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Bleeding Banks
by
Tilak Raj Gulati
|
Things (Banks) are falling apart, centre cannot hold. The December,15 quarter banks' results are out and picture has turned gloomy. Public Sector Banks are generally in red, a bold red. Bank of Baroda (3342 cr), Bank of India (1506 cr), UCO Bank (1497 cr), Indian Overseas bank (1425 cr), Punjab National Bank (857 cr pre tax loss), Central Bank of India (837 cr), Dena Bank (663 cr), Oriental Bank of Commerce (425 cr), Allahabad Bank (486 cr), , Corporation Bank (383 cr), Syndicate Bank (120 cr)- all December, 15 quarter loses. State Bank of India's profits fell 62% to Rs 1115 cr. Banks which were in profit a quarter before, have started bleeding. As per Bloomberg data, the market capitalization of all 20 nationalized banks is less than Kotak Mahendra Bank. Whereas, market cap of 20 nationalized banks plus SBI is approximately equal to the market cap of HDFC Bank. What can be eked out whether state owned banks do not have the caliber or the zeal or the will to run the banks. Ads by Google It is not that position has deteriorated suddenly. In the competitive world, the real picture remains hidden from all the stake holders: depositors, investors and the regulator. United Bank of India, in 2014, boldly tried to be transparent and it's the then CMD had to lose her job. Now when other PSU banks are finding it difficult to show faces, United Bank is giggling with profits of Rs. 17 Crore in its coffers. Of course, the slowdown is world over and banking stocks are getting a beat but not up to the level being witnessed recently with PSU Banks in India. The reasons may be varied. Reserve Bank has advised banks to clean up their balance sheets by March, 2017 and to proceed in this direction, RBI has embarked upon Asset Quality Review of the banks. Till now, the units which were not performing well due to slow down in the economy and/or other factors, their accounts were still being managed, sometimes not with the hope that they will turn around but to save them being declared non-performing. Once declared NPA, bank ceases to earn income over the account but also have to make higher provisions. The balance sheets of banks, by and large, did not project the true picture. Now Reserve Bank says before we switch over to BASEL III, banks balance sheet is required to be clean and fully provisioned.RBI Governor Raghuram Rajan,while
explaining at the CII Conference as to why the pain in banking sector now is
good, said, "For the loans that are of concern, the banks are attempting to
regularize the loans that can be put back on track, and are classifying those
that cannot for deeper surgery - and taking provisions in according with the
degree of stress in the loans. They will also make provisions for loans that
have weaknesses. Our intent is to have clean and fully provisioned bank balance
sheets by March 2017". 1. Early Recognition
of Financial Distress, Prompt Steps for Resolution and Fair Recovery for
Lenders: Framework for Revitalising Distress Assets in the Economy. Ads by Google All said and done, the mute question is why the private banks are comfortable, though feeling heat of the surroundings, but the state owned banks are bleeding. Whether time has come to assimilate the age old adage that "government is to govern and not to do business". P. J. Nayak Committee, to Review Governance of Boards of Banks in India, suggested;- 1. Scrapping and removal of Bank Nationalization Acts, SBI Act and SBI
(Subsidiary Banks) - because these acts require government to keep its
shareholding above 50%. The government has accepted almost all major recommendations of the Committee except bringing down government stake below 51%. Seeing the present scenario of the health of public sector banks, government may review its decision and accept the recommendations of P.J.Nayak Committee in toto. However, we should also understand that present position of banks is due to higher provisioning on account of likely loses. If the loses do not materialise, banks will write back provisions to profits. As such, after the balance sheets of banks are cleaned and fully provisioned, we may expect PSU banks on winning edge once the economy starts turning around. Whatever recovery and sale proceeds of securities of these non performing assets are received, these will straight away go into the profits of these banks. With private universal banks, small banks and payment banks in the fray, PSU banks should be there to keep balance in the mixed Indian economy. Of course, PSU banks will learn from their past mistakes and improve upon. With healthy competition, a sound financial system will emerge and India will stand on firm footing. Tilak Gulati, Assistant General Manager, UCO Bank. Visit: https://in.linkedin.com/in/tilakgulati Email: itstrgulati@gmail.com Twitter: @tilakgulatiDisclaimer: [The articles written by author contains only the academic view of the writer and purely for discussions and updation of the knowledge of the bankers. The views expressed in the articles may not at all be subscribed by the organisation where the author is working and / or AllBankingSolutions.com] |
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