Daily News Mail - News of 16/06/2015

India signs motor vehicle pact with three nations

• India on June 15 signed a motor vehicles agreement with three SAARC nations — Bhutan, Bangladesh and Nepal — that envisages seamless transit of passenger and cargo vehicles among these countries.
• Though a seamless cargo movement between the South Asian neighbours is expected to take much longer, June 15’s agreement at Bhutan’s capital Thimphu is expected to remove bottlenecks by allowing people easy access.

Transport costs to come down 

• The agreement signed on India’s behalf by Road Transport and Highways Minister Nitin Gadkari will not only reduce transport costs, but also enhance multi-modal transport and transit facilities, enabling increased connectivity and promotion of greater trade among the four countries.
• “The Motor Vehicles Agreement is the ‘overarching’ framework to fulfil our commitment to enhance regional connectivity. This will need to be followed through with formulation of the required protocols and procedures in the shortest time possible to realise the ultimate objective of free movement of people and goods in the region,” Mr. Gadkari said.

Rising NPAs put banks in a tight spot

• The banking system as a whole has been witnessing higher level of non-performing assets (NPA). With restructured loans turning bad, the problems of the industry have only compounded.
• State-run banks continue to report higher bad loans and the gross non-performing assets as on March 31, 2015, stood at 5.17 per cent. The stressed assets ratio (which includes NPAs and restructured loans) was 13.2 per cent, according to RBI data.
• At the annual review meeting of the Union Finance Minister with the CEOs of banks (including private banks), insurance companies and financial institutions (FIs) held on June 12 in New Delhi concerns were raised over the increase in non-performing assets which were impacting credit growth of banks.
• The rise was due to some infrastructure projects, slowdown in global economic recovery, and continuing uncertainty in global markets leading to lower growth of credit. It was stated that public sector banks continued to be under stress on account of their past lending.
• Going through the details of annual financial results of public and private sector banks (including old private banks) for 2014-15, it may be noted that the gross non-performing assets (GNPA) of 26 public sector banks (including 19 nationalised banks, State Bank of India and its associates and IDBI) have risen by 22.5 per cent to Rs.2.78 lakh crore against Rs.2.27 lakh crore in the previous financial year. While the 19 nationalised banks have registered a rise of 39.8 per cent in gross NPA at Rs.1,92,270 crore against Rs.1,37,487 crore in the previous financial year, State Bank of India and its associates have reported eight per cent drop in their NPAs at Rs.73,508 crore against Rs.79,818 crore.

Private sector banks

• The details of new private sector banks — consisting of Axis Bank, DCB Bank (Development Credit Bank), HDFC Bank, ICICI Bank, Kotak Mahindra Bank and Yes Bank — present a different picture. Their gross NPA has risen by 35.3 per cent to Rs.24,534 crore in 2014-15 from Rs.18,133 crore in the previous financial year.
• In this segment, ICICI Bank, with 43.7 per cent rise in gross NPA at Rs.15,095 crore against Rs.10,506 crore, contributes to the maximum followed by DCB Bank (Development Credit Bank) at 33.8 per cent (the increase is on a lower base).

Non-Performing Asset

WHAT ARE NPAS?

Generally speaking, NPA is any asset of a bank which is not producing any income.

In other words, a loan or lease that is not meeting its stated principal and interest pyments.

On a bank’s balance sheet, loans made to customers are listed as assets. The biggest risk to a bank is when customers who take out loans stop making their payments, causing the value of the loan assets to decline.

Criteria

• Loans don’t go bad right away. Most loans allow customers a certain grace period. Then they are marked overdue. After a certain number of days, the loan is classified as a nonperforming loan.
• Banks usually classify as nonperforming assets any commercial loans which are more than 90 days overdue and any consumer loans which are more than 180 days overdue.
• For agricultural loans, if the interest and/or the installment or principal remains overdue for two harvest seasons; it is declared as NPAs. But, this period should not exceed two years. After two years any unpaid loan/installment will be classified as NPA.

Categories

• Sub-standard: When the NPAs have aged <= 12 months.
• Doubtful: When the NPAs have aged > 12 months.
• Loss assets: When the bank or its auditors have identified the loss, but it has not been written off.

After a certain amount of time, a bank will try to recoup its money by foreclosing on the property that secures the loan. The way money is recouped is a highly contentious issue not just with banks but also with Micro-Finance Institutions (MFIs). We will discuss it later in the article.

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Basel Norms and Banking Stability