Real estate debt levels #simply_scary

Real estate euphoria is slowly dying and the developers are facing some sort of difficulty- Most of us know this from the reports that we read.

Today, I happened to have a conversation with a person with a RE insider during my train journey and it was nothing less than scary!

• One of the RE company is having debt up to Rs 1000 crores while the paid up capital as per books is below 20 crores( the actual capital got in by the promoter is far far less --- :-( , that should be another story)
• The company has been using one bank debt to pay another cyclically and so on and they are managing this through their "contacts".
• One famous private sector bank which is the darling of the stock market is keen on re-financing one of their loans on the condition that they will be the preferred partner for retail loans if and when they sell the flats. The logic being that retail loans seldom go bad!
• Also got to know that the company had previously "pleased" a lot of people to get the loans.
• Even if the company manages to sell all their existing stock and WIP at current prices, they will be able to manage only 50% repayment of the debt. 

Not sure what if the RE bubble burst, a few banks may actually go bust. ( But for all retail investors,Fixed deposit seems the safest investment ;-) )

NPAs from real estate and infrastructure sector can play out more differently than what we can predict.

Fingers crossed on what will happen and how stock market would play out eventually.

At least, I feel very very scared!!

Know your #PSU banks- how responsible are they with your deposit money ( #FD)

"According to a August 26 (2013) finance ministry note, the NPAs of public sector banks (PSBs) have gone up by 4.39 per cent with the total amount clocking over `1,76,000 crore. The amount is equal to the total budget of health, education and rural development of the country put together. The government owns majority stakes in PSBs and it is responsible for the money deposited in their accounts. If we add the NPAs of the nationalised banks, including the SBI group, the total figure is a whopping `3,50,000 crore, which could easily finance India’s military and internal security expenditure." ( Did you know this???)

The finance ministry has pointed out four major reasons - current macro economic situation, increased interest rates, lower economic growth and aggressive lending by banks - responsible for increase in NPAs. Among the measures to recover money from defaulters, the ministry has advised PSBs to appoint nodal officers for recovery at each zonal office and Debts Recovery Tribunal (DRT). The banks were directed to conduct special drives for recovery of toxic assets and to constitute a board-level committee for monitoring of recovery process. “The government has instructed public sector banks that write-offs should not be more than recovery,” the ministry said.

Source: Indian express

Private and PSU banks

With an aim  to bring down the no: of savings bank accounts that I hold, I decided to close one of my dormant SB account of mine with a leading private sector bank.

Closing down the account was very simple. I submitted a request for closure of my account at a branch near my home and a few weeks later, I received the closure confirmation and a "Manager's cheque" from my home branch in Bangalore.

I deposited this cheque with one of India's biggest PSU bank. The branch manager called me up and returned the cheque. The reason provided was that "their machine" didn't accept the cheque and they were not sure what a "Manager's cheque" was. The branch manager somehow managed to return the cheque to me without a written explanation ( I didn't persist either, quite unusual of me ).

One retired PSU bank executive came to my help when I was discussing about this with him. He suggested that I tell the bank manager that "Manager's cheque" was nothing but a "pay order" and he can send it for collection to the private bank in other city like he does for any "outstation cheque".

When I carried this message back to the bank, the branch manager was not enthusiastic. He was  halfheartedly willing to send my cheque for collection and he said that he will not do any follow up in case the private bank doesn't respond back to his branch.

Unwilling to let my cheque go with an ambiguous process and an unenthusiastic person, I finally  deposited the cheque with  another bank ( private) account of mine.

The whole episode left me wondering about the attitude of PSU banks in such a competitive environment and the "knowledge " levels of a branch manager ( in a metro city!)

Although PSU banks have some inherent advantages, such "excellent? customer service attitude", "knowledgeable?? managers" and "reckless lending " may eventually kill them.

After this episode, When I  see a PE of 5 or less  for a PSU bank and private sector bank having a much higher P/E number , I have definitely stopped asking "Why?"

Also read, Money with PSU banks 

Money with PSU banks!

The NPAs of  our esteemed PSU banks are continuously on the rise. As the economy is turning down, the "true" picture is emerging.

While PSU do a fantastic scrutiny while providing loans to the normal public ( a typical home loan approval by a PSU bank takes 5X time when compared to  private banks), the PSU banks seems to be succumbing  with bad loans to "Powerful" folks.

While NPAs to a certain degree are normal in banking business, when it swells beyond a point, it is an indirect punishment to  the depositors and  other honest borrowers who pay back loans on time.

Last week, I was having a chat with a retired PSU bank executive. He had lot of tales on how the bank higher ups forced their subordinates in providing some loans to unworthy creditors. This was all the more evident when they had some superiors who had "bought" their top positions instead of "earning" them. This was one of the ways that they could get a "pay back" on their investment to get into a "posting". Sounds scary. 

Thank God that not everyone is the system is corrupt or else no one would trust our banks. But the increasing NPA trend  looks terrible  and hope we see an end to this trend.

While we cannot do much about this , the one thing that we can definitely do is "punish non-performers"

 Pull out all your money from banks that cannot control their NPAs! 

how safe are bank deposits?