14-Mar-2019:  ICICI Bank and HDFC Bank will continue to be D-SIBs

Debt-ridden IDBI Bank has been categorised as a ‘Private Sector Bank’ for regulatory purposes by Reserve Bank of India with effect from January 21, 2019 consequent upon LIC acquiring 51 per cent of the total paid-up equity share capital of the bank.

In another release, the RBI said the State Bank of India, ICICI Bank and HDFC Bank will continue to be identified as Domestic Systemically Important Banks (D-SIBs). D-SIB means that a bank is 'too big to fail'.

The Reserve Bank had issued the framework for dealing with D-SIBs on July 22, 2014. The framework requires the central bank to disclose the names of banks designated as D-SIBs starting from 2015 and place these banks in appropriate buckets depending upon their Systemic Importance Scores (SISs).

16-Jul-2019: Due to the Central Government’s 4R’s strategy NPAs have declined

As per inputs received from Reserve Bank of India (RBI), as on 31.3.2019, there were 1,938 unique borrowers with funded amount outstanding (FAO) of more than Rs. 25 crore who had defaulted on their loans. Regarding the list of such borrowers, RBI has apprised that under the provisions of section 45E of the Reserve Bank of India Act, 1934, RBI is prohibited from disclosing credit information. Section 45E provides that credit information submitted by a bank shall be treated as confidential and not be published or otherwise disclosed.

As per RBI data on global operations, aggregate gross advances of Public Sector Banks (PSBs) increased from Rs. 18,19,074 crore as on 31.3.2008 to Rs. 52,15,920 crore as on 31.3.2014. As per RBI inputs, the primary reasons for spurt in stressed assets have been observed to be, inter-alia, aggressive lending practices, wilful default / loan frauds / corruption in some cases, and economic slowdown. Asset Quality Review (AQR) initiated in 2015 for clean and fully provisioned bank balance-sheets revealed high incidence of NPAs. As a result of AQR and subsequent transparent recognition by banks, stressed accounts were reclassified as NPAs and expected losses on stressed loans, not provided for earlier under flexibility given to restructured loans, were provided for. Further, all such schemes for restructuring stressed loans were withdrawn. Primarily as a result of transparent recognition of stressed assets as NPAs, gross NPAs of PSBs, as per RBI data on global operations, rose from Rs. 2,79,016 crore as on 31.3.2015,  to Rs. 8,95,601 crore as on 31.3.2018, and as a result of Government’s 4R’s strategy of recognition, resolution, recapitalisation and reforms, NPAs have since declined by Rs. 1,06,032 crore to Rs. 7,89,569 crore as on 31.3.2019 (provisional data as reported by RBI on 2.7.2019).

A number of initiatives have been taken for stricter check on loan advances of large amounts, including, inter alia, the following:

1. PSBs have been asked to examine all accounts exceeding Rs. 50 crore, if classified as NPA, from the angle of possible fraud and to immediately initiate examination of the issue of wilful default once a fraud is reported.
2. Key reforms were instituted in PSBs as part of PSBs Reforms Agenda, including the following:
   1. Board-approved Loan Policies of PSBs now mandate tying up necessary clearances/approvals and linkages before disbursement, scrutiny of group balance-sheet and ring-fencing of cash flows, non-fund and tail risk appraisal in project financing.
   2. Use of third-party data sources for comprehensive due diligence across data sources has been instituted, thus mitigating risk on account of misrepresentation and fraud.
   3. Monitoring has been strictly segregated from sanctioning roles in high-value loans, and specialised monitoring agencies combining financial and domain knowledge have been deployed for effective monitoring of loans above Rs. 250 crore.
   4. All PSBs have created Stressed Asset Management Verticals, which monitor high-value Special Mention Accounts and identified stressed assets.
3. Through enactment of the Insolvency and Bankruptcy Code, 2016, taking over of management of the affairs of the corporate debtor at the outset of the corporate insolvency resolution process and debarment of wilful defaulters and persons associated with NPA accounts from the process have been provided for, which has instilled greater credit discipline among corporate debtors.
4. PSBs have put in place arrangements for checking credit information reports of Credit Information Companies for sanction and renewal of corporate loans.
5. A Central Repository of Information on Large Credits (CRILC) has been created to collect, store and disseminate data on all borrowers’ credit exposures of Rs. 5 crore and above, to enable better monitoring.
6. To enable banks to inform relevant authorities if need arises, PSBs have been advised to obtain a certified copy of the passport of promoters/Directors and other authorised signatories of companies availing of loan facilities of more than Rs. 50 crore. The heads of PSBs have also been empowered to issue requests for issue of Look Out Circulars.
7. A Central Fraud Registry has been created for all frauds reported by banks to RBI, involving amount above Rs. 1 lakh.

Enabled by the above steps, financial gains from cleaning of the banking system are now amply visible. As per RBI data on global operations, the NPAs of PSBs, after reaching a peak of Rs. 8,95,601 crore as on 31.3.2018, have since declined by Rs. 1,06,032 crore to Rs. 7,89,569 crore as on 31.3.2019  (provisional data for the financial year ending March 2019). PSBs have recovered Rs. 3,16,479 crore over the last four financial years, including a record recovery of Rs. 1,27,987 crore during 2018-19 (provisional data for the financial year ending March 2019, as reported by RBI on 9.7.2019).

Note: Figures cited above for PSBs include those for IDBI Bank Limited, which was recategorized as a private sector bank by RBI with effect from 21.1.2019.