RBI loan rules turning good assets into bad

Banks are being forced to classify as bad loans what they consider as good assets, thanks to the Reserve Bank of India’s norms. The banking regulator’s norms on loans stipulate that commercial production should start within one year of completion of the project. It also says that at the time of financial closure, the company should clearly spell out the date of completion of the project. Banks have told RBI that even if the project is complete, the commercial production does not commence within a year for various external reasons. These include public interest litigations, hurdles in getting environment clearances, government approvals and similar issues. As a result, the commercial project may not start on the stipulated date. Thus, banks have to categorise such account as bad account. In many cases, the account is treated as bad even as the borrower continues to service the loan on time. The RBI guidelines say an account has to be treated as a bad account if the borrower fails to repay a loan within 90 days. “Several large banks have reported a rise in bad loan portfolio partly due to this norm and partly due to delinquencies in the retail portfolio,” a bank analyst pointed out. RBI officials indicate according to the earlier rules, banks had to show an account as a bad loan if the commercial production was delayed by six months. However, following repeated request from banks, this was extended by one year in August 2007.

New product from Karur Vysya

Karur Vysya Bank has introduced yet another variant of its multi-city current account product - KVB Economy.The other variants include KVB Standard, KVB Classic, KVB Premium, KVB Gold and KVB Platinum. The major difference in opting for a particular variant of this product is in the maintenance of the minimum average balance. KVB Economy would require current account holders to maintain a minimum average balance of Rs 10,000.

Some banks trimming deposit rates

After offering high interest rates on term deposits, some banks have now started reducing rates in order to ease the pressure on their margins. Centurion Bank Centurion Bank of Punjab announced that it is cutting interest rates on deposits of some maturities effective November 5. The bank cut interest rate on deposits for one-to-less-than two years to 8 per cent from 8.50 per cent and on deposits of 13 months 15 days to 9 per cent from 9.25 per cent. Last week, Union Bank of India had reduced deposit rates between 25 and 100 basis points on deposits of varying maturities. Bank of Baroda has cut the interest rate on car loans by 100 basis points as a festival bonanza. The new rate of 11.5 per cent would be effective for all new loans on floating option sanctioned on or after November 1, 2007. The bank is also offering an additional concession of 25 bps during the ongoing Centenary Retail Loan Festival period. State Bank of India has introduced a new time slab in its term deposits, of 550 days. For this period, the rate has been increased by 75 basis points to 8.75 per cent. Earlier the interest rate on the period of one to less than two years was 8 per cent.

SBI to hire recovery officers

Plagued by complaints against the high-handedness of private loan recovery agents, SBI is looking to directly hire 3,000 marketing and recovery officers whose job profile would include "soft recovery" of loans. These officers, vacancies for which were advertised in newspapers on Wednesday, would market the bank's products, conduct pre-sanction survey, file applications, and verify papers. The officers would be hired across the country on "contractual" basis with a compensation package of Rs 2 lakh per annum.