BANKS TO GET STERN AGAINST LOAN DEFAULTERS

AS BANKS’ NPA RISES TO 4.44 PER CENT, FM DIRECTS STERN ACTION AGAINST DEFAULTERS

Sluggishness in the economy has put acute pressure on the health of Public Sector Banks (PSBs) and their performance dwindled during FY14. On one side their deposits and advances growth remain subdued at 11.43 per cent and 10.69 per cent respectively and on the other side their biggest concern of rising NPAs has almost jolted them during last fiscal. Gross NPAs of PSBs has risen to 4.44 per cent as on March 31, 2013 as against 3.84 per cent as on March 31, 2012. Miffed by the figure, finance minister has instructed all PSBs to “double their efforts on recovery and take tough measure against wilful defaulters.

During the annual performance review meeting of PSBs and financial institutions for FY14 recently, Finance Minister P Chidambaram has directed banks to take harshest possible measure against these defaulters and it may include change in the management of the defaulting entity. Speaking to the reporters after meeting G.S. Sandhu, Secretary, Department of Financial Services informed that focused deliberation has happened regarding top 30 NPAs of PSBs and measure taken against them has been appraised to FM. These top 30 NPAs account for whooping 40.2 per cent of the gross NPAs.

Banks are also instructed to improve upon low cost fund and for this emphasis should be there in CASA deposit. Sandhu said, “Presently CASA for one bank is at 17 per cent, whereas it is highest at 43 per cent for SBI. We have instructed all the banks to improve upon this and all the banks should move to 40 per cent level over a period of time.” Government also instructed PSBs to spurt up long term financing to infrastructure, iron & steel, mining, textile and aviation projects.

PSU BANKS REQUIRE ADDITIONAL CAPITAL OF `8000 CRORE

Public Sector Banks would need around `8000 crore additional funds during current fiscal to fulfill the capital adequacy norms. This fund would be over and above `11500 crore capital that government would infuse into banks during current fiscal. During the annual review meeting of PSBs, Finance Minister has asked chiefs of banks to come up with options to raise additional capital via various resources. G.S. Sandhu, Secretary, Department of Financial Services said that various options have been deliberated upon in the meeting like internal accruals, profits and options of raising from the market.

Among the options of raising funds from outside some new options have been discussed in the review meeting, which include leasing option of real estate assets of banks. “Under this scheme an SPV will be setup and all the real estate assets held by banks would be transferred to that SPV. Based on these assets that SPV will raise money from the market as banks will pay rentals to this SPV and on the basis of this revenue stream this SPV will raise money from the market,” explained Sandhu. Also option of issuing perpetual bond has been discussed and RBI has agreed to it but IRDA approval would also be needed for these bonds.

COMMITTEE RECOMMENDS TREATING DRS WITH VOTING RIGHT AS SHARES

If recommendations of committee constituted by fi nance ministry would be accepted then soon both listed and unlisted entities could issue Depository Receipts (DR) and that too against both equity and debt. Also if voting right is attached to DRs, then it is recommended to be treated as shares. Till now DRs can only be issued against equity shares as underlying securities and it is restricted to raising fresh capital by issuance of share sponsored by issuing company. Committee constituted under the chairmanship of MS Sahoo, Secretary, Institute of Company Secretaries of India has submitted its report on reviewing the current mechanism of depository receipts to fi nance ministry recently. Committee has recommended a draft of new scheme in place of scheme of 1993. Under this draft it is recommended that DRs can be issued both for capital raising through new shares or against existing/ secondary shares. Also proposal includes that issuance may be either sponsored or unsponsored. More importantly committee recommended that DRs will be counted as public shareholding if they have attached voting rights for holders. Recommendation covers only DRs and FCCBs are not included into it as it will be continued to govern via existing scheme. AT LAST CCEA CLEARS KKR’S PHARMA DEAL In its last meeting on May 13, Cabinet Committee of Economic Affairs (CCEA) cleared PE fund KKR’s FDI proposal to acquire stakes worth over `1400 crore in two pharmaceutical companies. This development is quite important as many ministries like health and commerce ministry were opposing the total buyouts of existing pharma companies, while finance ministry was in favour of speedy clearances. Due to these differences approval was deferred couple of times earlier. Till now 100 per cent FDI is allowed in new pharma companies via automatic route while for existing firms approval of Foreign Investment Promotion Board (FIBP) is necessary.

 KKR proposal was already approved by FIPB and forwarded to CCEA for clearance. Under the proposal KKR floorline investment PTE, at fi rst instance would acquire 37.98 per cent stake in Gland pharma through combination of primary investment and share purchase from existing investor EILSF. Secondly, KKR will also purchase 29.4 per cent of Gland celsus bio chemical from an existing investor.