Education loan comes with an extended repayment period for students

Source :Alekh Angre :Money life :


According to the revised model for education loan, the repayment period is now extended up to 15 years depending on the loan amount


Indian Banks' Association (IBA) in its revised circular for education loanhas recommended extension for the repayment period depending on the loan amount as well as asked banks to clear a loan application file within a month. 


Prabhuta Vyas, senior vice-president, social banking, IBA told Moneylife, "The circular for the revised model on education loan was sent to member banks on 30th August with immediate effect.


Earlier, students had to start repaying one year after completing the course or six months after getting a job, whichever was earlier. The loan repayment tenure was between five to seven years. This has been extended to 10 years for loans up to Rs7.5 lakh and 15 years for loans above Rs7.5 lakh.


IBA had also recommended of creating a credit guarantee fund to tackle the problem of rising defaults in the loan category up to Rs4 lakh. "The recommendation (credit guarantee fund) is still pending with the government."


Prashant Bhonsle, country head of Credila Financial Services, which specialises in education loan says, "From the point of students and parents, the extended repayment is good news. As the EMIs amount decreases, the default risk also gets lower. This would also help to mitigate risk to a certain extend. However, this would be challenging for banks to track student borrowers for 15 years. At Credila, we provided tenure of repayment up to ten years, after understanding the need of the students. We felt that a student should not have any debt obligation during the initial years of his career."


Experts point out that there was no need to extend the repayment period as the student and their parents would have continued to apply for the loan and pay back on time. The higher extension of repayment period may lead to lesser lending by the banks. However, banks have welcomed the revised model of education loan. 


An official with leading public sector bank, preferring anonymity, toldMoneylife, "Our bank will redraft the scheme according to the revised model and put it before the board for approval. Up to ten years of repayment period is good considering five years of studies and two years of employment. Even housing loan has such repayment period. There is some risk, but the education loan scheme is becoming popular among the students and there is clear demand. Overall this revised model is pretty workable." 


B Vara Prasad, general manager (retail, payments and settlements and third party products), Union Bank of India, says, "There is nothing wrong in the revised model. It would put less pressure on the students to repay his loan. We welcome such move."


The revised scheme proposed by IBA has addressed concerns and operational difficulties faced by the lenders. According to the revised model, merit would be the sole criteria to be eligibility for the approval ofeducation loan, admission under management quota would be kept out of the scheme, loan quantum would be justified by the employment benefit and extension of the repayment period to reduce the burden on the beneficiaries.


According the revised model there will be no penalty on prepayment. There would be no processing charges levied on loans sanctioned. If banks charges, processing fee for student going abroad for studies, it would be refunded upon the student taking up the course. 
IBA said, "Bank may provide 1% interest concession if interest is services during the study period and subsequent moratorium period prior to commencement of repayment."


It also said that meritorious students from the same family are eligible for the loan. "Existence  of  an  earlier  education  loan  to  the  brother(s)  and or  sister(s) will  not affect  the  eligibility  of  another  meritorious  student  from  the  same  family obtaining education loan as per this scheme from the bank," the IBA said. 


According to the current guidelines, banks lend up to Rs4 lakh without any security. But for loans between Rs4 lakh and Rs7.5 lakh, they can ask for personal guarantees, and for a loan above Rs7.5 lakh collateral is required.

Sony headed for 4th straight year in the red

Source : Hindustan Times: Nov 2,2011



Sony reported a 27 billion yen ($346 million) loss for the latest quarter and downgraded its annual earnings forecast on Wednesday to stay in the red for the fourth year straight, battered by the strong yen and poor sales of flat panel TVs.


 The Japanese electronics and entertainment  conglomerate is now projecting a 90 billion yen loss ($1.2 billion) for the fiscal year through March 2012 after earlier forecasting a profit of 60 billion yen ($769 million).


Sony Corp. said the strong yen and lower sales, especially in TVs, hurt July-September results. It also suffered production disruptions from the recent floods in Thailand, which came on top of the supply problems from the March tsunami disaster in northeastern Japan.


Sony's TV operations have lost money for the past seven years straight amid price plunges, an oversupply of panels and intense competition.


The company has also suffered a blow to its reputation because of a massive online security breach around the world earlier this year, affecting more than 100 million online accounts.


Analysts say the maker of Bravia TVs and Walkman players needs to restore its reputation for innovative gadgets as U.S. rival Apple Inc. powers ahead with its iPod, iPad and iPhone.


Sony had a loss of 260 billion yen in its previous fiscal year.

RBI directs Dhanlaxmi Bank to adhere to its action plan

Source :Moneylife :November 04, 2011 03:18 PM 





Sources say that the apex bank, acting on the memorandum sent by the bank officers’ union, has issued a 15-point Monitorable Action Plan after conducting an investigation into the bank, to strengthen its weak financials. RBI has come down strictly on the bank’s capital adequacy ratio and share of top depositors  


The Reserve Bank of India (RBI) had conducted an inspection and issued a 15-point Monitorable Action Plan (MAP) to Dhanlaxmi Bank. 


This was followed by the furore caused due to a memorandum sent by the All India Bank Officers’ Confederation to the RBI stating the weak financials and certain wrongdoings by the bank. (The stink coming from Dhanlaxmi Bank: AIBOC raises serious allegations).

Moneylife has accessed and reviewed some parts of this action plan. While the bank was in a denial mode about the issue, sources say the RBI has taken the union seriously even if it is just a matter of “abundant caution.” 


As per the MAP, Dhanlaxmi Bank should moderate its loan growth, year-on-year, to 25% for 2011-12, should not be dependent on portfolio buyouts and should focus on increasing its direct advances. It has asked the bank to improve its earning ratio and cash-income (efficiency) ratio to 70% by March 2012 from its current 83.73% during 2010-11. 


According to sources, the RBI has been especially tough on Dhanlaxmi Bank because it thinks that the bank has grown really rapidly and they want to ensure it’s not on a reckless growth path. RBI has put in place strict conditions for monitoring its operation, but it is willing to give the bank adequate time to ensure that it remains safe and steady without rocking the boat. 


Sources from the banking industry told Moneylife that RBI was concerned about a few issues with Dhanlaxmi Bank. It includes the decision by the bank to capitalise salaries and offer bonuses when it was not in a position to pay the same. And because of these actions, the RBI has been extraordinarily strict on its CRiR (Credit Risk Rating). However, the RBI believes that given the time and stringent monitoring, the bank would not face any difficulty. 


As a further measure, sources say RBI has put one of its general managers on the board of duty of Dhanlaxmi Bank so that every major action taken by the bank and whether it is adhering to the guidelines of RBI or not can be monitored almost on a continuous basis. 


Interestingly, the RBI, in its action plan, has also asked the Dhanlaxmi Bank to improve its capital adequacy ratio to 12% by March 2012. It is stricter for Dhanlaxmi Bank than other banks where the capital adequacy ratio is only 9%. Sources say that this is one area where RBI is extra strict with the bank, but it is in the interest of both the bank and its depositors. 


The RBI has also been cautious about top depositors of the bank. RBI, through MAP, has asked the bank to bring down the share of the top 20 depositors in total deposits below 20% by March 2012. Sources say that this is another measure where the apex bank is strict with the bank so that it ensures that there are stable deposits that the bank builds and not institutional deposits which would fly out any time. 
RBI has also asked Dhanlaxmi Bank to strengthen its liquidity risk management and reduce dependence on high cost borrowing/deposits by March 2012, put a limit of 20% of total book for portfolio buyouts and submit a monthly report on performance of loan portfolio to its regional office in Thiruvananthapuram, Kerala, strictly adhere to directions issued under Section 35 (A) of the Banking Regulations Act and improve its accounting policies and implement good practices particularly in reference to booking of interest on bills discounted, accounting of intangible assets etc. 
In MAP, the apex bank has asked Dhanlaxmi to maintain its SLR (statutory liquidity ratio) cushion of 1% of its NDTL (net demand and time liabilities) till its liquidity profile improves. Considering the weak financial position of the bank, the RBI has asked the bank’s board that it “may put a suitable cap on interest rates carried by the bank.” 
Further, by December 2011, the apex bank has asked Dhanlaxmi Bank that it should put in place a comprehensive BCP (business continuity planning) system, improve its KYC/ALM (Know Your Customer/Anti-Money Laundering) norms, put a system driven NPA (non-performing assets) classification in place and ensure that all MIS (management information system) data flows are system-driven.

PSU Banks in spotlight as FinMin plans to ask Rs 14000 crore for recapitalization

 
source :Bloombrg UTV.:Wednesday, 2 November 2011, at 09:55 IST

The finance ministry is likely to ask for an additional Rs 14,000 crore in the second supplementary demand to fund the recapitalization programme of PSU banks in fiscal year 2012. 

Out of the total amount, Rs 4,500-7,000 crore will be allocated for capital infusion in State Bank of India (SBI) and the rest for other public sector banks.

The finance secretary-led committee, which is looking into bank recapitalization, will submit its report in a week's time. 

Recently, a clutch of PSU banks posted their second quarterly earnings for the fiscal year 2012. Here’s a look at how they performed:

Central Bank: Unable to meet street expectations, Net profit was down 36% and provisions for bad loans up 80%. The non-performing assets (NPAs) stood at 2.94% versus 2.29% in the corresponding period of last year.

Union Bank: Disappointment due to high provisioning. Provisions rose 4% against expectations of decline. All the same, the NPAs jumped to 2.04% versus 1.18%.

Punjab National Bank (PNB): Managed to keep NPAs under control. Gross NPAs were flat at 2% versus 1.9% (YoY).

Bank of Baroda: Gross NPAs were flat at 0.47% as against 0.38% (YoY).

Kingfisher seeks switch to foreign currency debt

Source :BL:Nov3,2011

BANGALORE, NOV. 2: 

Debt-ridden private carrier Kingfisher Airlines has sought assistance from its banks to substitute high-cost rupee borrowings with lower-cost foreign currency debt.

The Vijay-Mallya owned airline hopes to support foreign currency debt by its international operations, which would provide with a natural hedge against currency movement, according to Mr Ravi Nedungadi, President and CFO, UB Group, in a press statement issued by the company.

He said that the company has sought the banks' help to release cash deposits held with lessors against maintenance reserves by providing bank guarantees in lieu.

Kingfisher Airlines has a total debt of Rs 7,000 crore, and currently a consortium of 13 banks, including State Bank of India and ICICI Bank, hold about 23 per cent stake in the company as part of the debt restructuring plans implemented last fiscal.

Mr Nedungadi also said that the company would seek banks' help to “appraise working capital requirements in the usual course to account for changes in the international prices of fuel and the change in rupee-dollar parity”.

He added that the banks were actively considering these requests, and ruled out another debt recast plan.

With the Government favouring 25 per cent foreign direct investment in private airlines, Kingfisher Airlines expects to reduce its debt burden. However, an aviation analyst with a domestic brokerage firm said that even if the company managed to raise funds through stake-sale to foreign investors it would find it difficult to repay its debt.

“Its first priority would be to make payments to employees and towards fuel, and the funds would be insufficient to repay its debt,” he pointed out. With the third quarter, which is supposed to be a good period for the aviation industry, not looking too bright for Kingfisher Airlines, the company could be faced with mounting losses in the coming months, he added.

Banks Rs 56k crore loans to power sector under stress- Crisil

Souece :20 OCT, 2011, 12.44AM IST, ET BUREAU 


MUMBAI: The Rs 56,000-crore exposure of banks to the power sector could be under stress, according to a study by rating agency Crisil. 

The trouble stems from two areas - mounting losses by distribution companies, which have doubled to Rs 40,000 crore in 2010-11 from 2008-09 levels. 

The other cause of concern is availability of fuel and its pricing. 

The Crisil study estimates that the advances to the sector will grow at 23%, based on pending disbursements and distribution losses which will have to be funded by banks, which is currently at Rs 4.8 lakh crore. Of this, 12% of the total advances, or Rs 56,000 crore, is at risk, if no reforms are made to bring the distribution companies out of the red andtariffs revised. 

The gap per unit between the supply cost and the tariffs charged by distribution companies has been rising, the study mentioned. 

There will have to be a 50% tariff hike in order for these power distribution companies to break even. "A 50% rise in tariffs is a tall order. This calls for tremendous amount of political will," said Roopa Kudva, MD & CEO, Crisil. 

States like Bihar, Jammu and Kashmir, MP, Punjab and UP are in the highest risk category in terms of the state governments' ability to support the state power utility companies by capitalising them. Lenders' exposure to such states and the utility companies is about 40% or Rs 1.2 lakh crore. 

The level of debt of distribution sector is also estimated to rise to over Rs 3 lakh crore in 2011 from Rs 1.75 lakh crore in 2010.

As power projects trip, banks like SBI and ICICI may have to look at recast of loans

S0urce : ANITA BHOIR & RUCHIRA ROY,ET:1 OCT, 2011, 02.32AM IST,
State Bank of India and ICICI Bank are among the dozen lenders staring at the possibility of restructuring loans to the crisis-hit power sector that has been hobbled by state electricity board defaults and delays in new projects. 

A sector that only a few years ago was a gold mine of opportunities for investors and lenders, is turning out to be an unwanted child with both private equity investors and lenders. So far this fiscal, private equity investment in the sector has halved while lending has slowed to a trickle due to a number of reasons.

At least for the record, no power producer has defaulted so far, but the state of affairs has begun to ring alarm bells with some estimates showing that losses on loans could squeeze the banking system and revive memories of what happened when the textile industry went through a similar crisis in the 1990s.

For some, it is like revisiting the nightmare of Dabhol Power after its parent Enron went bankrupt in 2001. The RBI is inspecting banks to assess the potential damage. "So far, there have been no delinquencies as the projects are in the implementation stage, and if there are any stress, banks will restructure the accounts at the individual level,'' said Romesh Sobti, chief executive at IndusInd Bank that has loaned Rs 895 crore, or 8.9% of its total loans, to power sector.

"State electricity boards have always been in bad financial health, however, they carry a sovereign guarantee, hence the chances of default are very less.'' ICICI leads the list of banks with the highest exposure to the power sector.

It has given Rs 37,233 crore, or 5.9% of its total book, followed by State Bank with Rs 36,915 crore, or 2.5% of its total book. Axis Bank ranks third with Rs 17,110.60 crore, or 5.7%, annual reports of all the banks show. State Bank and ICICI Bank officials declined to comment, citing silent period ahead of their quarterly earnings.

"Our power sector book continues to perform satisfactorily,'' said an Axis Bank spokesman. "The projects are progressing as per schedule and most of them are expected to become operational over the next 2-3 years. With the longterm outlook positive, the portfolio is expected to perform satisfactorily....''

Lack of major reforms in the power sector is hurting the economics of the industry. In most cases, the state-owned electricity companies are monopolies in distribution, and sell power at heavily subsidised rate to consumers, especially farmers.

Years of uneconomical operations have pushed many, such as Rajasthan and Tamil Nadu's distribution companies, into losses, followed by default to power producers. The state-owned power distribution company in Tamil Nadu has seen its losses rise to Rs 38,000 crore in fiscal 2011 from Rs 4,900 crore in 2006. Its debt is up at Rs 40,300 crore from Rs 9,300 crore over the same period.

"Structural reforms are required in the transmission and distribution," said RK Bansal, executive director, IDBI Bank Ltd. "State regulators will have to make sure that they increase tariffs as fast as they can. The delay is largely in new power projects.

In one case, there has been a delay in implementation which can be handled.'' Scores of power projects, including JSW Energy and Reliance Power, are also facing delays due to nonavailability of fuel, such as coal and gas, and land acquisition. The government's flip-flop in mining, and environmental policies have also hurt.

Some, such as Tata Power and Adani Power, are importing coal, but even that is becoming unviable given the surge in coal prices. These issues may manifest themselves as losses to banks. "Our supervisors are assessing the situation in each bank and also the entire banking sector,'' Reserve Bank of India Governor Duvvuri Subbarao told ET in an interview earlier this month.