Mr. Devendra Jain, Director, Atishya Technologies Pvt. Ltd. Mr. Jain, a chartered accountant by profession, has over 20 years experience in business advisory services, corporate & financial restructuring, fund raising and mergers & acquisitions. He has been providing management consultancy services to both private and public sector companies. He gives extended advisory services to Governments in formulating policies for growth of industry. Mr. Jain's strong business acumen and astute financial foresight have charted the success of his clients.
NPASource.com is a path breaking approach towards management of NPAs and their subsequent reduction, thereby unlocking tremendous values for the benefit of lenders, borrowers and investors as a whole. It provides comprehensive access on NPA data to various stakeholders. The portal has been set up by Atishya Technologies Private Limited, part of the Atishya Group. The group is an established player in the areas of financial, commercial, marketing, corporate management, business management, loan syndication and legal consultancy on financial matters as well as preparation of techno-economic feasibility studies and project reports for corporate. While dealing with lenders, borrowers and prospective investors in the cases concerning sick units and revival thereof, the Group’s top management realised the need for creating a system that would provide access to all data related to NPAs in a transparent and efficient manner. So, the Group began to work on this concept and it resulted in the creation of NPAsource.com.
Speaking with Hemant P. Maradia of IIFL, “The overall negative effect of rising NPAs has reflected in the balance sheets of the banks and their squeezed net profits.”
NPAs have been a subject of conjecture and debate for the past few months, especially for nationalised banks. What is your view on the current NPA scenario for the Indian banking industry?
For Indian banking industry, non-performing assets (NPAs) have been a serious concern since last couple of years. For the financial year 2011-12, NPAs of public sector banks grew by 1% to 3.3% as against 2.3% a year ago, which is considered as alarming stage for the health of Indian banking industry.
In terms of aggregate amount of entire banking sector in India, the NPA rose to Rs. 60,000 crores as on 31.03.2012 as compared to Rs. 39,200 crores as on 31.03.2011. The Net NPA as percentage of the net advances of PSU banks is higher in 2012 than it was in 2009 – the year of Lehman Brothers crisis.
Moreover, the current global economic slowdown has compelled many small and mid companies to look for corporate debt restructuring (CDR). The main concern for the regulator RBI is over 300% jump in corporate debt recast in 2011-12, which has already touched Rs. 76,251 crore, against Rs. 25,054 crore in 2010-11. This makes the overall CDR asset in the system to over Rs. 1.9 trillion.
As per the recent Government report, the GDP growth of our country during the last quarter of 2011-12 came down to 5.3%, lowest in last nine years. This indicates that India is also suffering from a downturn now, which has affected many countries globally.
Sectors such as Aviation, Textiles, Steel and Mining are the critical ones that are looking for CDRs. The Textile companies are seeking Rs. 1 lakh crore worth of debt restructuring. The power distribution companies (discoms) are also queuing up rapidly for CDRs. Bad loans of discoms are touching nearly Rs. 80,000 crore while many have recently gone for CDRs.
The overall negative effect of rising NPAs has reflected in the balance sheets of the banks and their squeezed net profits.
The banks are likely to refrain from increasing their exposure in risky sectors mentioned above. This may further add fuel to the slowdown. However, Govt. action like relief package of Rs. 35,000 crore declared for the Textile Industry may help the banks to manage NPAs to that extent.
What has led to the increase in NPAs, especially that of the public sector banks?
In the banking business, a wider exposure does not always bring joy to the banks. If observed in a pragmatic manner, it is seen that banks with higher advances have seen major increase in NPAs. So, therefore, the greater exposure by the public sector banks to the companies is the key reason for PSU banks witnessing steep increase in NPAs.
Secondly, in the wake of global economic turbulence, many Indian companies, especially the MSMEs have seen heavy losses. This has also led to a sharp increase in NPA levels for the public sector banks.
Certain pockets of the industry like Textiles have been the worst hit by the global slowdown while sectors like Telecom and Aviation have also been hit badly due to domestic issues.
Higher CRR /SLR /Bank rate also prevented banks to increase their exposure. As a result, the expansion projects already undertaken by industrialists suffered financial crunch and they had to resort to borrowings at higher cost.
Similarly, high interest rate regime as a consequence of inflation also to some extent affected the profitability of small and medium units, ultimately resulting in delayed loan payments.
Is there any danger of the NPA scenario for Indian banks spiraling out of control given the slowdown in the economy and troubles confronted by a few key sectors?
Well, to a certain extent, the rising level of NPAs is a great concern. But, NPAs do not mean that assets have turned bad completely. It only means these accounts are not able to repay the loans within the scheduled time agreed upon for repayment with the banks.
As far as the slowdown in Indian economy is concerned, the situation has not gone out of control as we have not seen banks shutting down or a steep rise in lending rates. As mentioned earlier, key sectors such as Textile, Aviation, Construction, Realty and Steel are under pressure due to the economic slowdown. If, active steps are not taken then the banks’ profits can be affected.
However, as we know, the action from the Govt / RBI is on its way. The package announced by the Govt. for Textile companies is one of them. The Honb’le Finance Minister has also expressed his concern on the deteriorating asset quality of the Banks and has warned the lenders to manage their NPAs.
Are private banks managing their NPAs better vis-à-vis public sector banks?
It is a general perception that private sector banks are more inclined towards the big corporates when it comes to lending money and they tend to stay away from small companies. Earlier, it was seen that private banks were comparatively less affected than the public sector banks. However, the global economic downturn has brought both of them almost on par.
As far as managing NPAs are concerned, private sector banks have comparatively less troubles due to their limited exposure in lending to smaller companies. High interest rates keep smaller customers away from private banks. This is one of the reasons for lower NPAs in private banks.
Further, the data provided by RBI as of 31.03.2011 indicates higher level of NPAs in priority sector than in non priority sector. The private banks comparatively have a lower stake in priority sector loans. It is also observed that after the Lehman Brothers crisis, private banks have stopped chasing loans aggressively.
What measures should RBI and Government take to help banks pare their NPAs?
The Reserve Bank of India (RBI) and the Government are constantly putting efforts to reduce the increasing level of NPAs in the banking sector. The RBI has already told the banks to improve their information system on NPAs and to keep the data on NPAs updated. Recently, the RBI has advised banks to take necessary steps for appropriate NPA management.
Earlier, under the KYC norms, the RBI made it mandatory for the banks to get every possible detail of the customers/companies before lending them. Similarly, providing NPA data to CIBIL may be made compulsory for all types of banks.
The RBI may also try to ascertain the reasons for bank’s hesitance in selling NPA assets to asset reconstruction companies (ARCs). The fear of being questioned or litigations, if any, may be removed by issuing step by step guidelines to be followed by banks for selling NPAs assets to ARCs.
What steps should the banks take to check rising NPAs?
In order to check rising NPAs, the banks must make sure before lending that the borrower is able to repay within the deadline. Moreover, in case of loans to companies, it should be checked that the projects are viable and can turn profitable in future. In some critical cases, the banks may extend the repayment period and can save the assets from turning into a NPA.
In case of declared NPAs, banks too use platforms such as NPAsource.com. The regular information regarding NPAs given to the RBI can be fruitful.
Every account does not turn into a NPA all of a sudden in normal circumstances. The banks do have the mechanism that catches such signals. Such mechanism should be strengthened. Immediate discussion with such borrower, followed by necessary action like rephasement /restructuring /additional finance etc., if provided in time, can curb a sharp rise in NPAs.
The application for restructuring should be disposed off at the earliest. Such application should be examined against the facts, coupled with whether and how it will be able to revive. A separate department /committee should be established at appropriate level to have timely help to deserving cases.
The Banks/ RBI / Govt machinery may also find out the difficulties found in effective utilization of Securitisation Act and may take appropriate action to resolve such difficulties.
Which category of borrowers has contributed most to NPAs? Where do you see the highest amount of stress?
The pressure of NPAs on banks mounts gradually over a period of time. As SMEs play a key role in Indian manufacturing sector and in exports too, it is the SME sector that contributes more to the NPAs.
The weak growth of agriculture sector in the last few years also added to the NPAs. Also, in the wake of the global economic meltdown many corporates have seen contraction in their profits. For instance, in the Real Estate sector, the demand has shrunk due to high interest rates. The tough competition from China in the international Textile market has forced many Indian textile companies to opt for a CDR. Tumbling rupee against the US dollar is making the situation worse for the importers.
Though the RBI has not yet published sector wise NPA data for 2012, the data as on 2011 indicates stress on non-priority sectors. It is assumed that with the situation worsening during 2011-12, the corporates might be the major contributor to the rise in NPAs.
The amount of loans to be restructured in FY13 could increase to Rs 2 lakh crore, says CRISIL. What is your reaction to this?
It certainly will increase to Rs. 2 trillion. Borrowers from the manufacturing sectors are fighting against all odds such as weak rupee, high inflation, dumping from China, costly fuel and transportation costs. Looking closely, it seems that FY13 will be another tough year for banks as far as NPAs are concerned. Borrowers from other sectors are more or less facing the same problems.
The amount of restructured loans is bound to increase in view of the current scenario. Total restructured loans at the end of FY13 are estimated to be @ 3.5% of total advances of the banks.
What are the pros and cons of switching to a system based recognition of NPAs?
The use of technology has always been beneficial. However, the principal “garbage in, garbage out” applies. Presently in majority of the banks, system-based classification of NPA is adopted. However, since this is the initial stage, to avoid wrong classification, a manual correction is also allowed.
However, it is understood that banks have now evolved a system that will reduce mistakes. As such, with their experience, every bank is now having almost a correct system generated classification of NPAs.
In short, we can classify the pros and cons as under:
The mistake of wrong feeding of parameters / leaving blank the minimum required information in the system may lead to ultimate wrong presentation. However, with the system being made full proof, the system generated classification of NPAs will be much more accurate. With this, every authority will be able to decide further course of action.
What impact will the RBI’s rate cut have on NPA levels?
Banks will be able to lend more and eventually this will help banks in boosting interest income. This will also help banks to bear the pressure of rising NPAs for some more time. With the rate cut by the RBI, the banks will be able to pass on the benefit of reduction in interest rates to its borrowers.
As said above, in the current economic environment such action will also be a great relief to the customers /borrowers /industrial sectors. Some of the units working under stiff competition and smaller units, which could not sustain their profitability with the increased rates, will now be able to stabilize themselves.
You recently did a study on NPA properties in Gujarat? Tell us about some of the key findings of this survey?
As per the study done by NPAsource.com, Ahmedabad district tops the chart for highest number of non-performing asset (NPA) properties with Rs. 547.64 crore for a 12-month period from February 2011 to February 2012. The study has covered a total of 366 units of Gujarat with NPA properties valued at Rs. 984.03 crore for the period under review.
Ahmedabad, being the financial capital of Gujarat tops the list of districts having highest number of NPA properties. But, with just five NPA properties, Kutch comes at No. 3 in the state. As Gujarat has been the growth engine for India’s industrial development, it is but natural that the quantum of NPA properties too will be higher, especially in highly industrialised regions like Ahmedabad and Surat.
Do you see NPAs rising further in Gujarat?
Gujarat has emerged as the ‘growth engine’ of India since the past one decade or so with huge spending on infrastructure related projects, power projects, ports and oil & gas plants. In addition, 40% of DMIC will be in Gujarat and there is a huge growth potential for the companies in coming years.
The level of NPAs in Gujarat is manageable as the investors from all over the world are eyeing the state as an investment destination. So, there is not much concern right now. Rising NPAs have not affected the growth of the state, as more investments are constantly pouring in. However, the current global economic slowdown has affected Gujarat to a certain extent.
Which other states according to you have NPAs?
Tamilnadu, Uttar Pradesh, Andhra Pradesh, Karnataka and Maharashtra are among the top states having high level of NPAs as per the study done by NPAsource.com.
What is the purpose and objective of NPAsource.com?
NPAsource.com is a path breaking approach towards management of NPAs and their subsequent reduction, thereby unlocking tremendous values for the benefit of lenders, borrowers and investors as a whole. It provides comprehensive access to NPA data to various stakeholders.
NPAsource.com will significantly add to the visibility of NPA data. It will enable unlocking of value and revival of a sick unit/ industry by infusing required capital through prospective investors and bring its benefit to all stakeholders.
Our prime objective is to set up an agency which works for benefit of all i.e. Bnaks /borrowers and investors. This goal will be achieved by focusing the resolution of NPA assets.
What value do you see in this venture? Is your business model sustainable and scalable? Do you see any competition to your portal?
Before establishing this venture, we have made extensive studies and surveys. It was found that, somehow there is continuous increase in NPAs and the ways and means available with banks could not be utilized effectively.
India is on path of progress and industrial activity is growing. There is inherent risk in every business activity. As such the NPAs will rise continuously. We want banks to pay attention to development of businesses and free themselves from the management of NPAs.
There are various other ventures engaged in similar activities. However, we are having not only the data base of NPAs, but also investors who are ready to invest in various properties available in NPA accounts. With this, there will be faster resolution of NPAs.
We are also having team of facilitators whose clients are also interested in investment in NPAs. Further, we have a team of exert professionals. As such whenever any investor inquires, we can provide maximum information.
How do you plan to take this forward? What is the road map going ahead?
First of all we have motive to make win - win situation for each party involved i.e. banks NPA borrower, investors etc.
We have been equipped with high quality of manpower. We make banks free from the management of NPA so that they can pay attention to developmental work. We provide resolution to the borrowers in dealing with banks with motive that how best borrowers can survive. We have large investor base also. If any investor is interested in purchase of any property intended for sales by banks, we provide full information.
We are already having our office in Mumbai. We are planning to set up offices at Delhi, Bangalore while for the other 27 locations across India we are proposing franchisees. We also intend to start our operations overseas; we already have finalized office at Dubai (UAE) and shortly we are opening offices in USA and Singapore. We are also planning to open offices in Europe and South East Asia.
How do you derive revenues?
There are various revenue models for NPAsource.com.
Facilitators Listing: in our portal, we have provided space for facilitators – such as Chartered Accountants (CA), Company Secretaries (CS), Advocates, Valuers and Financial Consultants who will act as intermediaries and undertake various functions related to NPA transaction – on the portal, thereby, offering a platform to advertise their services /achievements /experiences on the portal.
E notices: Through publishing NPA details on our portal and charging fees for that. We have already established contact with several major banks for publishing their notices on our portal.
Data sharing: We are displaying detailed information about the NPA properties - the owner, assets, banks’ exposure, status of litigation, if any, and other important information required by investors to take informed decision. We shall be providing login in ids for such access.
NPA Resolutions: We shall identify investors /banks, who want to enter into an NPA transaction. We shall be acting as intermediary. The revenue shall be generated by way of commission.
What are the expansion plans for Atishya Technologies?
In addition to above, we have planned to recruit 150 employees pan India and 50 employees overseas. We will open offices in different parts of the world in the next 12 months. We also intend to have network across the India by setting up franchisee arrangements.