Banking, India: Loans
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Categories/ types of loans
2014-19: how loans to these categories grew
August 27, 2019: The Times of India
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From: August 27, 2019: The Times of India
Banks’ consumer durables loans shrink by nearly 60% in 5 years
Banks’ outstanding consumer loans have contracted by nearly 60% over the last 5 years. Part of the reason for this drop is that NBFCs have taken over the consumer durables space. Additionally, credit card EMIs in this category have grown in a big way. As a result, the RBI reduced risk weightage on consumer loans earlier this month to encourage banks to lend more to this segment. Overall, credit card outstanding has more than tripled in 5 years, showing the highest growth in all personal segments.
Credit, sector-wise
Telecommunication sector
2015-20, Bank-wise
From: Dec 12, 2019: The Times of India
See graphic:
Bank credit to the telecommunication sector, 2015-20, bank-wise
Loans
Prompt Corrective Action (PCA)
Impact on advances: 2017-20
From: April 14, 2020: The Times of India
See graphic:
The Impact of Prompt Corrective Action on advances: 2017-20
The top borrowers
Cities, 2018
Rachel Chitra, Bengalureans take most personal, car loans, January 23, 2019: The Times of India
From: Rachel Chitra, Bengalureans take most personal, car loans, January 23, 2019: The Times of India
The highest personal loan ticket sizes are in Bengaluru, at Rs 47 lakh, followed by Mumbai (Rs 40 lakh), Delhi (Rs 26 lakh) and Kolkata (Rs 30 lakh), as per data from 1.6 million loan applications in 2018 with BankBazaar, one of India’s biggest online financial services aggregators.
In the average ticket size of personal loans taken, Mumbai (Rs 2.79 lakh) was ahead of Bengaluru (Rs 2.66 lakh) and Chennai, Delhi and Kolkata.
BankBazaar CEO Adhil Shetty said the high number of large loans in Bengaluru is, perhaps, a reflection of larger disposable income and high growth opportunities. He said the city has more first-time salaried borrowers than other metros.
The data is of those who use the online mode. It’s possible that in some of the other cities, a higher proportion of people choose offline modes.
In car loans too, the top segment of Bengalureans takes higher loans than their counterparts elsewhere, suggesting they go for more flashy cars. The highest loan ticket sizes came from Bengaluru, at Rs 49.9 lakh, followed by Chennai at Rs 46.8 lakh, and Delhi at Rs 21.8 lakh.
Highest car purchase by women borrower in 2018 was at Rs 12.9L
Compared to their urban counterparts, borrowers from tier-2 and tier-3 cities restrict themselves to not spending above Rs 20 lakh for a car. Even when it came to average car loan size, rural and semi-urban borrowers were more conservative and borrowed only up to Rs 5.2 lakh, compared to their urban counterparts, who were willing to shell out Rs 5.7 lakh.
The highest car purchase by a woman borrower in 2018 was at Rs 12.9 lakh. In personal loans, Bankbazaar data shows the average ticket size in metros was at Rs 2.6 lakh, lower when compared to Rs 2.8 lakh in non-metros.
“It’s possible urban users have more choices such as credit card, and EMI options for consumer purchases on debit cards, and may not choose a personal loan as their first option,” said Shetty.
In home loans, Delhiites took the highest ticket sizes (Rs 5 crore), followed by Chennai (Rs 2.2 crore), Bengaluru (Rs 1.5 crore) and Mumbai (Rs 1.8 crore).
But this trend could only be an indicator of the buying pattern of younger, tech-savvy individuals. An SBI official said, “We get biggest home loan and car loan requests from Mumbai. It’s possible Mumbaikars prefer directly contacting their banker than going through a third-party aggregator.”
The top lenders
2008-18
From: October 13, 2018: The Times of India
From: October 13, 2018: The Times of India
See graphics:
2008-12: PSB banks’ share in lending
2013-18: PSB banks’ share in lending
2017
SBI, ICICI Bank Are The First Two Lenders
The RBI added HDFC Bank to the list of systemically important banks, or banks that are considered too big to fail.The other banks on the list are the two largest lenders -SBI and ICICI Bank. Since 2015, the central bank has been identifying banks whose failure would impact the whole financial system.These banks are subject to more rigorous regulation and capital requirement.(The Times of India Sept 2017)
States, 2019
April 29, 2019: The Times of India
From: April 29, 2019: The Times of India
Private lenders gain market share
Private lenders have expanded their retail lending market share by 10 percentage points across top states in four years. The 15 states listed here account for nearly 90% of the loans. Private banks also disbursed 40% of all advances in FY19 as against 30% in FY15. Nearly 75% of the incremental gains have come from western and southern states.
Loans to gems & jewellery cos
From: Sidhartha, February 19, 2018: The Times of India
See graphic:
Outstanding bank loans to gems and jewellery, 2014-17
Gender-wise size of loans, 2018
Rachel Chitra, Loan sizes higher when women borrow, January 23, 2019: The Times of India
From: Rachel Chitra, Loan sizes higher when women borrow, January 23, 2019: The Times of India
The average ticket size of a home loan when women borrow is significantly higher (Rs 27 lakh) than when a man borrows (just under Rs 23 lakh), according to data from 1.6 million loan applications in 2018 on BankBazaar, one of India’s biggest online financial services aggregators.
BankBazaar CEO Adhil Shetty said the higher loan amount when a woman applies could indicate it’s a household with two incomes, unlike when a male applies, where he could be the only breadwinner. Banks also have special loan offers for women, with interest rates many basis points (100bps = 1 percentage point) lower than for men.
When it came to car-buying patterns, the data shows that when a woman is the primary loan applicant, they tend to steer away from big-ticket car purchases. Male borrowers borrowed up to Rs 49.9 lakh for a car, whereas the highest female car loan ticket size was Rs 12.9 lakh.
But in terms of the average car loan size taken by women, it’s significantly higher (Rs 5.5 lakh) than when men are the sole applicants (Rs 5.3 lakh). “Again, I think when women apply, they are an indicator of a double-income household,” said Shetty.
This trend of women boosting the household’s purchasing capacity could be seen across metros. The average ticket size of home loans in Delhi for women borrowers was Rs 28 lakh, compared to male borrowers at Rs 24.5 lakh. In Bengaluru, women borrowed Rs 37.9 lakh — higher than men at Rs 36.9 lakh, and in Chennai women borrowed Rs 34.8 lakh compared to men at Rs 30.1 lakh. However, the situation was the opposite in Mumbai, where men borrowed more in home loans at an average of Rs 32.8 lakh compared to women at Rs 29.7 lakh.
For personal loans, women seem to borrow less than men. The average ticket size for female applicants was Rs 2.7 lakh, compared to men who borrowed Rs 2.8 lakh.
Women seem to now have the firepower for globe-trotting just as much as men — women’s applications for travel credit cards grew 73%, slightly higher than male applications that increased 71.5%. In lifestyle credit cards too, applications from women grew at a 10.5% rate, compared to men at 8%.
Women borrowers
2014-20
March 9, 2021: The Times of India
From: March 9, 2021: The Times of India
Credit-wary women up home loan share…
Reduce Personal Loans, Plastic Money’s Use, Have Higher Credit Score Than Men: Study
Mumbai:
Women have sharply increased their share of home loans, but have turned averse to personal loans and credit cards in the wake of the pandemic. Women are also more closely monitoring their credit scores, according to a study by TransUnion Cibil.
A report released by the credit bureau on Women’s Day shows that in 2019, women accounted for 23% of consumer loans. This dipped by 400 basis points (100bps = 1 percentage point) to 19% in 2020. Similarly, credit card enquiries by women dipped from 13% to 12% during the same period. However, when it comes to home loans, women have increased their share to 11% from 9% in 2019. According to TU Cibil chief operating officer Harshala Chandorkar, this is because of factors like reduced stamp duty for women consumers on a home purchase in some states along with lenders offering better terms & conditions and a lower rate of interest for women borrowers. “Also, the fact that women have a higher average Cibil score than that of men indicates that women have a better credit history and therefore lesser probability of default, which makes them better customers for banks and credit institutions. Improved and easier access to economic opportunities have catalysed the financial inclusion of women in India,” she added.
TU Cibil VP and head (DTC interactive) Sujata Ahlawat said, “With improved levels of education and employment of women across our country, their credit consciousness has also grown. This is corroborated by the fact that we have seen a significant surge in the number of women borrowers who monitor their Cibil score and report. This is a promising indicator of increased awareness and financial literacy among women.” This increased credit consciousness is also evident from data that shows women now constitute 12% of self-monitoring consumers — an increase from10% in 2018.
Women consumers also show better credit history as compared to men, with the average Cibil score of an Indian woman consumer being 719 — higher than that of an average male consumer at 709. Additionally, 61% of the women consumers in TU Cibil’s consumer credit bureau have a score greater than 720, whereas only 56% of male consumers have greater than or equal to that figure. “Increased credit consciousness leads to a positive credit behaviour as consumers understand the impact of their credit activity on their Cibil score and access to finance,” said Ahlawat.
As women turn credit conscious, their overall share in retail loans is increasing too with 4.7 crore active women borrowers. Over the last six years, the share of women borrowers grew to around 28% in September 2020 — up from around 23% in September 2014, which is a compounded annual growth rate (CAGR) of around 16%. In terms of the sanctioned loan amount, women borrowers account for Rs 15.1 lakh crore of retail loans, which has grown at a 12% CAGR over the last six years.
Loans: Home Loans
Home loan closure checklist
The Times of India, Apr 18 2016
Home loan closure checklist
1 Refer to the `list of documents to submit' when making the application for a loan, and make sure that all the original documents are recovered.
2 Ensure that the documents are complete and received in good condition, in the pre sense of a bank official, before signing the acknowledgement.
3 Take an NOC from the lender, specifying the address of the property against which the loan was taken, name of the borrower and the loan account number.
4 Request the lender to inform CIBIL re garding the closure of the loan account.
The process should take about 30 days from the date of loan closure.
5 Ensure that any lien is removed after the clo sure of the loan. An existing lien will create problems during the sale of the property.
Home loan growth slows, affordable segment rises
Even as housing credit growth moderated to 16% in 2016-17 as against 19% in 2015-16, the affordable housing segment holds promise, according to rating agency ICRA report.
The report said that lowering of interest rates and various government initiatives -Prime Minister Awas Yojana (PMAY), according infrastructure status, to boost affordable housing will increase the demand for the segment, which may see credit growth of up to 30%. As against an overall growth of 16% in the housing loan sector, total disbursal of credit in the affordable segment grew at 28% to Rs 1.2 lakh crore in 2016-17.
Despite moderation, the 16% credit growth in housing loan sector is still a bright spot in the economy if one sees it in the backdrop of growth in the non-food credit of entire banking sector which is languishing at 8.7% in 2016-17 as against 10.9% in 2015-16.
“While the slowdown was across both HFCs and banks, the decline in the pace of growth of banks was higher declining from 19% in 2015-16 to 16% in 2016-17 -largely because they were operationally tied up in second half of 2016-17 on account of demonetization,“ according to the report. Housing finance companies' (HFCs) loan portfolio also dipped to 18% in 2016-17 from 19% in the previous year.
2013-18: 2,700% growth
From: Mayur Shetty, Affordable home finance cos multiply Loan Book Grows 27X In Less Than 5 Years To ₹27,000Cr, June 6, 2018: The Times of India
Loans for affordable housing have seen sharp growth in less than five years. Home loans by affordable housing finance companies have grown from Rs 1,000 crore as of March 2013 to Rs 27,000 crore as of December 2017. This has led to an explosion in housing finance companies (HFCs) focusing on the small-ticket segment. As many as 26 HFCs have registered with the National Housing Bank — with self-constructed homes accounting for bulk of the loans.
There are 77 registered HFCs, of which 26 are focused exclusively on affordable housing. According to the ‘State of affordable housing 2018’ report by FSG Consulting, one of the drivers of growth in this segment was the credit-linked subsidy (CLS) under the Pradhan Mantri Awas Yojana (PMAY) that provides an upfront reduction of up to Rs 2.67 lakh for a loan of Rs 6 lakh.
According to FSG MD Ashish Karamchandani, while the PMAY does bring down costs, it has little impact on affordability. Only after a customer has availed a loan, does he know that he will receive a subsidy, and hence he cannot factor it into his purchase decision. “If the subsidies under the credit-linked scheme are based on a sanctioned plan, it will increase the affordability allowing those with lower income to purchase houses,” he said.
Also, the PMAY is not reaching out to all the intended beneficiaries. “Many low-income households are excluded from the credit-linked subsidy benefits because of the location of their new homes. As a bulk of low-income housing is being constructed on the peripheries of around 4,500 urban areas notified for CLS, which come under the purview of gram panchayats, they are not eligible unless notified by state governments,” said Karamchandani. This is a big impediment as 60% of demand for affordable housing finance is for self-constructed properties, and these are largely happening on the outskirts of cities — in areas classified as rural.
There is also a problem in the incentive structure for HFCs. Under present norms, if the loan is below Rs 6 lakh, the HFC cannot charge a processing fee, and gets only a flat fee of Rs 3,000. HFCs are therefore not keen on seeing the home loan amount go down below Rs 6 lakh.
“One solution is to have geospatial coding on all places eligible for subsidy on the map, so as to enable the HFC confirm to the aspiring borrower that he is eligible,” said Karamchandani. Besides, taking a relook at the CLS for urban housing, Karamchandani says that there is a need to relook at the beneficiaryled construction (BLC) scheme, which provides for home improvement to enable upgrading slum housing.
Rates, 2014-18
From: Mayur Shetty, Your home loan’s got costlier. SBI, ICICI have upped rates, September 2, 2018: The Times of India
Unlikely To Raise Rates Again: HDFC
Bank borrowings which include home loans and other retail and business loans have become more expensive from September 1. The country’s largest publicsector lender State Bank of India and largest private lender ICICI Bank have increased by 20 and 15 basis points respectively their benchmark rate against which all home loans are priced.
The SBI has announced a uniform increase of 20 bps on its marginal cost of lending rates (MCLR) across different maturities. The oneyear MCLR, against which home loans are benchmarked, now stands at 8.45% as against 8.25% earlier. ICICI Bank has increased its sixmonth MCLR by 15 basis points from 8.35% to 8.5%. One basis point equals a hundredth of percentage point.
If the SBI continues to price home loans at the current spread above its benchmark rate, SBI’s best home loan rate will go up from 8.45% to 8.65%. This rate is available on loans to salaried borrowers, which include a woman as home owner, for up to Rs 30 lakh. This rate goes up to 8.80% for loans up to Rs 75 lakh and 8.9% for loans of Rs 75 lakh and above. In the case of ICICI Bank, the best home loan rate will go up from 8.7% to 8.85% if loans continue to be priced at a spread of 35 basis points over six-month MCLR.
Bankers say that there is a possibility that SBI, while increasing rates for existing borrowers, might offer new customer lower rates by narrowing the spread between the MCLR and lending rate. If this happens, ICICI Bank too is likely to revise its spread to remain competitive. SBI lending rate goes up by 5 basis points if the loan does not include a woman as borrower or co-borrower. Also self-employed borrowers have to pay 15 basis points more as compared to salaried. With this increase, SBI’s home loans are more expensive compared to HDFC, the country’s largest home loan company. HDFC had recently raised rates and is unlikely to do so soon. “We have not planned any increase in interest rate,” said Keki Mistry, vice chairman & CEO.
The hike has come ahead of the festival season — a time when lenders try to boost sales by announcing special loan deals. According to bankers, there is not much scope to hold on to rates because the cost of funds in the system is rising and the spread between the yield on the benchmark 10-year bond and home loan rates is at the lowest. Last week, yield on the 10-year bond shot up to cross 7.9% due to sudden pressure on the rupee in the foreign exchange market.
2014>18: Self-employed segment grows; so do their defaults
April 9, 2018: The Times of India
From: April 9, 2018: The Times of India
Segment Accounts For 30%, But NPAs Hit 1.1% Of Industry
A subdued loan demand from businesses is increasing competition in home loans, leading to a rise in the number of self-employed individuals getting mortgages. Home loans to self-employed accounted for 30% of mortgages in fiscal 2017-18 as against 20% earlier. But the flip side is that delinquencies are also rising.
Gross non-performing assets (NPAs) in the segment are estimated to have inched up by 40 basis points (100bps = 1 percentage point) to around 1.1% by the end of fiscal 2018, compared with about 0.7% a few years back. According to a report by ratings agency Crisil, home loans to the self-employed segment have been growing at a compounded annual growth rate of 33% in the past four years compared to overall 20% expansion in housing finance. Outstanding home loans in this segment are expected to have topped Rs 2 lakh crore by the end of fiscal 2018.
What has been driving growth is the entry of a host of new housing finance companies (HFCs), which have been growing aggressively in this segment. Also, larger HFCs are pushing into the self-employed segment as banks ratchet up presence in retail following weak credit demand from corporates and asset quality pressures, Crisil said in the report.
Crisil Ratings senior director Krishnan Sitaraman said, “Several initiatives of both the government and the regulator in the recent past have led to fast growth in home loans taken by the self-employed. We expect such mortgages to continue showing good growth because of the sharp focus of smaller HFCs and increasing interest of the larger ones.” Crisil Ratings director Rama Patel said, “The two-year lagged NPAs in the self-employed segment, at around 1.8%, is much higher compared with about 0.6% in the salaried segment, where the portfolio quality has remained largely stable over the years.”
2018: City-wise
From: Rachel Chitra, Delhi has highest ticket size of ₹5cr in home loans, January 23, 2019: The Times of India
In the average ticket size of personal loans taken, Mumbai (Rs 2.79 lakh) was ahead of Bengaluru (Rs 2.66 lakh) and other metros, according to data from 1.6 million loan applications in 2018 with BankBazaar, one of the country’s biggest online financial services aggregators.
In home loans, Delhiites took the highest ticket sizes (Rs 5 crore), followed by Chennai (Rs 2.2 crore), Bengaluru (Rs 1.5 crore) and Mumbai (Rs 1.8 crore).
The highest personal loan ticket sizes however were in Bengaluru, at Rs 47 lakh, followed by Mumbai (Rs 40 lakh), Delhi (Rs 26 lakh) and Kolkata (Rs 30 lakh).
BankBazaar CEO Adhil Shetty said the large loans in Bengaluru were perhaps a reflection of larger disposable income and high-growth opportunities. He said the city also had more first-time salaried borrowers than other metros.
Since the data is of those who use the online mode, it is possible that in some of the other cities, a higher proportion of people chose offline modes and less transparent payment methods In car loans too, the top segment of Bengalureans took higher loans than their counterparts elsewhere, suggesting their preferance for flashy cars.
The highest car loan ticket sizes came from Bengaluru, at Rs 49.9 lakh, followed by Chennai at Rs 46.8 lakh, and Delhi at Rs 21.8 lakh.
Compared to their urban counterparts, borrowers from tier-2, and tier-3 cities restrict themselves to not spending above Rs 20 lakh for a car. Even when it came to average car loan size, rural and semi-urban borrowers were more conservative and borrowed only up to Rs 5.2 lakh, compared to their urban counterparts, who were willing to shell out Rs 5.7 lakh. The highest car purchase by a woman borrower in 2018 was at Rs 12.9 lakh.
In personal loans, Bankbazaar’s data shows that the average ticket size in metros was at Rs 2.6 lakh, lower when compared to Rs 2.8 lakh in nonmetros. “It’s possible that urban users have more choices such as credit card, and EMI options for consumer purchases on debit cards, and may not choose a personal loan as their first option,” said Shetty.
But this trend could only be an indicator of the buying pattern of younger, tech-savvy individuals. An SBI official said, “We get out biggest home loan and car loan requests from Mumbai. It’s possible that Mumbaikars prefer directly contacting their banker than going through a thirdparty aggregator.”
Jan 2018/ Home loans up to ₹2L witness highest NPAs
From: Allirajan M , Affordable housing: Loans up to ₹2L see highest NPAs, January 12, 2018: The Times of India
With a sharp rise in loan disbursements and number of beneficiaries in the affordable housing segment, loans of up to ₹2 lakh has ended up with the highest level of non-performing assets (NPAs) in home loans. Public sector banks reported higher NPAs in the sub-Rs 2 lakh housing loans slab than housing finance companies in 2016-17 and 2015-16, according to an RBI report on ‘Affordable Housing’.
NPAs for housing loans of up to ₹2 lakh stood at a whopping 11.9% for PSBs during 2016-17. Housing finance companies also saw a sharp surge in housing loan NPAs in this slab. NPAs went up from 6.1% to 8.6% for the sub-₹2 lakh slab between 2015-16 and 2016-17. NPAs stood at 10.4% for this slab. The overall NPAs for housing loans stood at 1.5% and 0.6% respectively for PSBs and housing finance companies during 2016-17. The government’s recent thrust on affordable housing through policy measures that include incentive schemes, accordance of infrastructure tag, interest subsidy scheme under PMAY (Pradhan Mantri Awas Yojana) have resulted in sharp rise in new housing projects in the affordable segment for low income groups. New unit launches in the affordable housing segment registered a 10.1% y-o-y growth in 2016-17. Affordable housing was the only segment in the residential real estate sector that saw a double digit growth. New launches in the mid-range and high-end segments fell by 11.7% y-o-y and 26.7% respectively in 2016-17.
There has been a more than three-fold increase in the number of houses completed under PMAY between April-December 2017. Investments to the tune of ₹1.72 lakh have been made under PMAY projects for constructing nearly 32 lakh houses.
Loans: Education loans
Education loan specialists grow faster
Mayur Shetty|Edu loans attract specialist lenders|Jul 12 2017: The Times of India (Delhi)
Edu loans attract specialist lenders
Mumbai
Pvt Players Positive On Growing Biz Education loans advanced by banks have grown by a measly 2.7% in FY17--half as much as the average growth rate of all loans.But that's only half the story .Specialist lenders are growing rapidly and private players are looking at this segment. Education loan specialists like HDFC Credila and Avanse have seen growth rates ranging from 40% to 70% in disbursements even as new age lenders like InCred Finance are eyeing the sector. Ajay Bohora, co-founder and CEO of HDFC Credila, says it's clear there is great demand. The shift in government focus to primary schooling has resulted in private in stitutions filling the gap in tertiary education. Secondly , in India and globally , cost of attendance (fees and other expenses) for tertiary education has been rising faster than inflation which is taking it out of reach of the middle class. HDFC Credila has disbursed Rs 1,300 crore of loans in FY17, which is slightly lower than the Rs 1,800 crore increase in the education loan portfolio of banks.
Bankers say they have pulled back from education loans because bad loans are high(7-8%). This is particularly true for the sub-Rs 4 lakh category where banks do not demand any security.
According to a senior PSU bank official, the reasons for the defaults are two-fold. One, engineering and management institutions have mushroomed but the quality of education has not been up to the mark. Two, many students relocate after graduation and their loans turn into NPAs.
“A lot of education loans are probably camouflaged as personal loans or loans against property ,“ said Prashant Bhonsle who heads the education loan vertical at InCred Finance. According to Bhonsle, students are rushed for time and at many banks it is faster to get a personal loan or a loan against property .The downside is that the interest paid cannot be claimed as deduction under Section 80E of the I-T Act. Also, repayment of such loans begins immediately , unlike education loans where there is a repay ment holiday . Also, education loans have tenures ranging from one to 12 years depending on course duration.
According to Rajnish Kumar, MD, State Bank of India, the outlook for education loans has improved with the government introducing a credit guarantee scheme for borrowings up to Rs 7.5 lakh in 2015. “The recovery problems that we faced in the south are now behind us and we will be growing the portfolio,“ said Kumar.
The ground reality is that unsecured education loans are a viable business only in segments where employment is certain. As a result, only those who qualify for top management or engineering institutes can expect to cover fees through bank financing without collateral. For others, a loan above Rs 7 lakh would invariably require property as collateral from parents.
Private lenders are positive as they have the skills and they can be selective.“Appraising a loan application is not easy because there are over 700 universities in India--some, like the University of Pune, have over 600 affiliated colleges, with each having 20-30 courses--and for credit assessment it's important to know the employment opportunities for each course,“ said Bohora.
It is not just finance companies, even lenders like Axis Bank, which was earlier a small player in education loans, has now created a new vertical for this product and is planning to grow. “We have grown 100%, although on a small base, and we see potential in this business,“ said Rajiv Anand, head of retail at Axis Bank. However, the bank is focusing on higher education in premier institutions like IIMs where both employment opportunities and fees are high. “The advantage for us is that we have good banking relationships with several trusts and educational institutions which makes it easier to partner with them for education loans,“ said Anand.
2017: Defaults highest in govt designed education loans
Mayur Shetty, Defaults highest in govt-designed education loans, Aug 30, 2017: The Times of India
The government-designed education loan scheme, which accounted for half of all education loans five years ago, now amounts to only a fifth. The scheme provides for loans up to Rs 4 lakh without collateral.
Banks are withdrawing from this segment, which is seeing the highest level of defaults. A study by TransUnion Cibil shows that defaults in education loans are lowest (below 1%) on big ticket loans of over Rs 15 lakh, which are typically taken for post-graduate MBA programmes in reputed institutes.
TOI had earlier reported how lenders were shifting focus on high-value loans as defaults in the sub-Rs 4 lakh category rose. The reasons cited by banks are now borne out by the data released by Cibil, which shows that the industry has experienced a default ratio of 8.1% on loans below Rs 4 lakh. Incidentally, most of these smaller-ticket education loans were disbursed by public sector banks.
According to Harshala Chandorkar, chief operating officer of TransUnion CIBIL the pattern of defaults raises the question whether the market is lagging in creating new job opportunities for those graduating from category II and III academic institutions.
"While delinquencies may be still better than the overall ratio of non-performing assets of many banks, the defaults are much higher than in other personal loan segments whether it is home loans, consumer durable loans, or even credit card outstanding," she said. Incidentally, the defaults that are now being experienced by banks are in respect of defaults witnessed on loans disbursed a few years earlier as education loans contain a moratorium, giving them time until they start earning to repay the loan.
TransUnion CIBIL research also indicate that since 2012, the number of new education loans disbursed annually has been showing flat to negative growth. The overall amount of loans disbursed has been showing a steady positive growth. This growth is driven by a marked shift towards loans of ticket size over Rs 15 lakh, which currently amount to over half the loan amount disbursed.
2015>’17: Defaults increase 47% on weak job market
Education loan defaults soar 47% on weak job mkt, December 23, 2017: The Times of India
From: Education loan defaults soar 47% on weak job mkt, December 23, 2017: The Times of India
A weak job market and wilful default by even those in well-paying jobs have hit the education loan portfolio of state-run banks with non-performing assets soaring by almost 47% between March 2015 and last March, data shared in Parliament showed.
The finance ministry told the Lok Sabha that NPAs, or bad debt, went up from Rs 3,536 crore at the end of March 2015 to Rs 5,192 crore on March 31, 2017. The surge took place in 2015-16, with the pace slowing down during the last financial year. The problem is so acute for at least five lenders that the stock of bad loans has more than doubled, with UCO Bank and Indian Bank leading the pack. At the same time, the increase in loan flow has also been less than 10% during this two-year period.
‘Absence of guarantees makes it easy to default’
But what is even worse is that there was only 3.4% riseduring 2016-17, on the back of a 5.6% growth in the previous year, indicating that either demand was tepid or banks were reluctant to lend. Bankers, however, said that they had not gone slow on education loans.
They said that defaults were rising as several students had not found good jobs, especially when it came to those who pursuedMBAsor engineering degrees.
However, there are cases where even students from good colleges who were employed by leading companies are refusing to pay.
For instance, an engineer with a global technology giant stop repaying theloan and was tracked down through social media. When confronted, he cleared the dues, said a bank executive. “The problem isthe absence of security and guarantees, which makes it easy todefault,” he added.
The government toldParliament that to reduce the incidence of NPA in education loans, the IBA Model Education Loan Scheme has been modified to factor in the the needs of students. The changesinclude a repayment holiday or a moratorium of course period plus one year, additional moratorium to account for spells of under-employment or unemployment, and extension of the repayment period to 15 years to reduce the equated monthly instalment.
The Centre has also launched a CreditGuaranteeFund Scheme for Education Loans (CGFEL) for loans upto Rs 7.5 lakh to provide guarantee up to75% of thedefault amount.
2018: 9% PSB loans turned bad
9% PSB edu loans turned bad in FY18, January 5, 2019: The Times of India
Nearly 9% of the education loans extended by public sector banks were categorised as NPAs in the last financial year, according to the government.
“According to information provided by the Indian Banks’ Association (IBA), NPAs of PSBs increased from 7.2% as on March 31, 2016 to 8.9% as on March 31, 2018,” minister of state for finance Shiv Pratap Shukla said in a written reply to the Lok Sabha. He was replying to a question whether NPAs in education sector rose to 9% during the two years period (2016-18). As of March 31, 2015, the bad loans in the education sector stood at 5.7%, the minister said.
Defaulting categories: 2020
Chethan Kumar, March 22, 2021: The Times of India
From: Chethan Kumar, March 22, 2021: The Times of India
From: Chethan Kumar, March 22, 2021: The Times of India
Education loan NPAs: Nursing, engg students bigger defaulters than those in MBA, medicine
BENGALURU: Nursing and engineering are among the top contributors to education loan bad debt, which was estimated at 9.7% of the outstanding education loans at the end of December, 2020.
According to data compiled from all the state-level bankers’ committees (SLBCs), as of December-end (third quarter of this fiscal), Rs 8,263 crore belonging to more than 3.5 lakh accounts that have availed education loans have been classified as non-performing assets (NPAs) out of the total education loan outstanding of Rs 84,965 crore that more than 23.3 lakh accounts borrowed. Stream-wise data shows that of the Rs 84,965 crore total outstanding amount, loans to medical students is Rs 10,147 crore (11.9%), engineering students is Rs 33,316 crore (39.2%), nursing Rs 3,675 crore (4.3%), MBA Rs 9,541 crore (11.2%) and all other streams together Rs 28,286 crore (33.2%).
NPAs against the outstanding loan amount, nursing tops the list with over 14%, followed by 12.1% in engineering, 7.1% in MBA and 6.2% in medical. Other streams together have 8.4% of the outstanding loans as NPAs. Doraswamy C, former convener of Andhra Pradesh SLBC, says: “Education is a priority lending sector, and beneficiaries must be sincere in returning the money they borrowed. But that does not happen in many cases. From evasion to negligence, there are many reasons for this. Besides, delays in interest subsidies payment by the Centre and other systemic problems also hurt honest re-payers.”
Education expert AS Seetharamu says: “The time needed to find employment for an engineering student is more than that for a medical professional. Nearly 30% of engineering students drop out annually and campus placements have been dipping. In cases of nurses, most leave the country and the banks don't find them. Visas need to be linked to education loans. Domestically, they avail loans in one place but work in another.”
States’ Performance
Further, distribution of education NPAs across the country shows that the eastern and southern regions, led by Bihar and Tamil Nadu, have emerged as the worst performers, while northern and western regions are the best.
Compared to the national average of 9.7% of NPAs, it is 14.2% in the eastern region and 11.9% in the southern region. It is only 3.3% and 3.9% in the northern and western regions, respectively, while it is 6.1% and 6.8% in the central and northeastern regions.
Other Sectors
While all this data is for the first three quarters of this fiscal, data from previous years shows how the education sector is among the top contributors to NPAs after industry and agriculture.
At 21%, 16.7% and 13.6% in fiscals 2018, 2019 and 2020, respectively, the industry sector tops the table, followed by the agriculture sector — 7.8%, 8.9% and 10.3%. Comparatively, the figures for the education sector stand at 8.1%, 8.3% and 7.6% for the said three years.
NPAs in the housing and automobile sectors were under 2% for all years, while it was 2.1%, 2% and 1.5% for the retail sector.
Loans: Personal loans
2018: Loans against property up 33%, defaults cross 3%
From: Mayur Shetty, Loans against property up 33%, but defaults cross 3%, December 20, 2018: The Times of India
Loans against property (LAP), which is the fastest growing segment in personal loans in calendar year (CY) 2018 across banks and finance companies, has also recorded the biggest increase in delinquencies, according to an analysis of borrower data by TransUnion (TU) Cibil.
Delinquencies are defined as loans with overdues of more than 90 days.
LAP, which constitutes 1.6 million total accounts, saw a more pronounced delinquency rate as compared to other businesses (see graphic). Defaults rose 73 basis points (100bps = 1 percentage point) year-over-year to 3.03% in the quarter ended September 2018.
“Lenders must judiciously monitor their risk-management processes. LAP has risen at a rapid rate. At the same time, delinquency rates for these loans have now crossed 3% for the first time in several years. Lenders must now determine if the rapid demand for these loans, which are an excellent generator of revenue, outweighs the recent delinquency increases,” said TU Cibil vicepresident (research & consulting) Yogendra Singh.
The TU Cibil report includes loan data from all lenders including banks, non-banking finance companies and housing finance companies. Nonbank lenders have been driving growth in the LAP business. “The difficulties faced by non-banks were October onward and fresh origination of loans would have slowed down in the October-December 2018 quarter,” said Singh.
Credit card accounts increased by nearly 32% to 3.69 crore by Q3CY18, while personal loan accounts rose 26% to 1.5 crore in the same period. Indian LAP borrowers held average balances of Rs 34.93 lakh in Q3CY18. Comparatively, the average personal loans size per borrower was Rs 2.52 lakh. In credit cards, the average balance per holder was Rs 46,000.
Loans: Policy repo rate
2014-17
Following the [August 2017] announcement, the policy repo rate -the rate at which RBI lends to banks -stands reduced to 6.0% from 6.25%, the lowest since November 2010. Consequently , the reverse repo rate -the rate at which RBI borrows from banks -stands adjusted to 5.75%
From The Times of India
See graphic:
Rate cuts, 2014-17
2018: 25-basis-point increase to 6.25%
1st rate hike in Modi govt’s 4 yrs could make home loans dearer, June 7, 2018: The Times of India
From: 1st rate hike in Modi govt’s 4 yrs could make home loans dearer, June 7, 2018: The Times of India
Fear Of Inflation Drives RBI Move
Prompted by inflation fears and emboldened by growth, Urjit Patel on Wednesday delivered his first rate hike since taking over as Reserve Bank of India governor in September 2016. It’s also a first during Narendra Modi’s four-year tenure as PM.
While economic growth makes every government happy, it dreads sharp price rises, especially ahead of elections. The Modi government will be praying for a good monsoon because it’ll help spur growth and check inflation.
All six members of the RBI’s monetary policy committee (MPC) voted in favour of a 25-basis-point (100bps=1 percentage point) hike in the policy rate, taking it to 6.25%. It could lead to another round of marginal increases in home loan rates in the coming months; all major banks have in the last one week raised lending rates by 10bps.
Wednesday’s hike follows five rate cuts during Raghuram Rajan’s time as governor – 4 of 25 bps each and one of 50 bps – and two, both of 25bps, by Patel, the last in August 2017.
Eco activity has shown sustained revival, says RBI
RBI governor Urjit Patel has maintained the RBI’s stance at neutral, which means that the central bank could go either way in the next policy in August.
Patel said RBI's decision was driven by its inflationtargeting mandate. The last rate hike – for 50 bps, to 8% – was by Rajan in January 2014.
In its statement, the RBI said that domestic economic activity has exhibited sustained revival in recent quarters and the output gap has almost closed. “Investment activity, in particular, is recovering well and could receive a further boost from swift resolution of distressed sectors of the economy under the Insolvency and Bankruptcy Code,” it added.
What has tempered the positive sentiment created by sharper growth – the Central Statistical Organisation last week announced a healthy 7.7% economic expansion for January-March – is the spectre of inflation. Data released since RBI’s April policy showed inflation jumped to 4.58% in that month from 4.28% in March. It is showing signs of firming up further with crude oil prices rising more than 10%. The rupee has also come under pressure with the US dollar gaining against most emerging market currencies.
According to Bank of India MD & CEO Dinabandhu Mohapatra, the fact that the RBI has revised its consumer price inflation forecast upward to 4.8-4.9% for the first half of FY19 shows that it will keep a hawk eye on retail prices in the months ahead. While a rate hike will lower the value of banks’ bond portfolios, the RBI has provided lenders some relief by allowing them to spread losses over four quarters. Also, medium and small enterprises have been given some relief in loan repayment. And the RBI’s decision recognizing banks' government bond holdings for meeting liquidity coverage norms will leave banks with more funds for lending, which is expected to keep rates under check.
The RBI’s rate hike may have surprised some analysts, but the growth forecast of 7.5% for FY19 boosted market sentiment with the sensex closing 276 points higher. Yes Bank MD & CEO Rana Kapoor said, “While the rate action is primarily in response to global uncertainty, especially from crude oil prices, it also signifies that the central bank is comfortable on the improving growth outlook.”
CARE’s chief economist Madan Sabnavis said, “The upside risk to the inflation emanates from the rising crude oil prices globally along with minimum support price impact.” He said the pace of inflation would depend on the progress and spread of monsoon.
“We expect one more interest rate hike by at least 25bps during the calendar year 2018, whereas we cannot rule out the possibility of two rate hikes by the end of the financial year 2018-19,” said Sabnavis.
“Investment activity, in particular, is recovering well and could receive a further boost from swift resolution of distressed sectors of the economy under the Insolvency and Bankruptcy Code,” RBI said in its statement
2018, Jan-Sept, vis-à-vis US Fed, BoE
From: October 6, 2018: The Times of India
From: October 6, 2018: The Times of India
See graphics:
2018, January-April: RBI’s key policy rates, vis-à-vis those set by the US Fed and BoE
2018, May-September- RBI’s key policy rates, vis-à-vis those set by the US Fed and BoE
2017 Aug- 2019 Feb
Mayur Shetty, Das debuts as RBI guv with surprise rate cut, February 8, 2019: The Times of India
From: Mayur Shetty, Das debuts as RBI guv with surprise rate cut, February 8, 2019: The Times of India
6-Member Panel Voted 4-2 For 25bps Reduction
Unveiling his maiden monetary policy on Thursday, RBI governor Shaktikanta Das announced a quarter percentage point (25 basis points) rate cut, citing lowerthan-expected inflation. It was the first rate cut in 18 months and came after two rate increases in the interim period.
The decision to reduce rates was a split one. Of the sixmember Monetary Policy
Committee, four, including Das and RBI ED Michael Patra, voted in favour while deputy governor Viral Acharya and external member Chetan Ghate voted against cutting rates. However, a change in policy stance from “calibrated tightening” to “neutral” was approved unanimously.
Asked whether banks would cut rates in response, Das said he would be meeting bank chiefs within the next fortnight and raise the issue of monetary policy transmission.
It was vital to act decisively, says RBI guv
The RBI governor on Thursday triggered concerns of back-tracking on the central bank’s move to peg retail loans to an external benchmark from April 2019, by referring to RBI’s earlier circular as a discussion paper. A clarification from the central bank is awaited.
Das also made it easier for banks to lend to top-rated finance companies. He also indicated that an interim dividend to the government was forthcoming.
Explaining the rationale for the rate cut, Das said it was “vital to act decisively and in a timely manner to address the objective of growth once price stability as defined (in RBI's inflation-targeting mandate) is achieved.”
Following the policy, the repo rate stands reduced to 6.25% from 6.5%. According to Acharya, the outlook for prices had changed in December itself following a crash in oil prices, but the central bank did not change the stance, choosing to move in small steps.
The RBI has forecast GDP growth of 7.4% for FY20 with the first half growth expected to be in the range of 7.2-7.4% and 7.5% in the third quarter. RBI has also forecast a CPI inflation path of 2.8% for Q4 of FY19 followed by 3.2-3.4% in the first half of FY20 and 3.9% in the third quarter of the next fiscal.
2019, June
June 7, 2019: The Times of India
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From: June 7, 2019: The Times of India
Repo rate lowest since 2010 after RBI’s third cut this year
Seeks To Make Loans Cheaper To Boost Eco
Mumbai:
In a move that should make mortgages, auto loans and other borrowings cheaper, the Reserve Bank of India cut interest rates by 25 basis points for the third time this year and hinted at more cuts by changing its policy stance from “neutral” to “accommodative”. Emboldened by benign inflation and availability of buffer foodgrain stock, the central bank’s monetary policy committee (MPC) voted unanimously to bring down the repo rate from 6% to 5.75% — the lowest since September 2010. Repo rate is the price commercial banks pay to the RBI for short-term funds.
Announcing the MPC decision, RBI governor Shaktikanta Das said, “Growth impulses had weakened significantly. A sharp slowdown in investment activity, along with a continuing moderation in private consumption growth, is a matter of concern.” He added that the fact that the bank’s stance was changed to accommodative meant that rate hikes were off the table for now. Responding to comments that the earlier two rate cuts were not passed on, Das said banks have passed on 21 basis points through a reduction in lending rate. “In the past the transmission took about four to six months. But this time, it has happened in two to three months’ time. Going forward we expect faster and higher transmission by banks,” he said.
A third reason for the rate cut was the return of the Narendra Modi-led NDA government in the polls last month, which has firmed up hopes of fiscal responsibility.
Following the rate cut, the bond and the forex markets reacted positively. The yield on the 10-year benchmark government bond yield fell to 6.8%, compared with Tuesday’s close of 7%. The rupee, which had weakened to 69.36 against the dollar ahead of the RBI decision, strengthened to 69.28 in afternoon trade.
The pressure behind RBI's rate cut hat-trick
June 13, 2019: The Times of India
NEW DELHI: The Reserve Bank of India on Thursday announced a 25 basis points (0.25%) cut in repo rate (the rate at which it lends to banks), the third rate cut in a row. The repo rate now stands at 5.75%, the lowest since July 2010. The central bank also revised its GDP growth expectations for 2019-20 downwards from 7.2% earlier to 7% now.
It's the economy: The latest rate cut comes at a time when the economy grew at its slowest in over four years. Among the challenges the economy faces, RBI says, are: Cash crunch in the system due to lower government spending (liquidity turned into a surplus only this month after remaining in deficit in April and May), a weak global demand due to trade wars that's hurting exports and investment activity and a weakening of private consumption, especially in rural areas. Plus, India's foodgrains production has dipped, growth in manufacturing activity has weakened, automobile sales have fallen, cement production and steel consumption (key indicators of construction activity) have slowed down.
Challenges ahead: The central bank notes that growth impulses of the economy have weakened significantly and a sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern. Hence, it wants to support efforts to boost demand and reinvigorate private investment activity. Experts say that by changing its stance from 'neutral' to 'accommodative', RBI has communicated that the growth slowdown is real.
Will you gain? Though consecutive rate cuts by RBI signal a drop in cost of funds for corporates and individual borrowers, banks haven’t passed on the benefits to their customers. Bankers say it is not possible to bring down their cost of funds without reducing deposit rates and bringing them down has been difficult as deposits have grown slower than loans. In 2018-19, bank deposit growth was 10% compared to 13% growth in loans. However, things may change this time as the RBI says that liquidity in the system has turned into a surplus for the first time in at least two months. If the surplus in the banking system continues for some time, lending rates are likely to come down.
Go cashless: The central bank has also decided to do away with the charge it levies on banks for RTGS (Real Time Gross Settlement) and NEFT (National Electronic Funds Transfer) transactions. If banks pass on the benefits to their customers (they used to pass on RBI's charges), online money transfers could become virtually free.
August 2019: 35 bps cut, probably a 1st in India
August 8, 2019: The Times of India
From: August 8, 2019: The Times of India
Das drops convention to opt for 35 bps cut, probably a 1st in India
New Delhi:
In April, RBI governor Shaktikanta Das told central bank governors about the need to “ think out of the box” and stop treating rate changes in multiples of 25 basis points (a quarter of a percentage point) as “sacrosanct”, suggesting it was just a convention.
Taking off from his speech at the “Governor Talks” event on the sidelines of the Fund-Bank meetings in Washington, the Monetary Policy Committee (MPC) opted for a 35 bps repo rate cut as a 25 bps cut was seen to be “inadequate”, while 50 bps would have been “excessive”. While MPC’s “unprecedented” cut was probably a first in India, Das said that some of the developed countries had changed ratesby 10-15bpsin the past.
The former bureaucrat suggested that there was nothing sacred about a 25 bps cut. “Too much should not be read into it, it is judgement call which MPC has taken,” he told reporters. With the latest reduction, the central bank has now put the ball in the Centre’s court to unveil measures to complement its rate cut. While the government unveiled some measures in the July 5 Budget, the financial markets have been unimpressed. The sharp slowdown in some sectors have triggered calls for the government to unveil measures to boost growth. Expectations are that some measures may be unveiled soon to smother the concerns over the slowdown and shield growth.
RBI has recognised the slowdown signals and has trimmed the growth estimate to for 2019-20 to 6.9% from the June policy forecast of 7%.“Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority, while remaining consistent with the inflation mandate,” the monetary policy committee said in its statement, highlighting the need to bolster growth.
Economists said that it seems that all central banks have decided to surprise the markets with unanticipated policy changes. New Zealand cut its key policy rate by 50 basis points, Thailand also unexpectedly cut its rate by 25 basis point as against the market-wide expectation of status quo. “We believe apparent short cycle of monetary policy normalization by US Fed has turned into a uniform rate easing cycle across global central banks. 2019 seems to be worse than 2008 with external strife of trade wars now getting integrated with domestic growth weakness in emerging economies,” said Soumya Kanti Ghosh, group chief economic adviser at State Bank of India.
Oct 5, 2019: The Times of India
From: Oct 5, 2019: The Times of India
RBI cuts repo rate to 9-yr low, growth estimate to 7-year low
Most Banks To Pass On Benefit Immediately
Mumbai:
As expected, the the Reserve Bank of India (RBI) lowered its key policy rate yet again on Friday — the fifth successive time this year that it has done so in a bid to spur slowing economic growth. The latest cut, by a quarter percentage point, brought the benchmark repo rate (the rate at which RBI lends to banks) to a nine-year low of 5.15%.
But the news was overshadowed by the RBI’s announcement that it was sharply reducing India’s growth forecast for the fiscal year to 6.1% — which would be the lowest in 7 years — from the earlier estimate of 6.9%.
Spooked investors promptly went into selling mode, resulting in the Sensex falling 434 points to 37,673.
The five repo rate cuts that have taken place during RBI governor Shaktikanta Das’s tenure collectively add up to 135 basis points (bps).
While the earlier 115 bps rate cuts brought down bank lending rates by only 29bps, the current revision will immediately get passed on in full.
RBI has asked banks to link their lending rates to an external benchmark like the repo rate, which has been chosen by most banks. As a result, SBI’s interest rate on home loans (below Rs 30 lakh) is set to fall below 8% for the first time in more than a decade.
The cut in GDP growth estimate is the sharpest in recent memory and follows a raft of government measures to stimulate the flagging economy, including a dramatic revamp of the corporate tax rate structure.
RBI’s decision to cut rate was unanimous
The 135 bps cumulative reduction in repo rate delivered in 2019 along with the recent cut in corporate tax by the government should help to revive growth in coming months,” said Zarin Daruwala, CEO, India, Standard Chartered Bank.
The decision of the RBI's monetary policy committee to cut the repo rate was unanimous with one member, Ravindra Dholakia, seeking a 40-bps cut. While RBI’s rate cut was modest considering its sharp downward revision of growth, Das promised to continue with an 'accommodative’ policy as long as is necessary to ensure growth momentum. While this stance was prompted by benign inflation, the 'top priority' for Das is growth, which at 6.1% is forecast to be at a seven-year low.
Besides dealing with the prospects of slower growth, Das also had to allay fears arising out of a spate of failures among NBFCs and the fraud in Punjab & Maharashtra Cooperative Bank – one among the top five cooperatives in the country.
Loans and Defaulters
Wilful defaulters:38% rise, 2012- 2015
The Times of India, May 04 2016
The number of wilful defaulters, who have not repaid their loans to public sector banks despite having the ability to do so, shot up by 38% to 7,686 at the end of December 2015, compared to 5,554 in December 2012, with lenders finally starting to issue the tag amid rising bad debt plaguing the Indian economy.
The amount involved in these cases has shot up 2.4 times to Rs 66,190 crore, compared to around Rs 27,750 crore three years ago, the government informed Parliament.
Bankers, however, war ned that some of the banks may still have kept a few firms and their promoters out of the net. “Banks have not done a complete exercise to identify all wilful defaulters in line with RBI guidelines,“ said Deepak Narang, a former executive director of United Bank of India. No one certifies that all the wilful defaulters have been identified. There has been an increase in recent years but not all accounts have been identified,“ Narang said.
He furnished the exam ples of Indian Overseas Bank and United Bank, where the numbers of such defaulters have come down. “How is that possible when the NPA in the system is rising and banks are reporting losses?“ RBI rules require banks to declare a borrower `wilful defaulter' if it has defaulted in repayment despite having the capacity to honour the obligation. Similarly , a defaulter who has diverted or siphoned off the funds, or has disposed off fixed assets or immovable property , can be given the tag.“The default to be categorised as wilful must be intentional, deliberate and calculated,“ the guidelines say .
Under pressure from RBI to act against defaulters, banks have begun to crack the whip only in recent months.As a result, lenders such as PNB have seen a massive spurt in the number of wilful defaulters -from 71 to 904 in three years (see graphic). In value terms too, PNB tops the list in terms of the growth rate with the amount involved jumping from Rs 199 crore at the end of December 2012 to almost Rs 11,000 crore at the end of 2015. Indian Bank and Andhra Bank (over 7times each).
SBI and its associates, which account for nearly a quarter of banking business, are at top of the pile in terms of amount involved but their share is around 28%, compared to 35% at the Dec-end of 2012, indicating that nationalised banks have only now begun to take exercise seriously .
2017: wilful defaulters owe ₹1 lakh cr+ to banks
How the debt has grown, 2008-2017
From: Atul Thakur, India’s wilful defaulters owe more than ₹1 lakh cr to banks, February 23, 2018: The Times of India
As on September 30, 2017, more than Rs 1 lakh crore was owed to banks by people or companies characterised as “wilful defaulters”, that is those who are unwilling to pay despite having the capacity to do so. TOI analysed more than 9,000 such accounts for which banks have filed lawsuits for recovery and found that the top 11 debtor groups, each with dues of over Rs 1,000 crore, together had over Rs 26,000 crore outstanding to the banks.
Analysis of the publicly available data for suit-filed accounts (wilful defaulters) of Rs 25 lakh and above shows that Jatin Mehta-promoted Winsome Diamonds & Jewellery Ltd and Forever Precious Jewellery & Diamonds Ltd owed close to Rs 5,500 crore to various banks. Mehta is reported to be now a citizen of St Kitts and Nevis, a tax haven with which India doesn’t have an extradition treaty.
Mehta’s companies are followed by Vijay Mallya’s Kingfisher Airlines, which has to pay back over Rs 3,000 crore under this head. The third in the list is REI Agro, a company owned by Sandip Jhunjhunwala, which, according to news reports, was once listed in London and Singapore stock exchanges and was co-sponsor of an IPL team. It owes Rs 2,730 crore.
Bad loans grew 4-fold to ₹1.1L cr during 2013-2017
Next in the list are the companies owned by Prabodh Kumar Tewari and his family members. The amount outstanding on Mahuaa Media, Pearl Studio Pvt Ltd, Century Communication and Pixion Media Pvt Ltd is Rs 2,416 crore.
The other companies that owe more than Rs 2,000 crore and are unwilling to pay despite having the means, according to the banks, are Zoom Developers Pvt Ltd promoted by Vijay Choudhary, Reid & Taylor (India) Limited & S Kumars Nationwide Limited, both promoted by Nitin Kasliwal, and media baron T Venkatram Reddy’s Deccan Chronicle Holdings Limited.
The data shows the alarming rate at which these bad loans are growing. In the past one year it has increased by about 27%. In the previous three years, it had increased by 38%, 67% and 35%, respectively.
Thus, between September 2013 and September 2017, the amount has quadrupled from Rs 28,417 crore to over Rs 1.1 lakh crore. While some of this would be due to interest being added each year, the quantum of the increase is too large to be entirely or even mainly due to that.
The RBI defines “wilful default” as defaults done despite the borrowers’ paying capacity. Money diverted for purposes other than the specific purpose of finance, or siphoned off and hence not available as assets to the borrower also qualifies as wilful default. Borrowers who have sold fixed assets that they provided as collateral to secure the loan without informing the bank also come under this category.
The cumulative total of more than 50 companies or groups each with over Rs 250 crore of wilful default works out to about Rs 48,000 crore. To put that in perspective, it is only slightly less than the government’s allocation of Rs 52,800 crore for health in the 2018-19 Budget.
Bank-wise analysis of data shows nationalised banks (excluding SBI and associates) constitute about 60% of this money. SBI and its associates account for one-fourth of the total. Private sector banks have also declared over Rs 14,000 crore as wilful defaults.
Defaults by gems, jewels companies, till 2017
From: Chethan Kumar, PNB lost four times more money than SBI did to jewel thieves, February 23, 2018: The Times of India
Highly cash-dependent traders in gems and diamonds have cost banks at least Rs 5,000 crore through 90 defaults, bank-wise and company-wise data on wilful defaulters compiled by the Federation of Bank of India Staff Unions (FBISU) shows.
The top loser is PNB, with just nine defaulters but a loss of Rs 1,790 crore — four times the amount SBI lost.
SBI reported the most number of wilful defaults(15) and lost Rs 410 crore (see table). PNB, incidentally, has lost the most among banks.
According to FBISU data, the total number of wilful defaulters is a little over 5,000, costing banks about Rs 49,000 crore, but the latest RBI data shows the numbers have jumped to 8,915 and Rs 92,376 crore, respectively. Of these wilful defaulters at the end of March 2017, PNB had the most (1,120), followed by SBI (997).
At least two bankers TOI spoke to said the exposure to gems and jewel companies must have also increased multifold. “Given that this data doesn’t include the recent PNB scam, the final number could point to one of the worst frauds the sector has seen,” one of them said.
Small and big loans have remained unpaid, while companies like Winsome, Beautiful Diamonds and Auro Gold Jewellery have defaulted with multiple banks. In some cases, banks are in the process of recovery, while in others investigations are pending.
Among the various means used to exploit banks is changing the names of companies and borrowing.
Data shows that Beautiful Diamonds was earlier called Splendour Gems, while Auro Gold Jewellery Private Limited later dropped the word “Private” from its name. Another firm, Ghanshyandas Gems and Jewels, later became “Ghanshyamdas”.
“The diamond trade is highly cash-dependent and the source of major money laundering. It may be conceivable that diamond merchants resorted to higher borrowing through Nostro accounts overseas to deal with the setbacks caused by constriction of the cash economy,” Tobby Simon of Synergia Foundation, a multidisciplinary think tank, said.
Experts, while pointing out how the total recapitalisation amount PNB received was about Rs 5,473 crore, pushing the bank’s net worth to Rs 20,000 crore, said that assuming the best scenario of recovery (of the Rs 11,300 crore) is 50%, the fraud has wiped out the entire money taxpayers had coughed up to recapitalise the bank.
Among other banks that suffered are Union Bank of India with nine defaults and Oriental Bank of Commerce with eight defaults.
Professor Charan Singh, former RBI chair professor at IIM-B, while calling for a complete overhaul of the banking system, cautioned against politicising the issue. “There’s a need to consider the sentiments of the public. Overreaction in the public domain can only deter depositors from banking, and bankers from lending.”
2018, March: The biggest defaulters
From: Mayur Shetty, Banks face triple whammy: Nirav, NPAs & rising yields, March 26, 2018: The Times of India
See graphic:
The biggest defaulters, as in March 2018
Riot defaulters exempt
The Times of India, May 03 2016
Defaults can't bar Guj riot-hit from special loans: HC
The Gujarat high court has held in a case that a bank cannot deny loan under special policy for 2002riot affected because the applicant had defaulted in payments earlier. The HC has asked the state government and Bank of India to extend loan to a 2002-riot affected trader from Bhavnagar, Usman Ghani Aadhiya, who had defaulted in an earlier loan from the same bank. The bank was refusing to pay him a fresh loan after riots on the ground of his earlier default.
Aadhiya had suffered damage of Rs 5.1lakh to his business in the riots and was thus entitled to a loan at 4% flat interest from a bank according to policy.The HC said it was not permissible for the bank to exclude him from extending the loan because he falls in the category of the riots affected.
Loan defaulters’ rights
The Times of India, Apr 18 2016
PREETI KULKARNI
Five rights loan defaulters should know of
If you have defaulted on loan repayment and the bank wants to repossess your assets, all is not lost
If you have defaulted on a loan, the rules do not give the lender a complete walko ver. Keep the following points in mind if you find yourself in such a situation.
Right to ample notice
A default does not strip you of your rights.Banks have to follow process and give you time to repay dues before repossessing your assets to realise the arrears. Typically, banks initiate such proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Secu-rity Interests (Sarfaesi) Act. If the borrower's account is classified as a non-performing asset, where repayment is overdue by 90 days, the lender has to first issue a 60-day notice.
“If the borrower fails to repay within the notice period, the bank can go ahead with sale of assets. However, in order to sell, the bank has to serve another 30-day public notice mentioning the details of the sale,“ says banking and management consultant V.N.Kulkarni.
Right to ensure fair value
The lender starts the process of auctioning your property to recover dues if you fail to clear what you owe or respond during the 60-day notice period. However, before doing so, they will have to issue another notice specifying the fair value of the secured asset as assessed by the banks' valuers, along with details like reserve price, date and time of auction. “The borrower can object if the property is undervalued. He can justify his objection by conveying any better offer that he may have so that the bank can make a decision,“ says Kulkarni. In other words, you can look for prospective buyers on your own and introduce them to the lender if you think that the property can yield a better price.
Realise balance proceeds
Do not write off your asset mentally the moment it is repossessed. Keep track of the auc tion process. Lenders are required to refund any balance after recovering the dues, which s a real possibility given that property pric es can shoot up beyond the owed amount After recovering the dues and expenses of conducting the auction, the bank has to re und the remaining amount to the borrower as the money belongs to him,“ says Kulkarni
Right to be heard
During the notice period, you can make your representation to the authorised officer and put forth your objections to the repossession notice. “The officer has to reply within seven days, giving valid reasons if he rejects the representation and objections raised by the borrower,“ says Kulkarni.
Frauds below Rs 1L not to be reported to police: CVC
Don't report frauds below Rs 1L to police, CVC asks banks, The Times of India, Jun 17 2017
The Central Vigilance Commission (CVC) has asked public sector banks not to report frauds below Rs one lakh to local police, unless their staff is involved in such crimes. Earlier banks were mandated to report fraud of above Rs 10,000 and below Rs 1 lakh to police.
The decision was taken by the CVC in consultation with the Reserve Bank of India (RBI), taking into account the practical difficulties faced by public sector banks in reporting such categories of cases.
It has been decided that only if staff of the bank is involved in the fraud cases of below Rs 1 lakh and above Rs 10,000, would such cases need to be reported or complaint filed with local police station by the bank branch concerned, the commission said in a directive to chiefs of all the banks.
The cases of frauds of upto Rs one lakh and not below Rs 10,000 are to be scrutinised by banks officials concerned for further necessary action, a senior CVC official said.
As of September 30, 2016, the Non-Performing Assets (NPAs) declared by various scheduled commercial banks stood at a whopping Rs 6,65,864 crore, according to an official data. The NPAs of the country's largest lender State Bank of India is Rs 97,356 crore, followed by Rs 54,640 crore of Punjab National Bank and Rs 44,040 crore of Bank of India, it said. Bank of Baroda has NPAs of Rs 35,467 crore, Canara Bank Rs 31,466 crore, Indian Overseas Bank Rs 31,073 crore, Union Bank of India Rs 27,891crore.
Loans: recovery of
'Lender can't seize vehicle without prior notice'
Dipak K Dash, 'Lender can't seize vehicle without prior notice', April 8, 2018: The Times of India
A finance company cannot forcibly take possession of a vehicle for non-payment of dues without sending a notice to the borrower, country's apex consumer commission has said.
The National Consumer Disputes Redressal Commission (NCRDC) on Friday ordered a private finance company to pay Rs 80,000 to the borrower whose tractor was seized by the company in January, 2011 for alleged non-payment of dues.
Directing Shriram Transport Finance Company to refund the amount, which the borrower had paid to the company, with 9% interest within four weeks, single-member bench of M Sreesha said, "In my opinion, a seizure of the vehicle in such circumstances violating the principles of natural justice without giving an opportunity to the borrower to show his bona fides, amounts not only to unfair trade practice but also deficiency of service for which the financier is liable to compensate the complainant."
The NCDRC relied on the "vehicle repossession notice" by the company to the borrower, which showed that the notice was issued 10 days after the actual date of repossession of the tractor and the Commission observed that this "cannot be stated to be a notice prior to repossession which is in contravention of the principle of natural justice".
The case dates back to December 2009 when one Sakharam Sahu of Durg in Chhattisgarh had purchased the tractor with Rs 1 lakh loan after mortgaging his vehicle. Sahu needed to pay Rs 4,677 monthly instalment for 31 months. The finance company took possession of the vehicle on January 15 in 2011 as the borrower did not pay the instalment "despite repeated demands". The company had raised a demand of Rs 1.30 lakh. Sahu had submitted that he had repaid Rs 80,000 out of the total Rs 1 lakh loan and hence the company demanding Rs 1.30 lakh was "unjustified". The finance company took possession of the vehicle in January, 2011.
Aggrieved by the action, Sahu approached the district consumer forum, but did not get any relief. Though he later challenged the order in the state commission, it upheld the district forum's order. Finally, he challenged the state commission order in the NCDRC in 2014.
The NCDRC observed, "It is relevant to note that the notice is admittedly dated 25.01.2011, whereas in the body of the letter it is stated that the vehicle was taken into possession on 15.01.2011 at 2 pm. Viewed from any angle this repossession notice which dated 10 days after the actual date of repossession cannot be stated to be a notice prior to repossession which is in contravention to the principles of natural justice."
2018: RBI issues circular to treat defaulters as insolvent
April 3, 2019: The Times of India
From: April 3, 2019: The Times of India
The Feb 12 circular placed the RBI in a lonely corner — business houses were up in arms, banks were upset at having to make large-scale provisions and the govt was unhappy because several under-construction power projects faced the prospect of liquidation
WHAT IS THE CIRCULAR ABOUT?
On February 12, 2018, the RBI wrote to banks asking them to classify as a defaulter any company that fails to meet the payment deadline even by a day. The circular also forced banks to drag these companies to bankruptcy court if the defaults were not resolved in 180 days. The circular did away with various loan-restructuring schemes that aimed to give stressed borrowers more time to repay.
WHY WAS IT ISSUED?
The circular was issued after the Insolvency and Bankruptcy Code (IBC) came into force. Until the IBC laws were enacted, defaulters had the upper hand as banks could avoid making provisions towards non-performing assets (NPAs) by giving them more time and restructuring the loan. However, experience showed that restructuring only delayed and worsened the problem and the dues of these companies snowballed because of restructuring and all of them defaulted.
The RBI’s objective was to get banks to clean up their books by selling defaulting companies and not postponing the problem through restructuring.
WHAT’S THE IMPACT?
The circular resulted in banks classifying a larger chunk of their loans as NPAs. The first quarter of FY19 saw 21 PSU banks reporting a loss of Rs 16,600 crore as against a loss of Rs 307 crore a year earlier. Losses continued to rise for the second and third quarters. For public sector banks, gross NPAs hit 10.9% as of December 2018.
Most of the loans that were restructured in the earlier years turned into NPAs.
WHO OPPOSED IT?
The lead in the legal battle against this directive was taken by an association of power producers, representing projects with loans of over Rs 1.73 lakh crore. Of this, Rs 34,000 crore of defaults were because government departments did not make payments in time or due to policy changes. Later, other industries too became part of the suit with the RBI fighting a lone battle on the other side.
WHY DID THE SC STRIKE IT DOWN?
The apex court observed that the RBI had the power to give directives to banks to proceed against companies in the event of a default but cannot give directions in respect of debtors generally. While the argument was confined to RBI’s power to direct banks to initiate insolvency proceeding against debtors in general, the final order struck down the entire circular as ‘ultra vires’ (beyond one’s authority).
2019/ SC quashes the RBI circular
From: Amit Anand Choudhary & Dhananjay Mahapatra, SC quashes stringent RBI circular against defaulters, April 3, 2019: The Times of India
From: Amit Anand Choudhary & Dhananjay Mahapatra, SC quashes stringent RBI circular against defaulters, April 3, 2019: The Times of India
Debt-Laden Power Sector To Benefit Most
In a big setback to efforts for recovery of bad debts of companies owing Rs 2,000 crore or more to banks, the Supreme Court on Tuesday quashed the RBI’s February 12, 2018, circular, which directed banks to move against defaulters under the Insolvency and Bankruptcy Code (IBC) on their failure to pay up within 180 days from March 1, 2018.
A bench comprising Justices R F Nariman and Vineet Saran also quashed all IBC proceedings initiated by banks under the RBI circular against defaulters.
Thus, the apex court turned the clock back to March 1, 2018, giving a huge relief to defaulters who owe Rs 2,000 crore or more to banks.
“All actions taken under the said circular, including action by which the Insolvency Code has been triggered, must fall along with the said circular,” it said.
However, this ruling will not affect initiation of IBC proceedings by banks against big defaulters taken before, or independent of, the RBI circular.
One such example is the IBC proceedings launched by a State Bank of India-led consortium against Essar Steel, which on culmination of proceedings is set to be taken over by Arcelor Mittal. Essar Steel had a debt of Rs 45,000 crore.
Writing the 84-page judgment, Justice Nariman accepted the main plea of senior advocate A M Singhvi, who appeared for the Association of Power Producers and argued that peculiarity of stress factors in each sector would not permit the RBI to bracket defaulting companies in different sectors for proceeding under IBC.
Singhvi’s arguments were adopted by other counsel who appeared for defaulting companies operating in varied sectors including telecom, steel, infrastructure, sports infrastructure, sugar, fertilisers and shipyards.
SC: Circular illegal due to lack of Central authorisation
Although the SC accepted senior advocate Rakesh Dwivedi’s arguments and upheld the constitutional validity of Section 35AA of the Banking Regulation Act, which empowers the Centre to exercise the power itself or authorise the RBI to direct banks to proceed against specific defaulters, it found the February 12 circular to be illegal as there was no such authorisation from the Centre to RBI to direct banks to proceed against defaulters by specifying a default limit and a 180-day period.
“The Banking Regulation Act specifies that the central government is either to exercise powers along with the RBI or by itself. The role assigned by Section 35AA, when it comes to initiating the insolvency resolution process under the Insolvency Code, is thus, important. Without authorisation of the central government, obviously, no such directions can be issued,” the bench said.
Referring to Section 35AA, the bench said, “It is clear that directions that can be issued by the RBI (to banks) under Section 35AA (with authorisation from Centre) can only be in respect of specific defaulters by specific debtors. This is also the understanding of the central government when it issued the notification on May 5, 2017, which authorised the RBI to issue such directions only in respect of ‘a default’ under the Code. Thus, any direction in respect of debtors generally, would be ultra vires (in violation of) Section 35AA.”
Justices Nariman and Saran also said the RBI circular “applies to banking and nonbanking institutions alike, as banking and non-banking institutions are often in a joint lenders’ forum which jointly lend sums of money to debtors. Such non-banking financial institutions are, therefore, inseparable from banking institutions insofar as the application of the RBI circular is concerned”.
Having clarified this, the bench said proceedings initiated by both banking and nonbanking financial institutions under the circular would have to be quashed along with the circular.
2018: PNB gets vigilance prize, Govt explains why
Govt explains why PNB got vigilance prize, March 9, 2018: The Times of India
The government informed the Rajya Sabha that the Central Vigilance Commission (CVC) had conferred the ‘vigilance excellence award’ to chief vigilance officer (CVO) of Punjab National Bank (PNB) purely for best disposal rate of cases relating to disciplinary proceedings initiated in 2016.
Replying to a question, minister of state for personnel Jitendra Singh said the awards were conferred in 2017 for the first time under various categories to chief vigilance officers (CVOs), vigilance functionaries and management of six public sector banks for work done in 2016.
For the award in the category ‘timely completion of disciplinary proceedings’, Singh told the Elders, CVO of Punjab National Bank had the best disposal rate (92%) of vigilance complaints, among four eligible entries.
Disciplinary proceedings were finalised in 187 cases out of a total of 203 cases within the prescribed timeline of six months for major penalty and three months of minor penalty, he added. The vigilance award had raised eyebrows as it came in the wake of outbreak of the PNB scam involving jewellers Nirav Modi and Mehul Choksi.
