Money & Banking
Economy & Nation Exclusive
Asset quality of PSBs set to worsen
New norms of provisioning with effect from the beginning of this year will affect the profitability of banks further
 
The Financial Stability Report (FSR) of June 2015 released by Reserve Bank of India (RBI) last week says that the Indian economy is resilient but there is no room for complacency due to the continued uncertainty over global growth and absence of effective international monetary policy coordination.
 
On the domestic banking sector the report says: “while risks to the banking sector have moderated marginally since September 2014, concerns remain over the continued weakness in asset quality indicated by the rising trend in stressed advances ratio of scheduled commercial banks (SCBs), especially of public sector banks (PSBs).”  
 
It further states that the macro stress tests suggest that current deterioration in the asset quality of banks may continue for few more quarters, and PSBs may have to bolster their provisions for credit risk from present levels, to meet the ‘expected losses’ if macroeconomic environment were to deteriorate under assumed stress scenarios.  
 
The RBI further says that this assessment of the banking sector by the FSR reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability. But the report unfortunately does not spell out any concrete steps to improve the situation, except to say that the policy initiatives for improving the governance and management processes at public sector banks become significant.  
 
Asset Quality of banks:
The present level of both non-performing and restructured assets of public sector banks are quite high (see Charts below) and they are expected to worsen further before any improvement is expected as stated in the report.
The gross non-performing advances (GNPAs) of SCBs as percentage of gross advances increased to 4.6% as on 31 March 2015. The restructured standard advances during the period also increased, pushing up the SCBs’ stressed advances to 11.1%. PSBs recorded the highest level of stressed assets at 13.5% of total advances as of March 2015, compared to 4.6% in the case of private sector banks (PVBs). 
The following charts sourced from the RBI’s Financial Stability Report clearly brings out the steep deteriorating NPA position both at the gross and the net level for PSBs from March, 2011 to March, 2015. 
 
(PSBs = Public Sector banks. PVBs= Private Sector Banks. FBs = Foreign banks. 
GNPA = Gross Non-performing Assets.  NNPA = Net Non-performing Assets.) 
 
Capital Requirements of PSBs:
As per the latest estimate, PSBs in India require additional equity capital to the tune of Rs2.4 lakh crore by 2018 to meet Basel III norms as ordained by RBI. And during the current financial year PSBs were looking to raise over Rs21,000 crore from the capital market as the Government has allocated only a sum of Rs7,940 crore for this purpose in the current year’s budget. The Finance Secretary, however, announced last week that the government is proposing to inject Rs11,500 crore in addition to the earlier budgeted amount during the current year.  And as per media reports, the Finance Ministry has now asked banks to explore innovative strategies to attract investors for their future stake sale.
 
How do you attract investors for subscribing to bank shares? There is only one obvious factor that determines the interest of investors in share investment and that is company’s performance.  It is a well known fact that investors will come flocking to you if you show continued improvement in the performance quarter after quarter. Due to the subdued performance of PSBs during the last three years, their performance in the stock market has also been impacted and most of the PSBs have very low valuations in spite of majority ownership resting with the central government.
 
The following chart shows the relative performance of SCBs during 2012-2014. 
 
 
Perceptible fall in net profits impacting growth:
Despite a few relaxations in provisioning requirements by RBI, most of the public sector banks have been showing fall in their net profits and three of the PSBs have for the first time declared net loss for the fourth quarter of last financial year. With the introduction of new norms of provisioning for restructured accounts with effect from the beginning of this year, and with banks having to make more provisions for restructured accounts, profitability of banks will be further impacted putting pressure on the banks to raise more  capital from the market. This again is constrained by the fact that government is required to hold a minimum of 51% of the share capital of every public sector bank, with little leeway available to raise capital from the market. What is adding insult to injury is the poor valuation of these banks at the bourses, putting the public sector banks in a bind of helplessness that will ultimately affect their growth due to their inability to fund the growing needs of the economy. 
 
This should open the eyes of the powers that be to ensure that the public sector banks are not left high and dry, but out of the box solutions are found to improve the functioning of these banks to make them more agile, more competitive and more profitable to enable them to stand on their own legs without depending too much on the tax payers’ money to boost their capital requirements in the coming years. The future looks challenging for the banking industry and the government has a tough task in hand to meet these challenges.
 
 (The author is the financial analyst writing for Moneylife under the pen-name ‘Gurpur)

User

COMMENTS

Mahesh S Bhatt

1 year ago

Await great Indian Banking meltdown.All media is raking revenues advertising 8000 plus crores ( last years number) from Real Estate Sales.

But Real Estate is not so real with lot of Gas/huge inventories saleable over 55 months /political parking of investments/ghost towns across India.

God Bless Rajan & Company one day he says Global recession few days later he says he was misquoted( good guy with bad company gets corrupted).

Mahesh

manoharlalsharma

1 year ago

Asset quality of PSBs set to worsen./its' an STYLE to do an age old INDIAN-GOVERNANCE it was the matter with UTI and even IDBI/IFCI but nothing done to PREVENT whoever comes to sitting as GOVERNMENT can not survive without

SuchindranathAiyerS

1 year ago

To expect decades of loot to be written off in a few years is a pipe dream. Even if Government loots the temples to write off its deficit and injects fresh capital into its private coffers also known as "Banks". The Indian Republic's Constitution that enshrines inequality under the law, exceptions to the rule of law and "Many Nations Theory" provided a suitable or "Animal Farm" framework for plundering other people's wealth and opportunities for a select neo aristocracy or, kleptocracy. This enjoyment of other people's wealth began with deficit financing of Government profligacy and corruption as well as with the nationalization of temples in 1959 and did not not culminate in 2012 with "Retrospective" laws and the nationalization of 20% of non Christian and non Moslem private education. The 1969 nationalization of banks widened the scope for plunder of public wealth for the personal pelf, pomp, pleasure, perversions and perpetuation of India's Neta-Babu-Cop-Milard-Crony-Vote Bank Kleptocracy.

Gopalakrishnan T V

1 year ago

The PSBs assets both human resources and business assets need a total review and call for out of the box solution to make them perform. Right from Board level to the last grade of staff they require training, knowledge up gradation,skill development and interpersonal relationship improvement. Involvement and commitment are essential to ensure quality performance. On the business side, ALM needs drastic quality approach and the cost of funds has to be brought down considerably. The costs on account of NPAs have to be reduced and this cannot be cross subsidised by the depositors and other stakeholders. The management of assets particularly credit and cash requires fine tuning and a lot needs to be done to improve the credit appraisal, credit recovery, fast recycling of funds, lower costs on account of inspection, insurance, legal costs and maintenance of assets.Window dressing of assets and hiding bad loans with all possible ingenuity presently resorted by the banks has to be forcefully avoided. Action is what is called for and not rising expectations and hopes by words sounding very high optimism.

Moneylife Seminar: Life Insurance – Surrender or Continue?
In an interactive two-hour session, Raj Pradhan explained to a packed house the exit options for existing life insurance and pension policies 
 
At Moneylife Foundation’s event, Raj Pradhan, an insurance expert, discussed the ways of exiting from life insurance and pension policies. Moneylife does not suggest buying insurance-cum-investment products, which will ensure that you are not in a situation of making difficult decisions about exiting a product. But, many are already trapped in ULIP (unit linked insurance plan) or traditional (endowment, money-back, whole-life) products and eagerly trying to find whether to continue with it, what loss if they try to exit and if there is a third option to handle the situation.
 
 
Moneylife Foundation Insurance Helpline received numerous such cases and gave customised feedback based on each case.  Moneylife magazine has written a couple of cover stories on this subject in March 2012 (Surrendering Policy? Think Again) and October 2014 (Trapped in Wrong Life Insurance). There are various parameters to consider while making a decision on surrendering or continuing. After all, policy surrender is not the best option in most cases especially for traditional products and hence there is a need to be cautious if you are blindly surrendering life insurance policy. 
 
 
The interactive two-hour session looked at options for handling old ULIP (pre-September 2010), new ULIP (post-September 2010), old Traditional (pre-January 2014) , new Traditional (post-January 2014), old ULPP (unit linked pension plan) of pre-September 2010, new ULPP (post-September 2010), old Pension Traditional (pre-January 2014) and new Pension Traditional (post-January 2014). Real life examples were discussed along with cases from audience.
 
Old ULIPs had challenge of non-standard surrender charges, which in some cases continues till end of policy term. The saving grace is “cover continuance” feature which allows the insured to stop paying premium after three years and remain invested without surrender.  It certainly is an option for the insured especially if the fund performance is good and surrender charges prevent from easy surrender. 
 
New ULIPs have standard surrender charges, but it got rid of good feature of cover continuance which means your policy will auto surrender if you stop paying premium. Traditional products have a drawback of pathetic guaranteed surrender value. While new traditional (post-January 2014) improved the guaranteed surrender value, it still falls short of any decent value which can help you to surrender without a loss. So, there is huge dependency on non-guaranteed special surrender value if you are keen on policy surrender. “Paid-up” is an option for traditional policies which have a surrender value. It is similar to cover continuance wherein you do not pay premium but do not surrender till end of the policy term.
 
Handling a pension policy is the most difficult due to tax implications for policy surrender. Moneylife has done a cover story on it which is a one of its kind. Read - http://www.moneylife.in/article/are-your-pension-life-insurance-plans-tax-traps/31671.html Your options are limited to continuation of premium payment or cover continuance/ paid-up. But, what about new ULPP which do not offer cover continuance? 
 
The policyholder need to understand that fraudulent calls are made for not just policy mis-selling, but also for mis-selling for surrender. The fraudsters want you to surrender existing policy so that the money can be invested in a new insurance product to help earn commission for intermediaries. 
 
Buying an online term plan for your life insurance needs will help ensure that you don't have to worry about loss during policy surrender. Buy with utmost good faith giving all the required details without the agent filling on your behalf. It will help to secure your family finances, in case of premature death of the insured.

User

COMMENTS

Srivathsan

12 months ago

An important clause but not discussed at length is the the concept of paid up policy and lapse of policy.
The insurance company first objective is to give provide protection fund for the dependents of the family and the second objective is to provide facility to get lump sum amount at the end of tenure of policy to the policy holder.Hence it is as must that the FIRST premium shall be towards the term cover for the entire policy period and subsequent premium shall be for providing lump-sum amount to the insured at the end of term. This will always give protection fund to the family of bereaved and there is no denial of protection fund( insurance amount) to the family in case of death of insurer. Let it not be considered as death benefit and convert it into protection fund of family of insured,

lalit

1 year ago

I am having Birla sunlife flexi save Individual Enhancer in my daughters name for 25 yrs wef jan 07, could u please advise if the same can be continued..or withdrawn Premiun is Rs12166/-

EPIC fail for Uber's new privacy policy: FTC asked to block “deceptive data collection”
Uber's new 'User Privacy Statement' claims the right to track its users even when they are not currently using the app, which is nothing but unfair and deception data collection practices, EPIC says in its complaint to FTC
 
The Electronic Privacy Information Center (EPIC), a non-profit privacy rights group, has filed a complaint with the Federal Trade Commission asking that the FTC halt the “unfair and deceptive data collection practices” which car-sharing company Uber plans to impose on customers starting in mid-July, says ConsumerAffairs.com in a report.
 
According to ConsumerAffairs.com, a consumer news and advocacy organization founded in 1998 by James R Hood, among other things, Uber's new “User Privacy Statement” claims the right to track its users even when they are not currently using the app.
 
Uber's posted announcement of this update included the sentence “We value your privacy and encourage you to review the new statement” prominently backlighted in blue at the top of the page. When you scroll down to the fourth full paragraph, you find this:
 
Location Information: When you use the Services for transportation or delivery, we collect precise location data about the trip from the Uber app used by the Driver. If you permit the Uber app to access location services through the permission system used by your mobile operating system (“platform”), we may also collect the precise location of your device when the app is running in the foreground or background. We may also derive your approximate location from your IP address.
 
In other words, ConsumerAffairs.com, said, "when the app is on, we can use it to track your location, and when it's not, we can use your IP address instead. The policy goes on to say that it can use your address-book contact information 'to facilitate social interactions through our Services and for other purposes', a polite way of saying they can spam anybody in your email contact list."
 

Lax Views on Privacy

According to the report, Uber already has a storied history of coming under fire for its lax views on privacy. Last November was a particularly bad month for Uber's public relations department. First, BuzzFeed reported that Uber executive Emil Michael floated the idea of handling any criticism of the company by digging up dirt on any journalists who dared criticize it.
 
When an editor from the website PandoDaily accused Uber of “sexism and misogyny” for apparently working with a French “escort service,” Michael suggested, among other things, that Uber's dirt-diggers could expose the editor by proving a very particular, specific (and presumably unflattering) claim about her personal life, ConsumerAffairs.com says.
 
Such an attitude arguably sounds bad expressed by any company executive, but are especially damaging coming from a tech company like Uber which, by its very nature, has access to lots of information which customers might prefer to keep private — in Uber's case, its business model ensures that it knows where its customers live, what places they visit, and when. (Indeed, with such information, you could prove lots of particular and specific claims about various people's personal lives, no?)
 
Also last November, it came out that an Uber executive had used a program called “God View” to track a journalist's location and movements. Not that “God View” itself was breaking news by then; the previous month, Forbes magazine reported that Uber used “God View” as a form of entertainment at company launch parties, letting staffers enjoy watching real-time “God's eye” views of Uber passengers at that moment, including their identities, current locations and trip itineraries.
 
Then, a couple of days before Thanksgiving, Newsweek reported Uber's tendency to advertise its services by sending “ghost texts” – spammy messages allegedly sent from Uber drivers that urged their friends to sign up as well, except the drivers never sent their friends such messages, and didn't even know about them.
 

A host of complaints

EPIC's complaint (available as a .pdf here) lists all of these anti-Uber complaints and several more, and also quotes the proposed new privacy policy before spelling out some of its implications:
 
Uber’s Revised Business Practices Will Allow the Company to Routinely Track the Location of Internet Users Even When They are not Customers of Uber
 
Uber’s revised privacy policy creates several risks for American consumers. Uber will now collect the precise location of the user when the app is running in the foreground through traditional GPS location services. Uber will also collect precise location information if the app is operating in the background. On phones running iOS, this means that Uber may be able collect location data even after an app has been terminated by the user. … Further, given Uber’s statement that it will collect location data from a user’s device only “[i]f you permit it to,” a user would reasonably assume that the company does not track his or her location by other means. In fact, Uber may continue to “derive your approximate location from your IP address.”
 
EPIC's complaint does go on to note that Uber claims “it will allow users to opt-out of these features,” but says Uber's “change in business practices places an unreasonable burden on consumers and is not easy to exercise: while iOS users can later disable the contact syncing option by changing the contacts setting on their mobile devices, the Android platform does not provide any such setting. These statements could lead users to believe that that [sic] they can choose to not share location data with the company after downloading the app, which is not true.”
 
The 23-page complaint also points out that “prior to the emergence of Uber and similar services, American consumers could routinely hire taxis without any disclosure of personal information or tracking of their location.” EPIC asks the Federal Trade Commission to investigate Uber's business and data-collection practices; investigate Uber's “possible violation of the Telephone Consumer Protection Act”: “Halt” Uber's collection of contact list information and user location data unless it is required for actual provision of the service; and also investigate other companies engaged in similar practices.
 
But representatives for Uber say neither EPIC nor the FTC have any reason for complaint. Spokesperson Jessica Santillo told ConsumerAffairs.com that “We care deeply about the privacy of our riders and driver-partners. These updated statements don't reflect a shift in our practices, they more clearly lay out the data we collect today and how it is used to provide or improve our services.”

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)