NEWS ON BAD AND DISTRESSED LOANS

SOURCE: ECONOMIC TIMES DATE: 06.06.2017 NEWS ON BAD AND DISTRESSED LOANS SBI now expects to recover only part of Kingfisher dues, to take hit of Rs 900 crore NEW DELHI: A State Bank of India BSE 1.18 % internal report said there was little hope of recovering anything substantial from the grounded Kingfisher Airlines BSE 3.03 %. The country s largest bank expects to take a hit of about Rs 900 crore on this account. The total exposure of the SBI-led consortium of 14 banks to the Vijay Mallya-promoted airline is more than Rs 5,000 crore, excluding accrued interest. SBI s fund-based exposure stands at over Rs 1,200 crore, the bulk of which is considered unrecoverable. It is the policy of the bank not to comment upon individual accounts and its treatment, said an SBI spokesperson. The government is trying to extradite Mallya from the UK to face action in cases related to the airline s loan defaults. He s also wanted for questioning over alleged money laundering. Mallya has denied any wrongdoing. The three-month-old assessment, which ET has seen, expects that about Rs 1,100 crore may be recovered through the sale of pledged assets worth Rs 1,565 crore. The hypothecated assets include Mallya s Kingfisher BSE 3.03 % villa in Goa, which was sold for Rs 73 crore in April. The bank had pegged its market value at Rs 85 crore. There are no takers for the Kingfisher Airlines brands which are valued (at) Rs 7-315 crore, said a senior bank executive aware of the report. Nine trademarks have been hypothecated. Forget about brands, we have so far have struggled to sell even the real estate assets, such as Kingfisher House, Mumbai. A fifth auction last month had no bidders despite the reserve price of the property having been cut to `93.50 crore from an initial estimate of `107 crore. The Central Bureau of Investigation (CBI) filed a first investigation report (FIR) in September 2016 after SBI complained that Mallya did not disclose the receipt of $40 million from Diaego in February that year on the grounds of dishonour of personal and corporate guarantee, and dishonest intention. The report stated that until 2013 none of the banks had come across any material evidence indicating fraud, as defined by the Reserve Bank of India (RBI). Further, a forensic audit by SBI also did not reveal any fraud, said the executive cited above. Page 1 of 7

SOURCE: FINANCIAL EXPRESS DATE: 06.06.2017 CBI raids NDTV s Prannoy, Radhika Roy over alleged fraud case, causing Rs 48 cr loss to ICICI Bank The Central Bureau of Investigation (CBI) on Monday conducted searches at the residences of NDTV s promoter Prannoy Roy for allegedly causing a loss of Rs 48 crore to ICICI Bank on a loan of Rs 350 crore between 2008 and 2010. The agency further accused Roy, his wife Radhika Roy, private company RRPR Holding and officials of ICICI Bank of allegedly concealing share transaction from the Securities and Exchange Board of India, stock exchange and the ministry of information and broadcasting. Calling the raids a blatant attack on the freedom of the press, NDTV, in a statement on Monday evening, said that the CBI had filed its FIR based on a shoddy complaint by a disgruntled former NDTV consultant who has not obtained a single order from the courts. In its FIR, the CBI accused NDTV founders, RRPR Holding Pvt Ltd and unknown officials of ICICI Bank of criminal conspiracy, cheating and corruption. The CBI said RRPR Holdings had allegedly taken a loan of Rs 500 crore from Indiabulls to purchase 20% shares of NDTV from the public in 2008-09. The CBI alleged that RRPR Holdings took a loan of Rs 375 crore at the rate of 19% per annum from ICICI Bank to repay the borrowing from Indiabulls. The promoters of NDTV pledged their entire shareholding in NDTV as collateral to ICICI Bank for this loan, the CBI alleged. This pledging of shares was not reported to SEBI, exchanges and the I&B ministry, according to the CBI. Such concealment was allegedly done because a creation of more than 61% voting capital for ICICI Bank was in violation of Section 19 (2) of the Banking Regulation Act. It should not be more than 30%, the agency said in its FIR. An interest waiver of 10% was given by ICICI Bank. According to the Banking Regulation Act, No banking company shall hold shares in any company, whether as pledgee, mortgagee or absolute owner, of an amount exceeding 30% of the paid-up share capital of that company or 30% of its own paid-up share capital and reserves, whichever is less. Page 2 of 7

SOURCE: BUSINESS STANDARD DATE: 06.06.2017 Prompt corrective action not aimed at causing inconvenience to public: RBI The Reserve Bank of India (RBI) on Monday clarified that its prompt corrective action (PCA) on banks is only to discipline erring banks and not to inconvenience the customers. The central bank was forced to issue the circular after misinformed posts were circulated in social media and on WhatsApp implying that the central bank was on course to impose restrictive actions on some weak banks. The message, in particular, drew parallels to Kapol Cooperative Bank on which the central bank has imposed some withdrawal restrictions. The fake posts, warning public of the safety of their deposits, were forwarded by many and created some panic in public. Officially, RBI has imposed PCA framework on IDBI Bank, Uco Bank, Dena Bank and Indian Overseas Bank. But that doesn't mean that these banks are unsafe for public deposits. The Reserve Bank of India has come across some misinformed communication circulating in some section of media including social media, about the Prompt Corrective Action (PCA) framework, RBI said in its statement, adding: The Reserve Bank has clarified that the PCA framework is not intended to constrain normal operations of the banks for the general public. The RBI went on explaining that PCA is only a tool under its supervisory framework to maintain sound financial health of banks. PCA is used to monitor certain performance indicators of the banks as an early warning exercise and is initiated once such thresholds as relating to capital, asset quality etc. are breached. This helps nursing the banks to health and also gives an opportunity to the RBI to pay focussed attention on these banks by engaging with the management more closely in those areas. The PCA framework is, thus, intended to encourage banks to eschew certain riskier activities and focus on conserving capital so that their balance sheets can become stronger, it said, while assuring that the PCA framework is in operation since December 2002, while only a revised version of this was issued on April 13, 2017. Page 3 of 7

SOURCE: ECONOMIC TIMES DATE: 07.06.2017 R Com drops 4% as Fitch, Moody's slash rating again NEW DELHI: Shares of Reliance Communications BSE -2.74 % (RCom) tanked over 3 per cent in Wednesday s trade after Fitch Rating agency slashed the rating of the operator to restricted default (RD), while another global rating agency Moody s downgraded it to CA, its second lowest rating category and said there was a chance of a further downgrade. The ratings were cut for the second time in the span of a week, even as the telecom firm received a seven-month respite from bankers on repayment of debt. Following the development, the stock fell 3.75 per cent to hit a low of Rs 19.35 on BSE. Moody s rating suggests that the debt is highly speculative and likely in, or very near, default, with some prospect of recovery of principal and interest. Fitch Ratings has lowered RCom s rating to RD from CCC, saying the situation constituted restricted default, as multiple waivers or forbearance periods have been extended in parallel following a non-payment event. Fitch last cut RCom s rating on June 2, ET reported. Post the signing of binding documents for the Aircel and Brookfield transactions, RCom told its lenders that it will be making repayment of an aggregate amount of Rs 25,000 crore from the proceeds of these two transactions, on or before September 30, the company informed BSE. The said amount will cover not only all scheduled repayments, but also include substantial prepayments to all lenders on a pro-rata basis, it said. Page 4 of 7

SOURCE: ECONOMIC TIMES DATE: 07.06.2017 PFC's NPA issues seen as a blip; stock may get support ET Intelligence Group: Shares of Power Finance Corporation BSE 0.35 % (PFC) have lost nearly 25% from the last month's peak of Rs 169. Of this, 12% drop was after it reported weak March quarter numbers on May 29. It incurred net loss of Rs 3,400 crore due to change in the asset classification norms for loans granted prior to April 2015. But, the stock reaction appears to be overdone given the fact that 80% of the recognised non-performing assets (NPAs) and 58% of the restructured assets, due to the changed norms, are likely to get reversed to standard assets in FY18 and FY19, respectively, according to the management. Although classified as NPAs, these borrowers are making timely payments as per agreement and have never defaulted. They are state-owned and are sovereign in nature. Also, we don't expect asset quality to get affected when we move to NPA recognition cycle from 120 days to 90 days this fiscal, said a company spokesperson. The RBI prudential norms require an account to be classified as NPA if it fails to commence commercial operation within two years (or four years in specific cases) of DCCO (date of commencement of the commercial operations). While PFC followed these norms for loans issued post April 2015, it was recently asked to apply this to prior period loans. Thus, the gross NPA ratio jumped to 12.5% as of March from 3.07% as of December. Page 5 of 7

SOURCE: BUSINESS STANDARD DATE: 08.06.2017 Power Finance Corporation to revamp its lending portfolio Plans to shift gears from NPA-hit thermal to T&D and renewable energy. Power sector s key financier Power Finance Corporation (PFC) is looking to shift its focus from conventional energy to other upcoming sectors such as transmission, last-mile distribution infrastructure and renewable energy. Lagging power demand and rising non-performing assets (NPAs) in the thermal power sector has pushed it to revamp its lending portfolio. Our funding for last-mile transmission and distribution projects in states is increasing. The 24X7 Power for all scheme alone envisages an investment of Rs. 12 lakh crore. Apart from that, retrofit of existing thermal units for becoming energy efficient, refinancing of old projects would throw up interesting opportunities, Rajeev Sharma, Chairman and Managing Director, PFC told reporters. He said power transmission projects, which were awarded to private players through tariff based competitive bidding (TBCB), would also be eligible for loans from PFC. We will design our products and lending in accordance with the increasing focus on T&D. The share of renewable energy is definitely increasing, Sharma said. PFC s non-performing assets (NPAs) increased by a massive 300 per cent to Rs 30,718 crore pushing the company in red for the first time, mostly on account of change of RBI norms. A large number of loans had to be reclassified as bad loans or restructured assets after PFC shifted towards the Reserve Bank of India s (RBI) prudential norms as the power ministry norms especially for these projects expired this year. The effect was retrospective starting 2015, thereby assets totalling Rs 59,000 crore were realigned as NPAs, Chinmoy Gangopadhyay, director (projects) at PFC. PFC reported a quarterly loss of Rs 3,409 crore during Q4FY17. For the fiscal year 2016-17, the profit fell by 65 per cent in a year to Rs 2,126 crore due to extra provisioning for loan. An indication of the increasing volume of stressed assets in the power sector, the percentage of gross NPAs to total loan assets stands at 12 per cent for PFC in FY17. In F.Y. 16 it was 3.15 per cent. Page 6 of 7

SOURCE: FINANCIAL EXPRESS DATE: 08.06.2017 Banks bad loans crisis: SFIO launches crackdown against big default In a fresh crackdown against defaulters, the Serious Fraud Investigation Office (SFIO) has started probing details of certain non-performing asset (NPA) accounts of public sector banks in which, prima facie, there is a violation of rules. An established steel company, which is among the biggest defaulters, is on top of the SFIO radar for possible violation of rules, which includes diversion of funds for purposes other than what it had cited to get loans, official sources said. A diversified conglomerate, with interests ranging from consumer electronics to DTH services, is another such large defaulter whose loan accounts are also being looked into, the sources added. While 90% of bad loans could be a result of genuine business failures or other concerns, possible fraud can t be ruled out in at least 10% of cases, one of the sources said. The SFIO is getting into details of these accounts where there is a prima facie case for fraud, he added. In case of any contravention of rules by these defaulters, appropriate action will follow. As of December 2016, commercial banks had stressed assets (both gross NPA and restructured standard advances) worth Rs 9.64 lakh crore, with most in public sector banks. The massive bad debts have led to a twin balance sheet problem over-leveraged companies and bad-loan-encumbered banks severely denting investments in the economy. Sources had earlier told FE that the government could launch a crackdown on 5-10 big firms that are perceived to be among the top wilful defaulters of the 50-odd companies that account for the bulk of banks massive bad loans. Banking sources said the government is exploring all the possible angles on toxic assets. 5 UNACCEPTABLE BANK CHARGES There is a thinking that promoters of some of the big defaulters whose criminal intent of avoiding payments willfully and/or diversion of funds, prima facie, are established should feel the heat. The SFIO action is one of the raft of measures that the government and the Reserve Bank of India (RBI0 have announced or are working on to resolve the bad debt issue. Last month, through an ordinance amending the Banking Regulation (Amendment) Act, 2017, the Centre authorised the RBI to direct banking companies to resolve specific cases of bad loans by initiating resolution process under the new insolvency law, where required. The central bank can now give directions on even specific cases of defaults, a practice it had generally avoided earlier. After the promulgation of the ordinance, the RBI, too, took a series of steps, including the one to make the joint lenders forum more effective, and directed banks to not break any rules and to meet all deadlines. THANK YOU! Page 7 of 7