher exposure to sectors hit by the slowdown,” said Madan Sabnavis, chief economist, CARE Ratings. He said the situation was alarming and banks should set sectoral limits to bring down their NPAs.

Bank of Maharashtra, United Bank of India and State Bank of Travancore saw NPA addition exceeding 200 per cent in the December quarter. State Bank of Patiala, Syndicate Bank, Corporation Bank, State Bank of Hyderabad and Canara Bank added more than 100 per cent.

The highest NPAs, at 7.21 per cent of advances, are in loans to small and medium enterprises, followed by agriculture at 5.99 per cent. NPAs to the corporate sector were 5.28 per cent at the end of December, and 2.74 per cent and 1.83 per cent, respectively, to the retail and real estate segments.

The reduction in NPAs in the December quarter was only Rs 60,426 crore or 28.3 per cent of those in September. This came through Rs 21,988 crore of account upgrades, Rs 18,933 crore of recoveries and Rs 19,505 crore written off. State Bank of Travancore and Vijaya Bank saw the highest reduction at 90.6 per cent and 54.5 per cent, respectively. On the other hand, IDBI Bank, Andhra Bank and Corporation Bank could reduce their NPAs by only 2.9 per cent, 5.5 per cent and 7.9 per cent, respectively.

After a meeting with bankers on Thursday, Finance Minister P Chidambaram said NPAs were also high because the reporting was system-generated. “No NPAs can be hidden in the books, it is important to address the issue and I have told banks to focus on recovery,” he said. NPAs this year, he added, were likely to be higher than last year’s 3.84 per cent.