Bad Loans and Indian Banks

DOWN THE RABBIT HOLE

What the Bankers Aren’t Telling You!

An Analysis of Lending Practices Adopted by Banks to Finance ‘Developmental’ Projects in India.

[Published by: The Research Collective – PSA (Programme for Social Action, Delhi) February 2014]

[We are reproducing below an excerpt from Chapter 2 (pages 83-98) from the above report. In this reproduction the tables are not included and the notes have been renumbered]

2.1 THE PROJECT FINANCE BUG

With regard to funding ‘development’ and infrastructure projects, project finance has been the catchphrase of the decade. It is an ‘innovative’ financing technique that is increasingly preferred and used for long term financing of large infrastructure and industrial projects. According to the International Project Finance Association (IPFA), project finance is defined as the “financing of long-term infrastructure, industrial projects and public services based upon a non-recourse or limited recourse financial structure where project debt and equity used to finance the project are paid back from the cash flow generated by the project.” In other words, unlike traditional or corporate financing where lenders provide capital to the company on the basis of sufficient assets on its balance sheets, project finance loans are sanctioned to a Special Purpose Vehicle on the basis of the projected cash flow of the particular project. Repayment of loan is not based on the assets or balance sheet of the sponsoring company but on the projected revenues that the project being funded will generate on its completion. Non-recourse or limited recourse refers to a secured loan¹ for which the borrower is not personally liable. So, in case of a default the lender can seize the collateral but the lender’s recovery is limited to the collateral.

In the project finance mode, project proponents typically create a legally independent subsidiary company, referred to as a Special Purpose Vehicle (SPV), with the narrow purpose of executing a single project—a power plant, a refinery, a highway corridor, a dam, an airport or a mine. The project is financed by the SPV through equity from multiple sponsors and large amounts of debt from a consortium of banks. The creation of an SPV and financing through non-recourse debt protects the assets of the parent company in case of default of loan or bankruptcy, thus allowing optimum risk allocation in favour of the parent company.

Project Finance is a fairly new phenomenon in the Indian context. A major push for adopting project finance as a method of financing came in the 1990’s but it wasn’t until early 2000 that it became the mode preferred by corporations. The country’s pace of growth and infrastructure development alone cannot account for the startling increase in the volume of project finance loans in a short span. In 2005 alone, India's market share in project-financed transactions in the Asia-Pacific region increased from 2.8 per cent to 12.5 per cent. According to Thomson Financial, State Bank of India had moved up from the fifteenth position in 2004 to the first in 2005 in the Asia-Pacific project finance league tables.² State Bank of India (SBI) had helped some 16 Indian infrastructure deals worth USD 2.1 Billion during that period. This was the first time an Indian bank ranked first in project-financed transactions in the region. It had been just one year since SBI had set up the Central Processing Cell (CPC) in 2004 at its Mumbai Corporate Office where projects larger than Rs. 2 Cr would directly be taken up for consideration and decided in a month. The CPC was set-up to speed up project financing and sanction of loan proposals.

Within another four years in 2009, India ranked on top in the global project finance market, ahead of Australia, Spain and the United States, according to a Project Finance International (PFI) study.³ The domestic Indian market had raised USD 30 Billion (Rs. 1.38 Lakh Cr) accounting for 21.5 per cent of the global project finance market. This was a steep rise from the USD 19 Billion the Indian market had raised in 2008. In 2009 State Bank of India alone accounted for 67 per cent (USD 20 Billion) of the total debt in the Indian market through 36 deals and 35.2 per cent of the total volume of debt for the Asia-Pacific region. In this period, the SBI had funded or arranged funding for Sasan Power, Adani Power, Sterlite Energy, Vodafone and Unitech among others. The PFI study also revealed that in another first of its kind, investment bank SBI Capital Markets, a subsidiary of State Bank of India, topped the global loan chart beating top French, British and US banks. IDBI Bank, Infrastructure Development Finance Company (IDFC) and Axis Bank were acknowledged as leading financiers in the Asia-Pacific region.

Loans to projects floated by Special Purpose Vehicles, which are technically delinked from the parent company, suggest that the loans are given in the absence of substantial collateral. The structuring of loans for projects in this mode does not seem to require the conditional clauses that marked traditional corporate financing. If repayment is primarily structured around the prospective revenues generated by the project, what happens to the loan in case the project does not progress as planned?

2.2 WHAT IS A BAD LOAN WORTH?

A bank’s strength and its healthy cash flow cycle are dependent on retained earnings which can be reinvested into business. Loans are assets reflected in a bank’s account books. A loan where instalment or interest is not paid for 90 days is deemed a non-performing asset (NPA). Once an account is classified as an NPA, banks cannot recognise interest from it. Apart from affecting profits in the current period, NPAs affect the net interest income (NII) and net interest margin (NIM)⁴ of the bank. Sustained NPAs have an effect on the overall competence of the bank—its Capital Adequacy Ratio (CAR)⁵, profitability, and brand value.

Paralleled with growth in industry and infrastructure, the NPA of Indian banks, particularly that of the public sector banks (PSB), have been witnessing a steady rise. Warning bells rang in October 2011 when Moody's Investors Service downgraded the State Bank of India's Bank Financial Strength Rating (BFSR) to 'D+' from 'C-'. This downgrade caused an immediate plunge of over 4 per cent in the share market price of the bank. Evidence of the bank’s increasing non-performing asset and deteriorating asset quality existed before this blow took SBI by shock. In March 2011, the Minister of State for Finance, Shri Namo Narain Meena, reported the gross NPA of Public Sector Banks for the period ending March 2011 at Rs. 71,047 Cr to the Parliament. The gross NPA of State Bank of India for the same period constituted Rs. 33,946 Cr or 32 per cent of total gross NPAs of Indian PSBs.

Five months after this downgrade, the State Bank of India publicly declared that it would ‘start to publish photographs and names of wilful defaulters in publications as a last resort to get them to pay their dues’. In April 2011, customers of the Corporation Bank who had defaulted on repayment found their photo displayed on life-sized hoardings around cities. This imaginative strategy was meant to shame only individual wilful defaulters into paying back the loan money. According to Ramnath Pradeep, Chairman, Corporation Bank, the banks’ strategy was not ‘illegal’ and can be applied only to individuals, since in the case of corporate borrowers ‘it is not possible to publish photographs’. State Bank did not even breathe about its corporate defaulters at that time.

RBI defines a 'wilful defaulter' as a borrower who has defaulted repayment obligations to the lender even while holding the capacity to honour the said obligations or as one who has not utilised the finance for the specific purposes for which finance was availed. It is true that banks are finding it difficult to recover loans in the corporate as well as agriculture and retail segments. But a look at the NPA figures for SBI for the same period ending March 2011 reveals that out of Rs. 33,946 Cr, NPAs in the personal retail segment stood at Rs. 4870 Cr or only 14 per cent of the total. Where then is the rest of the money trapped?

A majority of NPAs are contributed by corporate customers. In September 2011 the Parliament was informed by the Minister of State for Finance, Shri Namo Narain Meena that as of September 2010, over 5600 companies had defaulted to the tune of Rs. 51,000 Cr in loans taken from public sector banks. According to the Reserve Bank of India and Credit Information Bureau (CIBIL)⁶, this included 4043 suit filed⁷ accounts amounting to Rs. 34,558 Cr and 1628 non-suit filed accounts amounting to Rs. 17,363 Cr.

Crisil, a global analytical company, reported that 188 companies in India had defaulted in payment of interest and/ or repayment of principal in 2011-12, as against 105 in the previous financial year. A classic case in point being the Kingfisher Airlines, which alone caused SBI an exposure of Rs. 1700 Cr.

Bad loans (or non-performing assets) in Indian banks had risen from Rs. 68,220 Cr in 2008-09 and Rs. 81,813 Cr in 2009-10 to Rs. 94,084 Cr in 2010-11. By March 2013⁸ the bad loans reached Rs. 1,94,000 Cr!

Banks are known to go soft on corporate customers and not take hard stands for realisation of loans in case of default. In cases of financial predicaments large corporations are also allowed by banks to restructure their loans. Any change in the terms and conditions of the loan or credit, especially in respect of its servicing, is called restructuring of loan. Restructuring allows banks to not classify the asset as NPA even in case of default. This technique used by banks to cite lower NPAs and exclude corporations from being in the defaulters list is referred to as ‘evergreening’ of NPAs. Bad loans are restructured by banks with easier terms such as moratorium on payment, lowered interest rates and longer repayment periods to bail out defaulting corporations. Corporate Debt Restructuring (CDR) is a specialised institutional mechanism for restructuring large exposures involving more than one lender under a consortium of banks. In February 2012, the Indian Intelligence Bureau (IB) warned that the ‘proportion of bad loans of Indian banks could increase from 5 to 10 per cent of their total loans mainly on account of restructured loans’. More than half the bad loans fell in the ‘restructured’ category.

Restructured loans are technically not non-performing assets (NPA) but in most cases, it is only a matter of time before restructured loans become NPAs. Banks had resorted to restructuring a large number of impaired loans during the financial crisis in 2008-2009. The restructuring programme, which was based on financial projections, has largely proved to be incorrect today and it is speculated that many of those restructured accounts are now classified as NPAs.

Indian banks are seeing a record amount of loans being restructured; with restructured assets standing at 4.68 per cent of the total loans in March 2012. According to data from the RBI, restructured loans were at Rs. 75,304 Cr in March 2009, Rs. 1,36,426 Cr in March 2010, Rs. 1,37,602 Cr in March 2011 and Rs. 2,18,068 Cr in March 2012. These figures show that in the three years between March 2009 and March 2012, restructured standard advances grew by nearly 300 per cent.

Data from the RBI also indicates that banks are using write-offs to reduce NPAs. The total reduction in NPAs for all banks in India between 2008 and 2013 is Rs. 3230 Billion⁹. Out of this, Rs. 869 Billion was due to upgradation, Rs. 1297 Billion was due to write-offs and only Rs. 1064 was due to actual recovery.

To evade NPAs from reflecting in their books, banks also resort to certain adjustments which camouflage asset quality deterioration. Industry experts have concerned that such adjustments are made on a mutual understanding between corporate clients and banks whereby borrowers make some payment to the bank at the end of every quarter. Once reflected in the accounts of the quarter, this payment is reversed to the borrower.

While it is undeniable that disclosing list of defaulters helps to keep track of such cases and ensure that further lending to a defaulter is avoided, why are banks providing cover to their corporate clients whose loans constitute a major bulk of bad loans?

Banks contract bulk business from corporate accounts. For this and other inexplicable reasons, corporate accounts even with deteriorating asset quality are accommodated. Debt restructuring as a way out can only apply to genuine repayment problems arising out of situations which are beyond the control of the management. But the recent spate and volume of debts being restructured lead us to believe that the restructuring mechanism is misused by several corporations to manage their financial crisis.

In August 2012¹⁰, the RBI Deputy Governor, KC Chakrabarty, said, "While clearly there is cause for concern given the pace and quantum of restructuring over the last few years, the concerns are aggravated by the fact that the restructuring is neither being permitted in a transparent and objective manner by banks... Nor is it being resorted to in a non-discriminatory manner".

Data from the RBI also supports the argument that banks are going easy on their corporate borrowers even while facing most strain from them. The ratio of restructured accounts to gross advances is the highest for the industries sector at 8.24 per cent (with medium and large industries sector standing at 9.34 per cent). The ratio for agriculture stood at 1.45 per cent and services stood at 3.99 per cent (with micro and small services being 0.94 per cent). While the ratio stood at 2.24 per cent for priority sector¹¹ advances, it stood at 5.83 per cent for non-priority sector loans. According to the August 2012 RBI report, “Statistics on restructured advances shows that the medium and large segments account for over 90 per cent of restructured accounts while the share of micro and small segments keeps dwindling over the years”.

The ground reality is that advances to smaller borrowers, with genuine needs get overlooked and slip into NPA which enables building of a perception that the quantum of non-performing assets is more in the case of small borrowers and hence promotes a rush towards large-ticket advances, ignoring the basic fact that the lower NPAs amongst larger borrowers is primarily on account of extensive restructuring/ write offs of such accounts.

[Two Decades of Credit Management in Indian Banks: Looking Back and Moving Ahead 16 November 2013, Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India]

Another matter of great distress is that the share of bad loans and restructured loans is higher for public sector banks as compared to their private sector competitors. Out of the total bad loans of Rs. 1,94,000 Cr in Indian banks in March 2013, the share of bad loans in public sector banks is Rs. 1,64,461 Cr or 85 per cent! As of August 2012, the credit growth rate for private sector banks at 19.88 per cent was higher that the credit growth rate for public sector banks which stood at 19.57 per cent.

However, restructured accounts grew at a compound annual growth rate of 47.86 per cent in public sector banks as against 8.12 per cent for private sector banks. Further, as on March 2012, the ratio of Restructured Standard Advances to Total Gross Advances is highest for PSBs at 5.73 per cent, while the ratio is significantly lower for private and foreign banks at 1.61 per cent and 0.22 per cent, respectively. According to KC Chakrabarty, “public sector banks bearing a disproportionate load of restructured assets indicate that the PSBs have not been as judicious as the private sector and foreign banks in the use of restructuring as a credit management tool”.

Between 2009 and 2013, the impaired assets ratio (which is the ratio of gross NPAs, restructured accounts and cumulative write offs to total advances) rose from 6.8 per cent to 12.1 per cent in the case of PSBs. In contrast, the ratio fell for new private sector banks and foreign banks and stood at 5.3 per cent and 6.4 per cent respectively in March 2013.

[Two Decades of Credit Management in Indian Banks: Looking Back and Moving Ahead, 16 November 2013, Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India]

This data from the RBI establishes that public sector banks demonstrate an unprofessional bias towards their corporate borrowers and that restructuring of accounts is increasingly being resorted to avoid classification of accounts as NPA. This bias is also suggestive of corrupt practices within public sector financial institutions; which however can thrive only in the absence of stringent in-built mechanisms for due diligence and risk analysis.

Based on a July 2012 report of the RBI Working Group to review the existing prudential guidelines on restructuring of advances by banks and financial institutions, the Reserve Bank announced new norms for restructuring of loans in January 2013, which increased the provisioning on restructured loans. Provisioning is an expense set aside as allowance for bad loans. The new norms will come into effect in 2015.

The Central Bureau of Investigation (CBI) initiated an enquiry of defaulters of big loans from public sector banks in August 2013. According to the CBI Chief, Ranjit Sinha¹², “a bulk of the NPA is from the top 30 accounts which is learnt to be running into thousands of crores”. The CBI is also scrutinising cases of loan restructuring by companies. Speaking at the 5th Annual Conference of Chief Vigilance Officers of Banks and Financial Institutions in August 2013, the CBI Chief, Ranjit Sinha¹³ pointed out that “there appears to be reluctance on the part of banks to declare bad accounts as frauds despite there being clear cut manifestations”.

Big business houses that secured huge loans from public sector banks post 2008 financial crisis, but defaulted on repayments or charted an escape route through multiple restructuring of bad loans, have now come under Central Bureau of Investigation’s scanner for suspected wilful misappropriation of public money, running into thousands of crores.

[CBI opens probe into firms defaulting on public sector bank loans, 16 August 2013, The Hindu]

With rapidly deteriorating asset quality, the banks’ profit margins are affected, they go through capital crunch and fail to maintain the mandated Capital Adequacy Ratio. This can affect the resilience of banks and expose them to succumb in unforeseen circumstances. While private banks primarily look to the market for recapitalisation, Government of India pumps capital into public sector banks to help them regain a safe capital to risk assets ratio.

The process of nationalisation of banks in India guaranteed that the Indian Government will fulfil all requirements of PSBs in the event of a breakdown. For example, the chain of events following concern over State Bank of India’s weakening asset quality, the downgrade by Moody's Investors Service in October 2011 and plunging of the bank’s market share value, culminated temporarily the very same month with a commitment from the Government of India to infuse Rs. 3000-4500 Cr in SBI. While SBI’s asset quality had deteriorated primarily due to indiscreet use of project financing for its corporate accounts, the means for revival of asset quality is through tax payer’s money!

Budgetary allocations for capitalisation of PSBs have been on the rise. The Government infused more than Rs. 15,517 Cr in 2012-13, Rs. 12,000 Cr in 2011-12 and Rs. 20,000 Cr in 2010-11 in state-owned banks to help them maintain a capital adequacy ratio of more than 8 per cent. Along with in-principle approvals for need-based capital infusion to PSBs for the next five years, the Union budget of 2013 committed to infusion of Rs. 14,000 Cr in 2013-14. According to C. P. Chandrasekhar¹⁴, Professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, ‘the Government has thus far infused Rs.743 billion into the public banking system, with much of it having been provided since 2010”.

2.3 BANKING SECTOR ‘REFORMS’

The banking sector in India was nationalised in two phases in 1969 and 1980 to enhance their role in the advancement of the economy. During this period, twenty large commercial banks were nationalised allowing the Government of India control of over 90 per cent of the banking industry. The ‘liberalisation’ policy adopted by the Indian Government in 1991, as a result of GATT (General Agreement on Trade and Tariffs) and Structural Adjustment Programme, compelled the formation of a committee to explore banking sector reforms. The first such committee, formed in August 1991 and headed by M. Narasimhan¹⁵, brought out its report in November 1991. This was followed by the formation of another committee headed by M. Narasimhan in 1998 to review the interim progress of banking sector reforms.

The Narasimhan Committee of 1991 recommended for increased autonomy in banking, deregulation of interest rates, reformation of RBI’s role- segregation of its role as regulator and owner of banks, structural reorganisation of banks including merging of banks, creation of asset reconstruction companies to take over bad loans from banks, proper system to identify and classify Non-performing Assets (NPA), reduced Statutory Liquidity Ratio (SLR)¹⁶ and Cash Reserve Ratio (CRR), raising of capital adequacy norms, review of banking laws and opening up of sector to private domestic and foreign banks.

The implementation of recommendations of the Committee, which began in 1992, had far-reaching implications resulting in the granting of an autonomous status to banks, divesting of shares held by RBI¹⁷ in Indian banks, eliminating role of Government of India in regulating banks (leaving the RBI as sole regulator), merging of several Indian banks, and implementing Securitisation and Reconstruction of Financial Assets and Enforcement of security Interest Act 2002. The Narasimhan Committee was however criticised for targeting enhanced growth without focus on equitable growth or providing for poverty alleviation measures.

One of the immediate outcomes was the consent from the Reserve Bank of India for the setting up of private banks. These private banks are referred to as the new private banks¹⁸, to tell apart from the old private banks¹⁹ that existed before the 90’s. Subsequently, foreign banks were also permitted to set up direct operations in the country. According to the 2012 records of the Ministry of Finance there are 26 public sector banks²⁰, 20 private banks, 82 regional rural banks, and 30 foreign banks operating in India. In addition, development financial institutions (DFI)²¹ and public financial institutions (PFI)²² promoted by the Government of India provide financial service, usually long term loans at concessional interest rates, refinancing and investment options in particular sectors which are neglected or avoided by other financial institutions.

2.4 REWRITING ‘DEVELOPMENT FINANCE’ – THE CHANGING TRENDS

The banking sector ‘reforms’ of the 1990s changed the scope of finance and financial institutions in India. The role and significance of banks today is very different from that in the times of regulated economic growth of the pre-liberalisation era. Industry is de-licensed, barriers ‘impeding’ growth are being removed and the public sector is rapidly being privatised. Sensitive sectors, those which essentially serve larger public interest, such as infrastructure, power, mining, food and water have been opened up for private capital. The banks operate in an atmosphere where accelerated growth is the priority and wildly erratic competitive markets are influencing the economy. Besides, the terms of lending to projects have been re-designed and huge sums are bet on sheer brand value of a company, the political clout of its promoter and the ‘credibility’ of a corporation.

Over the last decade Indian banks have tremendously boosted their capacity to fund ‘development’ and infrastructure projects both within the country and in other developing countries. Alongside, global markets have been allowed to dip into our economy by facilitating foreign direct investment and external commercial borrowings²³. Borrowings by Indian companies from overseas banks, meant to take advantage of lower interest rates, come with its share of conditionality. The August 2013 Central Electricity Authority report on performance of power equipment imported from China found the equipment to be substandard. Low interest loans from Chinese banks plays an important role in the import of such equipment by Indian power producers.

The project finance epidemic is also encouraging public sector development financial institutions to lend to infrastructure and ‘development’ projects at the cost of overstepping their very purpose and mandate. For instance, HUDCO (Housing and Urban Development Corporation Limited) was set up in 1970 as a fully-owned enterprise of the Indian Government for ‘supporting and promoting housing projects aimed at low-income families in urban and rural areas’. Similarly the Rural Electrification Corporation Limited (REC) was set up in 1969 as a public sector enterprise under the Ministry of Power to ‘finance and promote rural electrification projects all over the country’. REC’s end is to ‘provide financial assistance to State Electricity Boards, State Government Departments and rural electric cooperatives for rural electrification projects.’ In 2011 HUDCO financed three private power generation and related projects and REC regularly finances large private sector power projects including Athena Demwe Power, Sasan Power and Krishnapatnam UMPP. Institutions such as the HUDCO and REC were established to mobilise resources in the interest of strengthening public infrastructure and facilities, especially in rural areas.

Facilitating production of power by private companies is not the mandate of either institution. Likewise NABARD²⁴, whose mission is to ‘promote sustainable and equitable agriculture and rural prosperity through effective credit support and related services’, was pulled up by the RBI in late 2012 for providing low interest soft loans to large private companies under schemes that were meant for small scale enterprises.

Indian bankers are walking down the footprints of international financial institutions (IFI), tracing the financial trends established by them in the last two decades. The amount of capital secured from the International Financial Corporation for projects has considerably reduced over the years. However, by lending small amounts to a project, and its ‘credibility’ in the process, IFC is setting trends for domestic financial institutions. The World Bank Group (WB) and the International Monetary Fund (IMF) were instrumental in breaking open essential sectors for private industry in developing countries. Banking norms in the country have since been eased to facilitate freer flow of finance to private corporations. Further pushing the boundaries, the private sector lending agency of the World Bank Group, the International Finance Corporation (IFC), has started using domestic financial institutions as Financial Intermediaries²⁵ (FI) to channel finance to projects. The World Bank Group for instance is ‘committed’ to the cause of climate change and claims to be moving away from funding fossil fuel based projects. In 2007 the IFC sanctioned a USD 1 Billion loan to India Infrastructure Fund (IIF) to invest in the energy and utilities sector, transport infrastructure sector and telecommunication infrastructure sector. This money was used to finance GMR Kamalanga Energy Limited’s 1400 MW coal-based thermal power plant in Odisha, Adhunik Power and Natural Resources Limited’s 540 MW coal-based thermal power plant in Jharkhand and three of Essar Power’s multi-fuel power projects. Financial intermediaries are being used in cases where association with projects would potentially taint the image of the World Bank Group or be a violation of IFC’s environmental and social safeguard policies. The use of FIs in project finance is creating a complex web of financial relations, masking the source of capital and establishing nontransparent and unaccountable pools of money.

Notes

1. A loan backed by the pledging of assets by the borrower

2. A league table compares institutions or companies, banks in this case, by ranking them in order of ability or achievement to analyze financial data. Companies which collect this kind of data include Dealogic and Thomson Reuters. Thomson Reuters league tables list top financiers in a particular industry. Dealogic’s league tables are rankings of investment banks in terms of the dollar volume of deals that investment banks work on.

3. The study ranked 224 financial institutions with the sole mandate of lead arrangers of loan. The tables do not include property or real estate sector transactions, corporate loans and those guaranteed by sponsors or governments.

4. Net interest income is the difference between revenues generated by interest-bearing assets and the cost of servicing (interest-burdened) liabilities. Net interest margin is a measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits), relative to the amount of their (interest-earning) assets.

5. CAR or Capital to Risk Assets Ratio (CRAR) is the ratio of a bank’s capital to its risk. The Reserve Bank of India tracks banks to ensure that they can absorb a reasonable amount of loss and also monitors their compliance with statutory capital requirements.

6. The RBI maintains a list of non-suit filed borrowers of banks and financial institutions (FIs), while Credit Information Bureau India Ltd (CIBIL) maintains a database on suit-filed accounts of Rs. 1 Cr and above.

7. Suit-filed account is one where the lender has filed a legal suit against the borrower.

8. Circular Letter No. 27/42/2013/54. All India Bank Employee’s Association (AIBEA). 03 December 2013.

9. “Write-offs were initially introduced as a tool for banks to manage their tax liabilities on impaired assets. However, they subsequently emerged as a tool for banks to manage their reported gross NPA numbers.” (Two Decades of Credit Management in Indian Banks: Looking Back and Moving Ahead, 16 November 2013, Dr. K.C. Chakrabarty, Deputy Governor, Reserve Bank of India.)

10. Corporate Debt Restructuring – Issues and Way Forward. Address by Dr. K.C. Chakrabarty, Deputy Governor, Reserve Bank of India at the Corporate Debt Restructuring Conference, August 2012.

11. Priority sector includes agriculture, small scale business, small business/service enterprise, micro credit, education loan, housing loan.

12. CBI starts inquiry against big loan defaulters. 21 August, 2013, Times of India.

13. Press Release. 21 August 2013. Central Bureau of Investigation. http://cbi.nic.in/pressreleases/pr_2013-08-21-1.php

14. The ‘Remaking’ of Indian Banking, 29 November 2013, C.P. Chandrasekhar, The Hindu.

15. M. Narasimhan has served as Governor of the Reserve Bank of India, Secretary in the Ministry of Finance, India’s Executive Director at the World Bank and later at the International Monetary Fund.

16. SLR is the amount a bank is required to maintain in the form of cash, gold and Government and other approved securities. CRR is the amount a bank is required to hold in the form of cash with the RBI.

17. The shares were transferred to the Government of India.

18. The new private banks include Axis Bank, Centurion Bank of Punjab (acquired by HDFC in 2008), Development Credit Bank, HDFC Bank, ICICI Bank, IndusInd Bank, Kotak Mahindra Bank and Yes Bank.

19. The old private banks include Bank of Punjab (merged with Centurion Bank and later acquired by HDFC), Catholic Syrian Bank, City Union Bank, Dhanlaxmi Bank, Federal Bank, ING Vysya Bank, Jammu and Kashmir Bank, Karnataka Bank, Karur Vysya Bank, Lakshmi Vilas Bank,Nainital Bank, Ratnakar Bank, South Indian Bank, Tamilnadu Mercantile Bank and United Western Bank (acquired by IDBI in 2005)

20. Public sector banks include State Bank of India, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore, Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce, Punjab & Sind Bank, Punjab National Bank, Syndicate Bank, UCO Bank, Union Bank of India, United Bank of India (UBI), Vijaya Bank and IDBI Bank Limited.

21. DFIs include Industrial Finance Corporation of India (IFCI), ICICI, Life Insurance Corporation (LIC), Unit Trust of India (UTI), IDBI, Rural Electrification Corporation (REC), National Bank for Agriculture and Rural Development (NABARD), Housing and Urban Development Corporation (HUDCO), Industrial Investment Bank of India (IIBI), Power Finance Corporation (PFC), Infrastructure Development Finance Corporation (IDFC) and State Financial Corporations (SFC).

22. A 1974 amendment to the Companies Act 1956 allows the Government of India to notify certain DFIs as Public Financial Institutions.

23. ECB is an instrument that facilitates Indian companies to borrow from financial institutions outside India.

24. As farmers suffer NABARD offers soft loans to corporates. 10 December 2012. The Hindu.

25. A financial intermediary is typically a bank or financial institution or a common fund, which receives bulk amounts of money from large international banks, public sector banks or the government to disburse to various sub-projects.

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Lakshmi Premkumar

The Research Collective

Programme for Social Action

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