Bad loan concerns have been proven to be overblown: SBI

Concerns about a rise in bad loans have risen as larger companies are better positioned and banks are increasingly using analytics to spot non-performing assets.
Swaminathan Janakiraman, Managing Director of Risk, Compliance and Stressed Asset Resolution Group of State Bank of India (SBI). The new government-backed bad bank will ensure quick resolution of large accounts through consolidation of bad loans, explains Swaminathan
MC Govardhan Rangana And
Joel Rebello, Edited excerpt:

What is the Outlook on Stressed Assets?

There is no need to be pessimistic. But at the same time, we don’t want to be too optimistic. The slippage ratio has been good despite two years of Covid. Both the high frequency data and feeler on the ground look pretty positive. High-contact industries and the unorganized sector, which are most affected by Covid, do not have much bank exposure. Secondly, the way some sectors have made a comeback, we are confident that things will be fine. Slippery will happen but not like we saw in the 2015-2018 cycle. The balance sheets of both the corporate and the bank are in good shape.

Convergence among the government, regulators and lending institutions has helped to address the problems already rather than postponing them. Today we do not need physical monitoring as we have data points like GST and tax returns.

How do you use this data? What are the possible red flags?

A significant appraisal has been the RBI’s Crilic database, which contains information on all credits above Rs 5 crore. If a particular account has slipped into the SMA range elsewhere, it comes to my notice on a weekly basis. 10 years ago we didn’t have a comparable instrument and we used to rely on exchange of information between banks, which was never enough.

Our Early Warning System (EWS) tracks about 200 different parameters on what is happening in our account, 40 of which come from Krilick. It also tracks non-financial parameters such as changes in boards or even exchange filings. We also started the credit review department in 2018 which is completely free. Now post approval monitoring is also centrally driven as we cannot leave it to a single relationship manager. We now plan to replicate this in our regional and local head offices. As a trial, we have run it on accounts of Rs 50 crore and above at the center. From April we will decentralize it and put it into accounts of Rs 5 crore and above in every regional office.

The nature of banking stress has changed – from corporates to retail and SMEs. How do you deal with this change?

Most of the post-Covid hits have been felt by MSMEs and they are the most vulnerable as they do not have the deep pockets or markets or connections that a large corporate enjoys. In the retail sector, banks had no exposure to the unorganized sector and have been lending mostly to the salaried class. For example, a major chunk of SBI’s salaried customers are from state or central government or public sector entities or large corporates; So that our books do not show too much tension. But I’m sure people in the market could see it with other types of institutions. In this way, today the tension is spread wider than before. In aggregation, even these amounts may not be large, which means that it is easy for us to overcome or overcome this tension. The NPA plus stressed book of the MSME sector has generally been between 6% and 8%, and both these books are showing a similar trend. As of now, what we are seeing is not normal. Retail has been excellent with NPAs below 1%. Collection efficiency is back to normalcy after taking a hit in February.

When the pandemic broke out, some rating agencies had expected a total banking slippage of Rs 8 lakh crore, but at that time our chairman said that their estimate was not more than Rs 2 lakh crore. We were confident that mitigation would be done to deal with the disaster. The actual slippage was not even Rs 2 lakh crore as we are continuously monitoring these accounts driven by data.

How is the present restructuring different from the work done in the previous CDR regime?

Before 2015, there were several attempts by the regulator and banks due to the huge corporate debt pile-up. The efforts were to save an account to revive and revive the company. This gave the promoter several chances to get back to normalcy.

After 2015, we learned our lesson on what to do to deal with corporate stress. The IBC process brought a systematic solution to the corporate tension. A part of the stress got absorbed in the IBC process and the restructuring was not part of the book, and in the remaining accounts where the restructuring is being done today, the entire approach is based on feasibility. Today, any restructuring process has to be vetted by the rating agency and the lending institution must be assigned a minimum RP4 rating before restructuring.

The IBC timeline has been delayed.
How do you see it?

We have three stakeholders – the borrower, the lender and the judiciary. Each of these timelines is serious to follow. But there has to be capacity building as well. There are litigations going on in all the courts today, which are overloading the system. The IBC as a law is barely five years old, of which we had two years of Covid tolerance. I think it is too early to pass judgment on its efficiency. Lenders now know that running a business is not birth-proven; So they try to challenge in as many forums as possible. There are challenges from admission to approval of the resolution plan. One piece of law cannot envisage a timeline for all this. But as a lender we are concerned about delays as it leads to significant value destruction. But as a lender, I am happy that the resolutions are being done in time.

Is there any fear that it will replace another DRT?

Not strongly, as the resolution professional and the entire structure of the CoC are very unique to IBC. In DRT, as a lender, I file the case and a presiding officer hears it, which is similar to a civil court. The DRT brought in a Recovery Officer setup, which added charm compared to a civil or a commercial court. IBC is a more sophisticated version where you have a resolution professional and a COC; Hence decision making becomes faster. The RP becomes the CEO of the company and the CoC is like a board that means the borrower is no longer running the company. In DRT it is a debtor in possession whereas in IBC it is a creditor in possession except SME Prepack. Because of these two differences, IBC is much better than DRT. IBC’s approach is resolution, recovery is contingent.

Enforcement of personal guarantee is also a new aspect of IBC. What’s your point of view?

This is an additional tool. It is still developing and results will take time as it will still come in NCLT. This may again come into focus if there is an increase in capacity or a special NCLT is set up to deal with matters of parent company law. A guarantee is an intangible security. The amount you can recover through a personal guarantee is not something you can anticipate. It has to be tested on the ground when you invoke it. I think we should not bet too much on personal bankruptcy because corporate debts are in thousands of crores and when you apply personal guarantee, there is no way you can recover any comparable number.

After all the restructuring and IBC, we have gone back to a national ARC. What is it going to achieve?

None of the existing ARCs have enough capital to handle the pressures of the banking system. We need such ARCs which can come only when there is sufficient capital. This institution will be owned by those banks which will not have any difficulty in providing capital. It will acquire huge assets, which is why the cut-off was Rs 500 crore and more exposure to the banking system. Due to the mandate of the Government, NARCL will be able to achieve 100% exposure in the banking system. This gives them the ability to resolve the property with complete freedom. The third advantage is that the SR will be guaranteed by the government at face value if resolved within five years.

Originally published at Pen 18

ifb: IFB Agro board okays ₹40 cr electoral bond contribution

Kolkata-based IFB Agro Industries said its board has approved contribution of up to Rs 40 crore to political parties by subscribing to electoral bonds. In an unusual disclosure to the stock exchanges on April 1, the liquor maker also mentioned “excise related issues that are being faced/affecting” by the company.

“The Board of Directors in its meeting held on 31st March, 2022 considered such issues and in the best interest of the Company and all its stakeholders decided to approve contributions to political parties by way of subscription of Electoral Bonds in one or more phases. Not exceeding ₹40 crore for the financial year 2022-23,” the IFB release said. IFB shares closed down 4.3% at ₹659.25 on Friday. Its market capitalization was around ₹617 crore.

The company said that the communication regarding the excise-related issues is “in continuation of our earlier letters to the stock exchanges.” IFB could not be reached for comment.

In December 2020, IFB Agro said that its liquor business is “suffering – and in danger”. “… We have been chosen by some Excise officers not to bow to their illegal demands – also requested by Hon’ble Chief Minister of West Bengal and Hon’ble Minister of Finance, Commerce & Industry of West Bengal State. To look into the same / to investigate,” the company said in an exchange disclosure.

In the same announcement to the exchanges in December 2020, IFB Agro said that “no offender has been brought to book” for the alleged violence at its distillery in West Bengal in June 2020.

“…we have informed that our distillery, which is located at Nurpur, South 24 Parganas, West Bengal, was attacked by a group of over 150 armed goons on June 25, 2020, resulting in the distillery being forcibly was closed,” the reveal said.

Originally published at Pen 18

FMCG sales lose momentum, but grow 20% on year

India’s fast-moving consumer goods (FMCG) market growth has been decelerating steadily every quarter for a year, reflecting a slowdown in demand for personal care, household and hygiene products that drove the sector last year. However, sales expanded 20% during the year ended March, mainly driven by price hikes and higher sales of packaged food and commodities.

The fourth quarter ended March saw a 5% increase in overall sales by value, according to the latest report from Bizom, a sales automation firm that tracks 7.5 million retail stores, compared to 20% sales growth in the December quarter. This is largely helped by the festive season, despite the second wave, 46 per cent in the September quarter and 8.2 per cent in the June quarter.

Sushil Kumar Bajpai, President, Sushil Kumar Bajpai said, “The pace of growth has slowed down due to the squeeze from the overall level of domestic budget inflation, but it is still not a cause for concern. We expect the price hike to stabilize. Sales will increase later.” In RSPL Group, which owns Ghari brand of detergents and Venus soap.

During the quarter, home care products declined 23% due to lower sales of hygiene products as consumer interest in stockings plummeted after the second pandemic wave, while the personal care category declined 5%.

“Even the beverages managed to show a growth of 1% as they struggled with the late start of the summer season, impacted by the third wave as they gear up for stock outlets at the end of January. However, a pandemic could take a toll out of insulated heat home consumption,” said Akshay D’Souza, head of development and insights at Mobisi Technologies, which owns Bizom.

Commodity products saw the biggest rise in prices and the Russia-Ukraine crisis is pushing up prices of products like edible oil which had cooled earlier due to import duty cuts in previous quarters. Mohit Malhotra, CEO, Dabur said, “The operating environment remains extremely challenging with unprecedented inflation in raw materials. We are undertaking calibrated price hikes to offset part of the inflation impact, apart from launching cost optimization initiatives. ”

Even as the overall consumer electronics market, including televisions, smartphones, laptops and home appliances, saw a 17% increase in sales in the last quarter and 19-20% in 2021-22, as per several market researchers. The figures are as per industry estimates.

“In FY2011, the first year of the pandemic, consumers were in shock due to investment due to job losses, impact on earnings and a collapse in the stock market. However, sentiments recovered sharply in FY2012, with the economy witnessing a second wave. More later.” Deepak Bansal, Vice President, Home Appliances and AC Business, LG Electronics India said.

As per estimates, the sales of refrigerators grew by 24%, microwave ovens by 14%, smartphones by 17%, laptops by 30%, washing machines by 12% and televisions by 20% in 2012 compared to 2012. . However, researchers such as GFK have said that in 2022-23 there will be vast improvement in large-scale sectors as well.

Kamal Nandi, Business Head, Godrej Appliances said, “We expect sales to pick up further this summer, as the demand has come down for the last two seasons due to the pandemic and the massive wedding season as well. But there will be improvement too.”

Originally published at Pen 18

rld: RLD plans to extend base in west UP, eyes Dalit votes in Rajasthan

After marking its revival in the recently concluded Uttar Pradesh Assembly elections, the Jayant Choudhary-led Rashtriya Lok Dal (RLD) is expanding its support base beyond Jats to broaden its base in western UP for future elections. Actively working towards expansion. Also for the Rajasthan assembly elections to be held next year.

A leader close to Choudhary said the party was eyeing Dalit support in western Uttar Pradesh and Rajasthan and would focus on social justice through agitations and possibly organizational changes. In western UP, it will also consider winning over some backward castes like Prajapati and Saini.

RLD chief Jayant Singh along with Azad Samaj Party chief Chandrashekhar Azad on Sunday went to Pali in Rajasthan to meet the family of a Dalit youth, Jitendra Meghwal, who was stabbed to death. He gave a memorandum to Chief Minister Ashok Gehlot demanding financial assistance, government jobs and a house for his family. He also demanded fast-tracking of cases related to atrocities against Scheduled Castes, to fill up the vacancies in bodies like the Scheduled Castes Commission at the earliest. Earlier this month, Singh met Azad and, in a post on Twitter, described the discussions as “broadening” from “youth empowerment to social justice”. Dalits make up about 18% of Rajasthan’s population, while Jats – the RLD’s traditional support base – form about 12% in the state.

In western UP, even though its performance was not very impressive (winning 8 out of 33 seats), the party which did not get any seats in the 2019 general elections and only one in the 2017 assembly elections, got a new lease of life. have been found. This time. This comes against the backdrop of a sharp decline in the strength of the BSP in the state. Constituting about 2% of UP’s population, Jats are concentrated in 26 districts in western UP, where their share is as high as 15-20% of the population. However, the current elections in UP have shown that most of the Jats are with the BJP, hence the need for expansion of the RLD here. Dalits, on the other hand, constitute almost five times more than Jats in this region.

Originally published at Pen 18

BJP brass to activate machinery in states due for elections in 2 years

Senior BJP leaders such as Home Minister Amit Shah and party’s national president JP Nadda have taken over the task of preparing the BJP’s electoral machinery in the states going to polls in the next two years.

According to party functionaries including Karnataka, Madhya Pradesh, Rajasthan, Chhattisgarh and Arunachal Pradesh, Shah will visit six states in 14 days in April. He will also go to Bihar for two days this month.

Nadda will visit four states including Rajasthan and Himachal Pradesh. He visited Rajasthan on Saturday and the three-day visit to Himachal Pradesh will begin from April 9. Nadda is likely to visit Chhattisgarh and another state but the schedule is yet to be finalised.

BJP’s Chhattisgarh co-incharge Nitin Naveen told ET, “We are currently busy with the Khairagarh assembly by-election in Chhattisgarh on April 12. We will have a meeting after April 12 and only after that any program of our top leaders will be discussed.

Both the leaders will hold meetings of party workers and MLAs to assess the status of the organization as well as the state governments of the BJP.

The party’s top leadership is also encouraging party MPs to participate in social works and other causes in their constituencies to prepare for the fight for the 2024 general election. During the current Parliament session, Prime Minister Narendra Modi has been meeting MPs of different states in groups. According to people aware of the matter, he has directed the party MPs not only to participate in political activities but also in social works and activities.

For example, the Gujarat unit of the BJP distributed a special saffron cap along with a packet of nutrition chocolates to all party MPs. A similar cap was worn by PM Modi during his recent roadshow in Ahmedabad on March 11. Some party leaders like Dharmendra Pradhan, Giriraj Singh and others have made public appearances wearing caps.

In the coming days, MPs will distribute nutritional chocolates to women in their constituencies as part of the BJP’s women outreach programme.

Originally published at Pen 18

friedman: A subtle shift from Friedman to Kelton?

A popular phrase that economists often borrow to describe inflation is from Milton Friedman: substantial inflation is always and everywhere a monetary phenomenon.

Prices have jumped in the past few months in a way a generation has not seen, prompting central bankers around the world to tighten monetary policy. Of course, India is one of the few countries that have seen worse price pressures; So Mint Road is quiet.

Crude oil, aluminium, steel, copper, fertilisers, natural gas – prices of all commodities have risen and consumer prices have begun to fall.

The first assessment was that the supply disruptions due to Kovid led to the rise in prices. Then it shifted to a lack of chips, then a lack of capacity due to ESG which put a lid on expansion. Now, it is the Russian invasion of Ukraine.

The special thing is that the central bankers are silent on how much their note printing contributes to the price rise. India targets an inflation of 4%, half of which is latitude on either side. But it saw a price increase of 6.07%, well above the upper tolerance limit of 6%.

It is in this background that the monetary policy committee (MPC) of the central bank is meeting this week.

The MPC, led by Governor Shaktikanta Das and Deputy Governor Michael Patra, has argued that the setting is different for India this time.

“Amid the current divergence in policy actions by central banks across the world, we have continued our accommodative stance based on our domestic growth-inflation dynamics,” Das said last month.

The West had a near-zero rate, so would have to hold on, while India does not need it. Patra listed that reduction in central fuel taxes, record food production, supply-side interventions, low pass throughs and high foreign exchange reserves could help mitigate the global inflationary impact.

India’s CPI, which gives about 40% weightage to food, is probably under control due to record foodgrain production, but there could be second-order effects.

“We expect the impact of supply-side disruptions on the agriculture sector to be offset by higher inflationary pressures, primarily the effects of a second round of higher international food prices and input costs, and increased fiscal pressures in the form of government fertilizers and food products. Reason: “The subsidy bill could see an increase,” said Upasana Chachra, an economist at Morgan Stanley.

In addition to inflation targeting, a full-service central bank also sees financial stability as one of its key deliveries.

Last year, Governor Das expressed his concerns about the level of the stock market and retail participation. It’s just getting faster. Indian equities, at nearly 20 times forward earnings, are among the most expensive among emerging markets. Lower returns from traditional risk-free instruments are also forcing savers to shift to riskier assets in India.

“Record negative real interest rates supported asset prices and some discretionary consumption,” said Anant Narayan, senior India analyst at research firm Observatory Group.

Equity funds saw inflows of Rs 3.8 lakh crore in the last one year, more than four times the outflow of foreign funds. In addition, gold imports stood at $50 billion.

A ‘sustainable’ economic recovery is the priority of the RBI. But the recovery is uneven.

Profits of the top 4,200 companies doubled in the nine months ended December, while GDP remained stagnant.

Observatory Group’s Narayan said, “While overall individual consumption has dwindled, it is a dichotomy between India’s thriving ‘formal sector’ of large companies (employing ~15% of India’s workforce) and struggling small businesses. ”

Ultra-lax monetary policy has helped increase financial assets benefiting the wealthy but not the less privileged. Conversely, holding such a policy stance for too long could damage the less privileged and pervert savings behaviour, leading to volatility, as was the case in 2013, although the setting may be different.

“Inflation occurs when the quantity of money increases significantly faster than output, and the faster the quantity of money per unit of output, the higher the rate of inflation. Perhaps no other proposition in economics No. Established as this,” Friedman wrote.

Mint Road’s latest contemporary papers published The Deficit Myth: A Review of Modern Monetary Theory and How to Build a Better Economy by Stephanie Kelton in a rare act that quashes most traditional economic theories.

Should this be seen as a sure sign of a change from Friedman?

Originally published at Pen 18

tamil nadu: Tamil Nadu democratised religion over 100 years ago…tough for radicalism: FM Palanivel Thiagarajan

Tamil Nadu Finance Minister Palanivel Thiagarajan said aggressive Hindutva would be very difficult to take shape in a state like Tamil Nadu as it democratized religion a hundred years ago and its core value system would not be hampered by any kind of fundamentalism.

He also said that the DMK government, under Chief Minister MK Stalin, would try to attract investments to the state from across the world and also work to accommodate employers who move their businesses from Karnataka to Tamil Nadu due to the rising communal tension in Karnataka. want to transfer to.

Thiagarajan had said at a recent GST Council meeting that he had expressed concern about the “faulty implementation of the Goods and Services Tax and the Centre’s increasing control over institutions” that he said would have “serious consequences for the country”.

The Finance Minister said that Tamil Nadu is monitoring the developments in Karnataka as every threat has to be taken seriously. He said, “There is a huge interest (from IT companies wanting to diversify into Tamil Nadu), and we are already in the race. People with us are actively taking it up and our government is working on it. ”

He said that Tamil Nadu has witnessed 53 per cent growth in investments and to attract financial investors and corporates, the state government will organize events in different countries within the next six months. “If we invest Re 1 in capital investment, we want to mix it with external investment,” he said.

Stalin, who was in Delhi last week to meet PM Modi and Finance Minister Nirmala Sitharaman, recently went to Dubai to meet business heads and according to a government statement, MoUs worth Rs 6,100 crore were signed. Which can create 14,000 jobs in Tamil Nadu. ,

Though the BJP is aggressively trying to expand its footprint in Tamil Nadu, Thiagarajan, who has come from a family associated with Dravidian politics for four generations, said the state is the biggest challenge for the expansion of Hindutva. “If Tamil Nadu turns to Hindutva, it will be the final nail for our secular democracy and so I don’t think it will ever happen. Tamil Nadu is the most pious state in the country and it is not because of Hindutva, but because we democratised. Is religion long ago.”

Originally published at Pen 18