1. Spectre of default, credit pain may tail banks next year too

Spectre of default, credit pain may tail banks next year too

The struggle on bad loans that soared to menacing proportion in 2016 would continue in the new year as many more industrial units, especially in the MSME sector, may turn defaulters due to the cash shortage following demonetisation.

By: | New Delhi | Published: December 30, 2016 1:08 PM

 

The banking sector came almost to a standstill for nearly two months after the surprise announcement by Prime Minister Narendra Modi on November 8 scrapping Rs 500 and 1,000 notes. (Reuters) The banking sector came almost to a standstill for nearly two months after the surprise announcement by Prime Minister Narendra Modi on November 8 scrapping Rs 500 and 1,000 notes. (Reuters)

The struggle on bad loans that soared to menacing proportion in 2016 would continue in the new year as many more industrial units, especially in the MSME sector, may turn defaulters due to the cash shortage following demonetisation.

The withdrawal of high-value cash will also hit the bottom line of banks that have been busy exchanging old notes and issuing valid currency at the cost of credit growth and loan recovery.

The banking sector came almost to a standstill for nearly two months after the surprise announcement by Prime Minister Narendra Modi on November 8 scrapping Rs 500 and 1,000 notes.

Out of the 27 public sector banks, 14 posted losses, aggregating Rs 34,142 crore, last fiscal and the trend has not shown any improvement in the first half of 2016-17. Worryingly, even private lenders have witnessed a jump in bad loans, pushing down their net profit.

Public banks have seen nearly Rs 80,000 crore increase in gross non-performing assets (NPAs) in the three months ended September 2016. Their gross NPAs rose to Rs 6,30,323 crore as against Rs 5,50,346 crore by June-end.

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Mindful of an NPA surge in the aftermath of the cash recall, RBI has provided additional 60 days for repayment of housing, car, farm and other loans worth up to Rs 1 crore.

However, bankers feel that NPAs will move up at the end of the fourth quarter when the impact of the notes ban takes hold.

As far as wilful defaulters are concerned, PSBs have reported 16 per cent rise at 8,167 that collectively owe them Rs 76,685 crore at the end of March 2016. Dues to the banks went up by 28.5 per cent to Rs 76,685 crore in 2015-16, from the earlier Rs 59,656 crore.

On the recapitalisation front, the government has already announced funds infusion of Rs 22,915 crore, out of the Rs 25,000 crore earmarked for 13 PSBs for the current fiscal. Of this, 75 per cent has already been released to them.

Banks have not been able to carry out their lending activity optimally since November 8 as their prime focus turned to exchanging notes and accepting old currency.

The result: Bank credit shrank by a whopping Rs 61,000 crore, or 0.8 per cent, during the fortnight to November 25.

The outstanding credit stood at Rs 72.92 lakh crore as of November 25, according to Reserve Bank of India data. The year-on-year credit growth was just 6.6 per cent, down from 9.3 per cent.

Bankers say there has been a sharp plunge in credit demand as the economy started to feel the adverse impact of the decision to cancel legal tender status of old currency notes.

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UK-based Vedanta group company, Cairn India Ltd, which wanted the court’s nod to export its share of crude from Rajasthan’s Barmer oil field, did not succeed in overcoming the defence of the government.

While Tata and Vedanta groups were fighting legal wrangles, there was a moment of scare for Essar Group over an allegation of illegal tapping of phones of high-profile people and some union ministers by the corporate house between 2001 and 2006, even as the high court refused to direct a court- monitored probe by an SIT into it.

The Ambanis had to be wary for a moment when there was a challenge to the government notification conferring the prestigious Padma Vibhushan to late Dhirubhai Ambani, the founder of Reliance Industries Ltd, which was dismissed.

Tata and Anil Ambani groups also got a stern message from the high court which directed power distribution firms in Delhi, controlled by them, that they would have to compensate the kith and kin of the victims of electrocution if it was established that there were “lapses” on their part in maintaining the prescribed safety norms.

Budget carrier SpiceJet too had a tough time in the high court which directed it to deposit Rs 579 crore in 12 months and ordered the airline and Sun Group chief Kalanithi Maran along with his Kal Airways to appoint an arbitral tribunal to decide the share transfer dispute between them in a year.

However, when the common public bore the brunt due to the fight between app-based cab service providers, Uber and Ola, the court came to their rescue by clamping down on surge pricing by the cab aggregators and directed them not to charge passengers over the government-fixed rates after August 22.

Another relief to the public came when the high court restrained social networking platform WhatsApp from sharing with Facebook the information it had till September 25, when its new privacy policy came into effect.

Intellectual property rights issues witnessed trademark dispute between market giants Britannia Industries Ltd and ITC Ltd over the use of wrapper for packaging of biscuits, while the copyright battle saw some leading foreign publishers fighting hard against a photocopy shop in Delhi University.

While controversial personality like ‘King of Good Times’ Vijay Mallya did not have good time as the high court upheld a trial court order summoning him as accused in several cheque- bounce cases, meat exporter Moin Qureshi was asked to return to India by mid-November to appear before Enforcement Directorate for questioning in a money laundering case.

The telecom sector survived the scare of the verdict of the high court, which upheld Telecom Regulatory Authority of India’s decision making it mandatory for cellular operators to compensate subscribers for call drops as it was stayed by the Supreme Court.

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