Unmasking India s NPA issues can the banking sector overcome this phase?

Transcription

1 Unmasking India s NPA issues can the banking sector overcome this phase?

2 Contents Executive summary...2 Is the NPA crisis just the tip of the iceberg?...3 Triggers leading to the NPA predicament...4 Restructuring applications - need for cautious... evaluation...6 Perils of third party nexus...8 Inadequacy of existing mechanisms to identify NPAs...9 Declaring NPA borrowers as wilful defaulter or fraud A slow but steady future outlook Regulatory sustenance for Banking Inc Conclusion Survey approach B Unmasking India s NPA issues

3 Introduction Arpinder Singh Partner and National Leader Fraud Investigation & Dispute Services Abizer Diwanji Partner and National Leader Financial Services Mukul Shrivastava Partner Fraud Investigation & Dispute Services Unmasking India s NPA issues 1

4 Executive summary Current environment 72% NPA crisis in India is set to worsen 72% Misuse of restructuring norms 87% Diversion of funds to unrelated business/ fraud 64% Lapses in the initial borrower due diligence (pre-sanction) Root causes 43% Change in political/ regulatory environment leading to business loss 56% Technology and data analytics warning signals Remedial measures 86% Need for a mechanism to identify hidden NPAs 68% Developing internal skill sets on credit assessment/ evaluation 91% Use of forensic audit to ascertain intent of the borrower India is seeing a regulatory upheaval in the way the Government is addressing the NPA crisis. The road to recovery is long and winding. But bankers are cautiously optimistic that the NPA situation will improve albeit at a slow pace. 2 Unmasking India s NPA issues

5 Is the NPA crisis just the tip of the iceberg? Bankers say, The rise of stressed assets (in %)* current debt servicing Mar'13 Sep'13 Mar'14 Sep'14 Mar'15 GNPAs NNPAs Overall stressed advances assets Financial Institutions/Non 72% 15% Unmasking India s NPA issues 3

6 Triggers leading to the NPA predicament Bankers say, While corporate returns have driven the So the question remains, is the rise in NPAs due to internal lapses in due diligence at banks or are complexities of business making it 87% 64% 54% 4 Unmasking India s NPA issues

7 Case study Unmasking India s NPA issues 5

8 Restructuring applications - need for cautious evaluation Bankers say, Analysis of corporates approaching CDR Aggregate debt - INR in crores 5,00,000 4,00,000 3,00,000 2,00,000 1,00, cases 647 cases (upto Dec 14) CDR cell - Progress Report as on 31 Dec 2014 (since inception) Total: 647 cases 5,00,000 Aggregate debt - INR in crores 4,00,000 3,00,000 2,00,000 1,00,000 0 Total cases approved 520 cases (only 15% of the cases have exited sucessfully) 5 cases Cases under consideration of CDR EG 122 cases Cases rejected before admission or approval 6 Unmasking India s NPA issues

9 Bankers say, EY Viewpoint accounts 72% 19% frauds, Framework for dealing with loan Unmasking India s NPA issues 7

10 Perils of third party nexus chartered accountants people to cast aspersions on the 2 of 3 8 Unmasking India s NPA issues

11 Inadequacy of existing mechanisms to identify NPAs Bankers say, According to the respondents, the following areas required substantial focus to enhance 86% Periodic reviews of the automated mechanism to check for errors on a proactive basis NPA status Enhanced internal skills to reduce dependency on outsourced vendors for managing as internal audits and concurrent audits This highlighted the need to strengthen EY viewpoint Unmasking India s NPA issues 9

12 Declaring NPA borrowers as wilful defaulter or fraud Case study 44% Detailed background checks revealed properties and diverted to other business 36% 32% Bankers say, 10 Unmasking India s NPA issues

13 A slow but steady future outlook Case study 56% 56% background checks 68% skill sets on credit 47% accounts 25% Market intelligence Unmasking India s NPA issues 11

14 Regulatory sustenance for Banking Inc. banks 12 Unmasking India s NPA issues

15 Conclusion Unmasking India s NPA issues 13

16 Survey approach Nature of business 10% 1% 21% 68% A public sector unit A private sector unit A foreign bank A co-operative bank Business functions of respondents 10% 3% 10% 11% 22% 44% Credit/ Operations Legal/ Compliance Asset Recovery Audit/ Finance Vigilance Others Corporate loans (INR in crores) held by respondents bank 16% 34% 50% 0 30,000 30, , ,000 and above 14 Unmasking India s NPA issues

17 Notes Unmasking India s NPA issues 15

18 About EY Fraud Investigation & Dispute Services Our services Fraud Investigation Services Disputes Services Intelligence Services FIDS India 16 Unmasking India s NPA issues

19 Pune Panchshil Tech Park Kochi Kolkata Contact us Arpinder Singh Sandeep Baldava Vivek Aggarwal Mukul Shrivastava Anurag Kashyap Anil Kona Rajiv Joshi Yogen Vaidya Dinesh Moudgil Jagdeep Singh Partner and National Leader Partner Partner Partner Partner Partner Partner Partner Partner Partner Vikram Babbar Unmasking India s NPA issues 17

20 Ernst & Young LLP EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is one of the Indian client serving member firms of EYGM Limited. For more information about our organization, please visit Ernst & Young LLP is a Limited Liability Partnership, registered under the Limited Liability Partnership Act, 2008 in India, having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata Ernst & Young LLP. Published in India. All Rights Reserved. EYIN ED None This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. PB