Page 214 - DMGT303_BANKING_AND_INSURANCE

Unit 10: Non-performing Assets

Notes

Task Discuss RBI regulations and provisions related to securitization.

Self Assessment

Fill in the blanks:

11. Some of the banks make a '...............................provision' over and above the specific
provisions made in respect of accounts identified as NPAs.
12. A ......................................facility is provided to help smoothen the timing differences faced
by the SPV between the receipt of cash flows from the underlying assets and the payments
to be made to the investors.

13. An originator/third party service provider may act as an underwriter for the issue of
securities by the .......................... and treat the facility as an underwriting facility for capital
adequacy purposes.
14. .................................. (of standard assets) is a process by which performing assets are sold to
a bankruptcy remote (i.e., the unlikelihood of the entity being subjected to voluntary/
involuntary proceedings) special purpose vehicle (SPV) against immediate cash payment.
15. Where dues of the secured creditor are not fully satisfied with the sale proceeds of the
secured assets, he may approach the ................. for recovery of the balance from the borrower.



Case Study VRS Troubles

n February 2001, India's largest public sector bank (PSB), the State Bank of India (SBI)
faced severe opposition from its employees over a Voluntary Retirement Scheme
I(VRS). The VRS, which was approved by SBI board in December 2000, was in response
to Federation of Indian Chambers of Commerce and Industry's (FICCI) report on the
banking industry. The report stated that the Indian banking industry was overstaffed by
35%. In order to trim the workforce and reduce staff cost, the Government announced that
it would be reducing its manpower. Following this, the Indian Banks Association (IBA)
formulated a VRS package for the PSBs, which was approved by the Finance ministry.
Though SBI promoted the VRS as a 'Golden Handshake,' its employee unions perceived it
to be a retrenchment scheme. They said that the VRS was completely unnecessary, and that
the real problem, which plagued the bank were NPAs . The unions argued that the VRS
might force the closure of rural branches due to acute manpower shortage.
This was expected to affect SBI's aim to improve economic conditions by providing necessary
financial assistance to rural areas. The unions also alleged that the VRS decision was taken
without proper manpower planning. In February 2001, the SBI issued a directive altering
the eligibility criteria for VRS for the officers by stating that only those officers who had
crossed the age of 55 would be granted VRS. Consequently, applications of around 12,000
officers were rejected. The officers who were denied the chance to opt for the VRS formed
an association - SBIVRS optee Officers' Association to oppose this SBI directive. The
association claimed that the management was adopting discriminatory policies in granting
the VRS.
Contd....

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