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Lenders Stuck With Intangibles Like Brands 
Bad loans leave PSBs short on collateral 

Reeba Zachariah & Mayur Shetty TNN 

Mumbai: The skewed numbers of public sector banks point to misuse of the corporate debt restructuring mechanism to hide bad debts.
Now,the state-owned lenders are finding it difficult to recover these bad loans as they grapple with exotic securities such as brands and personal guarantees.
Corporate debt restructuring is the term used for giving more time to cash-stressed businesses to repay loans without reclassifying them as non-performing assets (NPAs).Traditionally used to grant relief during calamities,RBI had allowed a special dispensation to reschedule loans without marking them as NPA in the wake of the financial crisis.According to RBI data,restructured loans as of March 2012 stood at Rs 2,18,068 crore up 58.48% over March 2011.
Until June 30,2012,the Corporate Debt Restructuring or CDR cell a bankers forum to decide on restructuring received over 400 proposals for restructuring loans of Rs 2,27,000 crore,or more than double the Rs 95,820 crore as on March 31,2009,according to its website.RBI smelt a rat after it emerged that public sector banks restructured 5.7% of their loans as against 1.6% for private banks.Also,9.3% of loans to large and medium industries have been restructured as against 2.3% for micro and small industries.
The cell has seen the arrival of several high profile entrepreneurs like Kingfisher Airlines chief Vijay Mallya,Deccan Chronicles Venkatram Reddy,Leela Hotels groups Capt.C P Krishnan Nair,Global Teles Manoj Tirodkar and Bharati Shipyards P C Kapoor and Vijay Kumar.Crisil has already rung warning bells,stating that restructured loans will add another Rs 50,000 crore to non-performing assets.
In the case of Kingfisher,banks have advanced loans against security of the Kingfisher brand,which had been valued at Rs 4,000 crore according to a report by Grant Thornton.Other loans have been advanced against personal guarantees of promoters.In the case of intangibles such as trademarks,recovery is difficult because of a host of issues.Also,whenever banks have gone in for personal guarantee as security,the borrower has managed to transfer all his assets to another entity, said P Rudran,MD & CEO of Asset Reconstruction Company of India,a firm that specializes in extracting values from bad loans purchased from lenders.
Not all loans are suitable for restructuring.Only those businesses that are generating cash flows enough to repay the loan instalments can be restructured.Although security is not adetermining factor in restructuring a loan,without any security banks are unlikely to agree for restructuring, said Rudran ,. In a recent speech,K C Chakrabarty,RBI deputy governor,accused banks of misusing the system,stating,In the recent past,many unviable accounts were restructured by establishing viability only with some kind of financial engineering. 
Disguising NPAs benefits banks in the short run as it helps them avoid making provisions out of their income for a possible default.But it only delays the inevitable as banks end up recovering lower than what they would have had they taken timely action.Even with securities,recovery becomes difficult where the borrower does not have any intent to repay.This is because borrowers still manage to get a stay order, said Rudran.
Ramesh Vaidyanathan,partner at Advaya Legal,said,Although a company opting for CDR is a positive development conceptually,with the lenders adopting a more business-oriented outlook at making the business work,there is a risk of misuse by the promoters of the long rope granted by the lenders 
Deep Roy,senior associate of Economic Laws Practice,said,It is vital that the empowered group has adequate control over the restructuring terms and ensure that the inter-creditor agreement covers a water-tight and cohesive enforcement process so that no further deviations are entertained.

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Tribunal rejects pension claim of second wife 

TIMES NEWS NETWORK 

Chennai: The Madras bench of the Central Administrative Tribunal (CAT) on Wednesday upheld Kolkata-based Ordnance Factory Boards order rejecting the claim for family pension by the second wife of an OFB employee.
The bench of judicial member Justice G Shanthappa and administrative member R Satapathy said the decision taken by the respondents,including OFB,in rejecting the claim of R Devaki,second wife of M Subramaniam,for family pension was right.
The department of pension and pensioners welfare,the order said,had clarified that the second wife would not be entitled to family pension as such a marriage cannot be legally solemnised when either party has a spouse living at the time.The respondents include OFB chairman and director-general and general manager of Cordite Factory in The Nilgiris.The petitioner (Devika) cannot ask for inclusion of her name for family pension of M Subramaniam,who died on March 6,2012,since she is his illegitimate wife and not entitled for the relief as prayed for, said Justice Shanthappa.
An employee of the Cordite Factory,Subramaniam married Devika in 1977 when his first wife was alive.When he applied for pension,he claimed only a single pension.However,after his first wifes death,Subramaniam made a representation on September 10,2010 requesting the authorities to include Devika in his pension payment order as wife by enclosing the true extract of the Hindu Marriage Register kept by the marriage registrar office in Coonoor.
The authorities rejected it saying his second marriage happened during the life time of his first wife and such a marriage was invalid.Devika challenged this order before the CAT bench.Any second marriage by a Hindu male after the commencement of 1955 Act during the lifetime of his first wife will be null and have no legal effect.The applicant has not proved her case, said Justice Shanthappa and dismissed the petition.



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Banks track defaulters with social media 

Also Use These Sites For Assessing Credit Worthiness Of Customers Before Lending 

Aparna Ramalingam TNN 

Chennai: An innocuous update like Mani was at Kodai Club on a social networking site could provide a host of information to a bank.Financial institutions have started using social media to check customer profiles,analyse tastes and preferences,assess credit worthiness,and even chase down defaulting borrowers.
Banks use social media for lead generation,customer engagement and recovery.Some banks have turned to new collection vendors who have explicit skills in social media applications so that they can trace loan defaulters,especially on mortgages, said CVG Prasad,chief information officer,ING Vysya Bank said.
Banks and recovery companies abroad have been using social analytics deriving business insights and extracting data from user profiles for a while.In the west,social media is used to track customers with pending loans who may be untraceable, said a senior official from Development Credit Bank.Posts and updates can provide early warning signals about a customers financial status.
While banks still rely on traditional sources such as Credit Information Bureau of India to get information on corporate and retail borrowers,they are also harnessing social media.They look to social media sites for insights into lending to small,local businesses such as restaurants and beauty salons.
Comments on blogs and social media sites on quality of service can be a reference point for bankers to decide whether to give a working capital loan or not.Banks are also using networking sites to track business activities of exporters.If the social footprint hasnt changed much in a year,it could influence lending decisions.
If an organisation receives lot of negative feedback on its products and services,it may have an impact on its ability to pay future obligations.So this data may be used as one of the parameters to assess credit worthiness of an organisation.Social media can provide useful data on employee and customer perception, said S Ganesh,chief executive officer,D&B Analytics and Decision Services.
Not all financial institutions are supportive of social media tracking.Anybody can hack and write something on your wall.Not all information is authentic, said K Venkataraman,managing director and chief executive officer,Karur Vysya Bank said.


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Mgmt quota students eligible for edu loan: HC 

TIMES NEWS NETWORK 

Chennai: Banks cannot deny education loanstostudents admittedunder the management quota,the Madras high court has ruled.
Justice N Paul Vasanthakumar,appreciating the timely intervention of theUnion finance minister in September this year to clarify certain issues relating to educational loan andbroadbaseits application,said the Parangipettai branch of the Indian Overseas Bank branch was not justified in denying loan toBVigneswaran.
Vigneswaran,belonging to a community classified as most backward had lost his father early and his mother was an agricultural worker.After having secured 57.5% in Class 12,he joined BE (Electrical and Electronics Engineering ) in Annamalai University under the management quota.His mother,with great financial difficulty,managed to pay 64,710 towards tuition fee for 2011-12.
However,when he furnished his application for education loan along with a bona fide certificate,the bank rejected it saying he had got admission under the management quota and that he had failed to secure the mandatory minimum of 65 % marks in Class 12.
Justice Paul Vasanthakumar,rejecting the banks stance,pointed out that an announcement by the Union finance minister on the education loan had prompted chief executives of public sector banks to hold a review meeting on September 12,2012.Taking note of the grievances / complaints being received by the government from affected students,the review meeting decided to incorporate new clauses to regulate the education loan regime.As per their decision,in addition to other norms,meritorious students became eligible to claim education loan if they pursue courses under the management quota in an institution for reasons of convenience (read proximity to the institution ) and choice of course. 
The judge pointed out that the student was a native of Cuddalore and he had chosen to join Annamalai University as the university was located near his residence.Therefore,the newly-evolved condition on education loans is applicable to him,the judge said.



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BANKS TIGHTEN PURSE STRINGS ON EDU LOANS 

Borrowing To Study Abroad Gets Harder But Easier For Vocational Courses 

Aparna Ramalingam & Pratiksha Ramkumar | TNN 


Banks have become stricter thisyearaboutsanctioning loans for studies abroad,following complaints from Indian students about the recognition of foreign universities.They have put in place a number of checksandaredemandingmoredocuments from students.
We have a panel that keeps tabs on the status of foreign universities.Wegiveloanstostudentswhohavegot admissioninrecognizedandapproved universities abroad, said M Narendra,chairmanandmanagingdirector,Indian Overseas Bank.
State Bank of India,Chennai,not only checks the universities but also the students performance.It asks for schoolleavingcertificatestoassessthe students academic consistency.For universities in Australia and the UK,we contact our representatives there to get more details about the institution, a senior SBI official said.
Smaller private banks normally refrain from giving education loans to students wanting to pursue medicine in countries such as Russia.We are selective about foreign education loan disbursals.We sanction loans for a medical degree abroad only if the student and parents have a long-standing relationship with us or have strong references from existing customers, said K Venkataraman,managing director and chief executive officer,Karur Vysya Bank.
This is despite the fact that education loans above Rs 7.5 lakh are fully securitizedasperthemodeleducation loan scheme of Indian Banks Association (IBA).All banks follow these guidelines while drafting their educational loan products.Banks normally sanction loans up to Rs 20 lakh for studies abroad,in some cases the amount can go up to Rs 30 lakh.
Every year,nearly 1,000 Indian students go abroad to study medicine in countries such as Russia,China and Ukraine,among others.Students say that pursuing a six-and-a-half-year course abroad is cheaper than paying capitation fee to private colleges here.Privatecollegeschargecapitationfee of Rs 40 lakh for which you cannot get a bank loan.These countries give you the same education at half the price,and banks give loans if the college is reputed, said Ameer Jahan of Foreign Medical Graduates Association.
However,banks are hesitating after they realized that the percentage of students clearing the MedicalCouncilof Indiasmandatory screeningexam,whichallowsthemto practiceinIndia,issmall9 %to31%.Many students have not cleared the screening test even four or five years after graduating, Jahan said.


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Lending for skills courses loosens up 

Ishan Srivastava | TNN 


Students pursuing vocational courses are likely to find it easier to get bank loans with the human resources development ministrys credit guarantee scheme (CGS).Under this scheme,if a student defaults,the central government will cover a part of the loan.
Indian Banks Association (IBA) included vocational courses in its model loan scheme a few months ago after which banks started to look at providingloansforvocationalcourses.State Bank of India,Central Bank of India,Canara Bank and Indian Overseas Bank disburse loans for vocational courses.The situation has dramaticallychangedfromearlylastyear when banks did not give loans for vocational courses.SRamadorai,adviserto the Prime Minister on skilldevelopment,h a d f i r s t brought up the need for bank loans for skill training,which IBA took up.IBA was informed that National Council on Skill Development had plans to develop a skilled work force in the country and that about 25 lakh people were expected to avail credit for vocational programmes in the next three years.
National Skill Development Corporation (NSDC),the body mandated tooverseetheskilldevelopmentinthe country,started a pilot project with Central Bank for vocational course loans.Thecreditguaranteefundwas said to be Rs 500 crore in the Budget speech.It will be based on the IBA model loan scheme guidelines, said NSDCCEODilipChenoy.WearerunningapilotwithCentralBankandwill extendittoSBI,IOBandCanaraBank,butsomeissueshavetobeironedout. 
An IOB spokesperson said the bank started distributing loans for vocational courses from July and the response has been good.Officials are coming to Bangalore on November 29 and Chennai on November 30 to discuss the modalities of the credit guaranteescheme,saidthespokesperson.
There is not much clarity on who will administer the credit guarantee fund but it is likely that it will be done by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE),said an industry source.They had to amend the organisation and constitution of CGTMSE to make this possible, said the source.

CASH FOR SKILLS 


A Credit Guarantee Fund of 500 crore was announced in the last Union Budget but is yet to be created.Banks will be allowed to extend loans up to 20 times of the fund size,translating to 10,000 cr 
It is based on Indian Banks Associations model loan scheme for vocational education and training


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Promoter pledges at 1-yr high in Sept qtr 

Financial Services,IT Companies Saw The Largest Drop In Pledging By Promoters 

M Allirajan TNN 


Promoters,who offered their holdings as collateral to raise funds,continue to have a large proportion of their shares pledged with lenders.The pledged value of promoter shares as a per cent of the market capitalization of stocks in these companies rose to 10.1% in July-September,the highest level in four quarters.
Their share in market capitalization increased from 2.09% at the end of June to 2.16% in September.The total value of pledged stocks stood at $27 billion,up 16% quarteron-quarter (q-o-q ),at the end of September,data showed.In rupee terms,the total pledged value stood at Rs.1.42 lakh crore,up 10% on a qo-q basis.
United Spirits led the list of companies with the highest promoter pledges (in per cent terms) among those with market capitalization of over $500 million.The companys promoters had pledged shares worth $820 million or 98% of their holdings at the end of September.
HDIL and Suzlon Energy had 96% of promoter shares pledged with lenders.The value of promoter share pledges stood at $1.7 billion in pharmaceuticals major Wockhardt,the highest in the group.In all,promoters in 50 companies have pledged 95%-100 % of their shares.
Promoters pledged shares to raise funds to meet FCCB (foreign currency convertible bonds) obligations, said Deven R Choksey,managing director (MD),KR Choksey Shares and Securities.FCCB was an overhang and made them (promoters ) pledge more shares, said Kishor P Ostwal,MD,CNI Research,an equities research provider.There is scarcity of funds.Promoters had no option but to pledge shares, he said.
Among Sensex constituents,nine companies have reported share pledges worth $2.9 billion,a tad higher than the previous quarter.Nearly one in every three companies that has reported details of share pledges for the quarter ending September has seen promoters pledge at more than 50% of their total holdings.More than half of these firms have not seen any reduction in pledging by promoters.
Financial services and IT firms saw the largest fall in pledging by promoters while healthcare and consumer staples recorded an increase.Companies in the consumer discretionary segment continue to have the biggest pledging by promoters in value terms,Morgan Stanley Indias data showed.

CIRCULATING WEALTH 


USL the list of companies with the highest promoter pledges among those with market cap of over $500mn Nearly one in every thrird company that reported details of share pledges has seen promoters pledge at more than 50% of total holdings 311 companies reported lower pledging compared to the previous quarter while 128 companies increased pledging


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PSU banks under lens for fixing savings a/c rate 

Regulator To Probe If They Are Colluding 

Pankaj Doval| & Sidhartha TNN 

New Delhi: Competition Commission of India (CCI),the fair play watchdog,has decided to look into the common,4% interest rate being paid by all public sector banks on savings bank deposits despite the Reserve Bank of India moving to an unregulated regime in October 2011.
They seem to be acting in tandem and it needs to be investigated.Because of this policy,small depositors are losing out and banks are also losing business, said a CCI official,who did not wish to be identified.
The official also said that banks such as Kotak Mahindra and Yes Bank,which had started paying up to 7% on savings bank deposits,had seen a surge in inflows.
According to RBI data,five private players,10 foreign banks and a cooperative bank have increased their savings deposit rate by one to five percentage points.
For banks,current accounts (CA) and savings accounts (SA) are the steadiest and cheapest source of funds.Banks usually target at least 30% of their total deposits from CASA.
While they resort to periodically increasing or decreasing term deposit rates,savings account rates were only raised in May 2011 after RBI mandated an increase from 3.5% to 4%.The RBI's move to an unregulated regime a few months later was opposed by most public sector banks.
By keeping interest rates on savings bank deposits unchanged at 4%,banks have managed to ensure a healthy net interest margin,which is the difference between the cost of funds and the rate at which they lend.This comes at a time when deposit rates have been rising 
While public sector banks said that they are yet to receive any communication from CCI,the chairman of a top public sector bank dismissed the suggestion of acartel at work.

UNITED FRONT 


RBI deregulated savings account rates in Oct 2011 Since then,5 pvt players,10 foreign banks and a cooperative bank have increased their savings deposit rates However,PSU banks have kept a common interest rate of 4%,though they deny acting as a cartel


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Bankers apprehensive over CCIs move to probe SB rates 

New Delhi: As the Competition Commission is set to probe the 4% interest rate being paid by public sector banks on savings bank deposits despite the RBI moving to an unregulated regime,several bankers remain apprehensive about the move.
A senior SBI executive said it was only banks with a small network of branches that are offering higher rates.It is not class-wise,but size-wise, the banker added.
Who is paying more Even ICICI Bank and HDFC Bank are paying the same rate.RBI has deregulated the rate which will not result in an overnight increase or decrease, the chairman said.
Another bank chief said each bank has its own resource-raising strategy and takes its own decision.Every bank has its own policy and no one exchanges notes, he said.
Some public sector players were contemplating an increase in savings bank deposit rates around the time RBI began discussions on deregulating the only remaining regulated rate.But all of them chose to not increase the rate after State Bank of India,the countrys largest lender with around a quarter of the business,decided to maintain status quo.
In fact,in the run-up to the deregulation,the Indian Banks Association,the banking industry lobby group,had opposed the move with some bankers citing the example of other countries,which had seen a decline in term deposits after the savings bank rate was de-regulated.
During a resource management meeting at the RBI headquarters,most banks had opposed the move but the central bank went ahead with the move only to see two banks raise rates on funds lying idle in savings bank accounts.



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