Bunty aur babli, Single property and eight home loans

As many as eight banks have put up notices, fixed various seals and pasted announcements that the property has been mortgaged to them. The owners, Dinesh Reddy and his wife Kalarani, who took all these banks for a ride, are absconding. The eight banks are now tied up in a knot and are struggling to find a solution to the imbroglio.

The couple had taken loans of approximately Rs 25 lakh from each of the eight banks - Canara Bank, Syndicate Bank (Jayanagar III Block), GIC Housing Finance, State Bank of Mysore (JP Nagar), UCO Bank (Banashankari), State Bank of Travancore (Girinagar), State Bank of India (Chamarajpet) and Corporation Bank (Jayanagar III Block). A notice pasted on the house, built on a 30x40 site, claims the couple owe the UCO Bank Rs 26.52 lakh, Canara Bank Rs 26.19 lakh and SBM Rs 26 lakh.

The property is estimated to be worth only around Rs 80 lakh at current prices, if it gets sold. But the loans add up to over Rs 2 crore. A neighbour said: “Construction of the house started in 2003, but we had very little knowledge about the owners.”

“Construction is now complete, but the house is vacant. One day, people from a bank came with a ladder and a paint brush and painted their mortgage announcement and notice and left. That started a procession and every other day, some bank official or the other comes and pastes or paints similar announcements. It is a matter of great amusement for people staying around here.”

One of the banks has now posted a security guard outside the house.

An official of the Corporation Bank said, “It is an old cheating case. He (Reddy) took a housing loan from our bank seven years ago. He had submitted original documents with us. He submitted color photocopies of the same documents to other banks and cheated them. Our common agenda now is to recover the dues, but the case is complicated because the owner is absconding and the banks are unable to reach a consensus on what should be done. But all of us are under pressure to recover the money.”

AUCTION THWARTED

In 2007, one of the banks proceeded to auction off the property, but it was stalled by the other banks. An SBM official said, “Since so many banks are staking their claim, it is impossible for a single bank to auction the property. It is a confusing legal tangle and we have been trying for a long time to find a solution. The case is typical of how banks were routinely cheated a few years ago. These fraudsters used to operate in gangs. They would create fake documents and take loans from several banks for the same property. This is an exceptional case as eight banks are involved.”

An official from another bank did not rule out the connivance of bank officials as well.

“Prior to 2005, there was no unified loan processing cell,” the official said. “Banks processed loans individually so it was not easy to find out if another bank had already provided a loan on the same property. Some people took advantage of the system. And if the property was of high value in the market, they took smaller loans so that the bank would not reject their applications. Hanky panky of bank officials cannot be ruled out either. Now this is not possible as banks have a common loan processing unit,” the official said.

BEWARE OF BANK LOANS

It is common for people to assume property documents are in order if a housing loan has been taken on the property. But time and again people have had to pay for complacency. R Jagadish, a partner in Soundarya Constructions, says, “We purchased an old house in Guttahalli for development in 2005. There was a loan of Rs 25 lakh existing on the property from the Tumkur Grain Merchants Bank. When we were about the demolish the old building, we got a notice from Punjab National Bank stating that it was mortgaged to them as well for Rs 35 lakh. We had no option but to repay that loan. For a property worth Rs 25 lakh, we ended up paying Rs 60 lakh and in the bargain had a lot of heartburn as the process dragged on for over six months.’’

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UCO Bank to sell stressed assets

UCO Bank is preparation to sell some of its stressed assets as part of its efforts to develop the asset quality.


“We are looking to sell Rs 280 crore of stressed assets. Within the next 10-15 days, we should be able to finalise one deal. We will sell more of these stressed assets so that we can reduce the portfolio,” said Mr Arun Kaul, CMD of the bank.


The bank will look to sell at least one more tranche in the near future, he said.


“The NPAs are slightly on the higher side. Slippages are very large. For six months, slippages are nearly Rs 1,100 crore. Gross NPAs have gone above 2.3 per cent as on September-end. So we are making a lot of efforts to improve the quality of assets”, said Mr Kaul.


He said the bank is targeting to bring down gross NPAs below 2 per cent this fiscal.


In the second quarter, a large amount of the NPAs have come from the agriculture waiver and debt relief scheme. Over the next two quarters, there is unlikely to be any abnormal slippages, Mr Kaul said.


The bank has created a separate recovery vertical that will focus purely on recovery of bad loans.


“Ordinary branches have so many other functions that have to be done. So this function gets diluted. We have created separate 5-6 stressed asset branches which will focus on recovery of bad loans. These branches will report directly to the head office, thereby ensuring quick decisions are taken,” said Mr Kaul.


These branches will handle large NPA accounts for above Rs 1 crore or so. Besides the separate branches, the bank is also planning to set up recovery camps, lok adalats and engaging recovery agents. The bank has set an internal target of Rs 1,300-1,400 crore for recovery from bad loans.


UCO Bank is also setting up specialised branches for disbursing credit to large corporates to ensure that these do not become bad loans due to bad underwriting.


“NPA creation is partly due to the skill sets available in banks. So we are creating specialised branch known as flagship corporate credit known for large corporate credit”, he said. While for the retail segment, the bank is setting up the central processing units, for more efficient monitoring.

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Answers of Arun Kaul, CMD, UCO Bank

Kolkata-based UCO Bank, which had a smaller customer base among its peers, wants to focus on customer acquisition, to help in increasing the share of low-cost deposits. In an interview with Business Standard, Arun Kaul, chairman and managing director, who took charge three months before, discusses the strategies with Manojit Saha. Edited excerpts:


What areas do you want to focus?
I identified a few challenges when I took over the bank. First, I have noticed the current and savings account deposits (Casa) are radically low. Casa has been low as compared to other banks of the same size and there were two reasons.


One, customer acquisition was very slow. The customer base was also small as compared to peers. We had initiated certain customer acquisition programmes, the results of which are encouraging. We are now adding 200,000 customers every month, of which 50 per cent are in the savings account. The second is customer service. We are now putting lot of focus on this.


How will this impact your low-cost deposit share?
Our current accounts and savings, which are around 24 per cent of total deposits, are expected to be between 27-30 per cent over the next six to 12 months.


What about asset quality?
Asset quality was a concern. In the first half, we had slippages of more than Rs 1,000 crore. This also assures that there will be no
surprises, going ahead; there will only be normal slippages.


Any plans to sell some bad loans?
We are in the process of doing that. The first process will be completed in the next one or two weeks. The next process will start
immediately after that.


How much of NPA (non-performing assets) will you be putting on the blocks?
The first process involved Rs 280 crore and the second process will be Rs 300-400 crore. Before March 31, we will at least have two processes.


How much improvement will it have on gross NPA?
I will be very comfortable if the gross NPA comes below two per cent before March 31 (from 2.39 per cent as on September-end.)


The bank had plans for a follow-on public offer. Is that still on the cards?
We have received good support from the government. We have received Rs 673 crore this financial year. As a result, the capital adequacy ratio is comfortable, at 13.6 per cent. So, we are not having any plan for an FPO in the current financial year.


Your net interest margin in the second quarter was 3.51 per cent. Would you be able to hold on to that?
We may not be able to hold on to that because the shorter end of the yield curve has moved up. So, NIM can slightly go down. But we will still be above three per cent, hopefully.


What is your exposure to the micro finance sector?
Zero.


Where do you see the bank two years down the line?
I do see it emerging as a more powerful organization, with improved market share and profitability.


UCO Bank had earlier planned to foray into the insurance sector. What is the status?
We may not be able to do all ventures involving large capital till our balance sheet is fairly strong. In any case, we are doing the distribution part, both insurance and mutual fund. On manufacturing, we would like to wait till the time the bank becomes much healthier.

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80CCF deduction on long-term infrastructure bonds notified

80CCF deduction on long-term infrastructure bonds notified

Notification No. 48/2010[F.No.149/84/2010-SO(TPL)],dated 9-7-2010

In exercise of the powers conferred by section 80CCF of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies bonds, subject to the following conditions, as long-term infrastructure bonds for the purposes of the said section namely :-

(a) Name of the bond – The name of the bond shall be “Long-term Infrastructure Bond”.

(b)   Issuer of the bond – The bond shall be issued by :-

(i)   Industrial Finance Corporation of India;

(ii)  Life Insurance Corporation of India;

(iii) Infrastructure Development Finance Company Limited;

(iv)  A Non-Banking Finance Company classified as an Infrastructure Finance Company by the Reserve Bank of India;

(c)    Limit on issuance – (i) The bond will be issued during financial year 2010-11;

(ii) The volume of issuance during the financial year shall be restricted to twenty-five per cent of the incremental infrastructure investments made by the issuer during the financial year 2009-10;

(iii) ‘Investment’ for the purposes of this limit includes loans, bonds, and other forms of debt, quasi-equity, preference equity and equity.

(d)   Tenure of the bond. – (i) A minimum period of ten years:

(ii) The minimum lock-in period for an investor shall be five years:

(iii) After the lock in, the investor may exit either through the secondary market or through a buyback facility, specified by the issuer in the issue document at the time of issue;

(iv) The bond shall also be allowed as pledge or lien or hypothecation for obtaining loans from Scheduled Commercial Banks, after the said lock-in period;

(e)   Permanent Account Number (PAN) to be furnished – It shall be mandatory for the subscribers to furnish there PAN to the issuer;

(f)     Yield of the bond – The yield of the bond shall not exceed the yield on government securities of corresponding residual maturity, as reported by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), as on the last working day of the month immediately preceding the month of the issue of the bond;

(g)    End-use of proceeds and reporting or monitoring mechanism – (i) The proceeds shall be utilizes towards ‘infrastructure lending’ as defined by the Reserve Bank of India in the Guidelines: issued by it;

(ii) the end-use shall be duly reported in the Annual Reports and other reports submitted by the issuer to the Regulatory Authority concerned, and specifically certified by the Statutory Auditor of the issuer;

(iii) The issuer shall also file these along with term sheets to the Infrastructure Division, Department of Economic Affairs, Ministry of Finance within three months from the end of financial year.

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