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NPAs hit banks’ profitability in 2018; addressing NBFC concerns: RBI

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Reserve Bank of India RBI

Mumbai, Dec 28:Non-performing assets (NPAs or bad loans) weighed down the balance sheets of banks necessitating large provisioning, which adversely affected their profitability, especially of state-run banks during 2018, the Reserve Bank of India (RBI) said on Friday.

In its “Trends and Progress of Banking in 2017-18” report, the RBI also said that it is addressing the concerns of non-banking finance companies (NBFCs) over acute liquidity crunch following the series of payment defaults by Infrastructure Leasing & Financial Services (IL&FS) over August-September.

“The overhang of stressed assets weighed down the consolidated balance sheet of the banking sector, necessitating large provisions, which adversely affected their profitability during 2017-18,” the central bank report said.

Recent data for the first-half of 2018-19, however, indicate that the NPAs have begun to stabilise, “albeit at an elevated level; capital positions have been buffered and the provision coverage ratio has improved”.

“The recent concerns about some NBFCs are being proactively addressed. The consolidated balance sheet of NBFCs expanded in 2017-18 and during the first-half of 2018-19,” the RBI said.

“The balance sheets of NBFCs, especially that of companies that provide loan finance, have been growing manifold against the backdrop of relative decline in their cost of lending vis-à-vis banks and subdued credit growth of scheduled commercial banks in the previous three years.”

The central bank said this year can be considered a watershed in terms of setting up of a “new, comprehensive, decisive and credible” NPAs’ resolution framework in February under the mandate of the Insolvency and Bankruptcy Code (IBC).

The new framework requires banks to report a default even if the repayment is due for more than a day. Thereafter, they are expected to introduce a resolution plan to ensure that the borrower repays the dues on time. In case the banks are unable to implement the resolution plan within the time limit of 180 days, they have to compulsorily admit the account into the bankruptcy process under the IBC.

According to the report, of the 21 public sector banks (PSBs), the 11 that are under the RBI’s Prompt Corrective Action (PCA) framework have shown lower growth in gross non-performing assets (GNPAs) as compared to non-PCA banks.

“The PCA banks have also shown lower growth in GNPAs, relative to non-PCA state-run lenders,” it said.

Those under the PCA are Allahabad Bank, United Bank, Corporation Bank, IDBI Bank, Uco Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.

The banks under PCA, which imposes lending restrictions, have also increased recoveries, contained their growth in advances and deposits, reduced riskiness of assets and focused on better rated assets, the RBI said.

“The sharper increase in NPA ratios compared to non-PCA PSBs is also because of decline in advances by the former. As a result, profitability has taken a hit as reflected in negative return on assets,” the report said.

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Markets open on positive note

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Sensex Nifty Equity

Mumbai, Feb 20: The 30-scrip Sensitive Index (Sensex) on Wednesday opened on a positive note during the morning session of the trade.

The BSE Sensex opened at 35,564.93 before touching a high of 35,581.14 and a low of 35,520.21.

It was trading at 35,528.69 up by 176.08 points or 0.50 per cent from its Tuesday’s close at 35,352.61.

On the other hand, the broader 50-scrip Nifty at the National Stock Exchange (NSE) opened at 10,655.45 after closing at 10,604.35.

The Nifty is trading at 10,656.25 in the morning.

IANS

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PF funds’ investment in IL&FS bonds have no government guarantee: Finance Ministry

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IL&FS Financial Service

New Delhi, Feb 19 (IANS) The provident and pension fund trusts that invested in the IL&FS bonds now fear loss of money as the debt-ridden company’s bonds are unsecured debt, and the Finance Ministry says superannuated bonds do not carry any government guarantee and all such instruments have to face all market-related risks.

“Since these are investments in bonds, the government does not ensure any guarantee on them as such and if these are invested in stock markets, they carry the market risks as applicable. It is between the bond issuer and bond holders…,” the Finance Ministry said in response to IANS queries.

Thousands of crores of money of more than 15 lakh employees of both public and private sector companies have exposure to IL&FS bonds.

However, queries sent to the EPFO Commissioner and Labour Minister Santosh Gangwar remained unanswered.

Over 50 funds that manage retirement benefits of over 15 lakh employees have exposure to IL&FS. PF trusts of state electricity boards, public sector undertakings (PSUs) and banks are among them. The provident and pension fund trusts have filed intervening applications in the National Company Law Appellate Tribunal (NCLAT) stating that they stand to lose all the money since the bonds are under unsecured debt.

Usually, retirement funds have a low-risk appetite and invest in “AAA” rated bonds (which IL&FS bonds used to be once upon a time) and get assured returns with low interest rates.

The worries of pension and provident fund trusts come from the classification of IL&FS profiling its companies as to which can meet the dues obligations. Many important trust managing funds of PSUs like MMTC, IOC, Hudco, SBI and IDBI are among those filing petitions. From private sector, HUL and Asian Paints are among the petitioners.

IL&FS is currently under resolution process at the National Company Law Tribunal (NCLT). The process will decide under Section 53 of the IBC the order of priority for distribution of proceeds of the process.

The beleaguered company has informed the NCLT that of the 302 entities in the group, 169 are Indian companies, out of which only 22 are emerging as those which can meet all obligations (green), while 10 firms can pay to only secured creditors (Amber). There are 38 companies of IL&FS (red) which cannot meet any obligations of payment, and 120 entities are still being assessed.

These PF and provident funds trusts are worried that if payment is limited to secured creditors, then only financial creditors like banks will receive the dues while unsecured bond-holders will be get any payments.

IL&FS bonds attracted investments by PF trusts as it had the shareholding of SBI and LIC giving its bonds the comfort factor.

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Sachin Bansal invests Rs 650 crore in Ola

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Bengaluru, Feb 19 (IANS) Internet entrepreneur and Flipkart co-founder Sachin Bansal has invested Rs 650 crore, or about $92 million, in ride-hailing platform Ola in his personal capacity as investor, the company said in a statement on Tuesday.

This investment is part of Ola’s larger Series J funding round. It is also the largest investment by an individual in Ola to date, it said.

“Ola is one of India’s most promising consumer businesses that is creating deep impact and lasting value for the ecosystem. On one hand, they have emerged as a global force in the mobility space and on the other, they continue to build deeper for various needs of a billion Indians through their platform, becoming a trusted household name today,” Bansal said.

He further said he has known Ola founder Bhavish Aggarwal as entrepreneur and friend over the years and that he has great respect for what he and the team at Ola have built in 8 years.

“We are extremely thrilled to have Sachin onboard Ola as an investor. Sachin is an icon of entrepreneurship and his experience of building one of India’s most respected businesses ground up, is unparalleled,” Ola CEO Bhavish Aggarwal said.

Ola integrates city transportation for customers and drivers onto a mobile technology platform ensuring convenient, transparent, safe and quick service fulfilment, the statement added.

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