Money & Banking
Bad loans exposing distress among Indian banks
Chennai : The distress in India's banking system is becoming evident by the day with more of these financing institutions reporting poor results in the third quarter of this fiscal, amid mounting bad loans. What is more, the stress is more pronounced in state-run banks.
 
"Such reporting of losses by the Indian banks is unprecedented. The trend is clear -- unfortunate that several public sector banks are posting negative results and wiping out the equity," Saswata Guha, director of financial institutions at Fitch Ratings, told IANS.
 
Technically called non-performing assets, or NPAs, with only some subtle differences, the finance ministry's own assessment is that these are growing -- even though they are equally feared to be grossly under-estimated.
 
Guha expects the Indian banking sector to close this fiscal with a NPA of around a whopping Rs.4 trillion and total stressed assets of around Rs.9 trillion.
 
On Thursday, the trend of state-run banks declaring low profits or losses and the ever-ballooning provisions and NPA continued. The index for state-run banks of the National Stock Exchange fell 3.17 percent and that of the Bombay Stock Exchange was down3.81 percent.
 
In the past year, BSE's banking index of Bombay Stock Exchange (BSE) has taken a 67 percent hit. In the case of Punjab National Bank, for example, the stock is down 58 percent, while for State Bank, it is down 52 percent.
 
Reserve Bank of India (RBI) Governor Raghuram Rajan sought to assuage the feelings. "The decline in bank share prices caused investors to panic. Bank share prices are being hit by the global markets turmoil," Rajan said.
 
"We're looking at banks having clean and fully provisioned balance sheets by March 2017. Banks are using tools devised to clean up their balance sheets." Yet, Guha said government banks are aggressive on write-offs but not on recovery -- not even a fifth of the write-offs.
 
Fitch Ratings' Guha said the NPA levels do not seem to have plateued and may not go up sharply in the coming quarters. By 2017, it is expected that the balance sheets will become cleaner. The earnings outlook is also more daunting and the pain may continue during the next year.
 
"For government banks, the revenue is mainly from interest on loans whereas the private bank’s revenue stream is diversified,” Guha said, adding He said it is not that the private banks are immune to NPAs but their credit risk management is better than government owned banks.
 
Rajan said there was hope. “Change in attitude in the banking system takes time as banks try to unlock the value of their NPAs. But the end-game is in sight. We don't envisage a further set of AQRs (asset quality review) and new loans that require to be dealt with.”
 
Rajan said public sector banks' non-core credit grew at only 6.6 percent, while the same for the private sector was over 20 percent. The only reason for this is of managing stressed assets and some resulting risk aversion because of which public sector banks have curtailed lending.
 
“We have to clean up banks balance sheets to restore growth."
 
Going by the finance ministry, the NPA Ratio of banks -- net exposure versus bad loans -- rose from 3.42 percent as on March 2013 to 4.62 percent as on the same month of last year. And in absolute terms, the ministry pegs it at Rs.1,83,854 crore versus Rs.3,09,409 crore.
 
Take the case of Punjab National Bank. Announcing the third quarter results, it said NPAs stood at Rs.22,983.40 crore on December 31, 2015, against Rs.13,787.76 crore in the like period of the previous fiscal -- up a whopping 66 percent.
 
And State Bank of India (SBI), the country's largest lender? The NPA at Rs.72,792 crore was 17 percent higher than Rs.61,991.45 crore at the end of December 2015, and 28 percent up from Rs.56,834 crore at the end of the quarter ended September 2014.
 
But the RBI’s Rajan has rubbished the suggestions that the NPA ratio could be at alarming levels.
 
"I think the 17 percent, 18 percent numbers maybe a little on the high side. But broadly speaking I think we should also be careful about treating any stressed asset as a total write-off," he had told reporters earlier this month.
 
According to Guha, the next issue for state-run banks is the capital infusion. The government has said fresh capital infusion from the government will be based on good performance. “Our estimate is that the government infusion is sufficient,” Rajan said.
 
In the final analysis, Guha feels the situation may be ripe for consolidation in Inia's e banking sector. "Let's see if the government bites the bullet."
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Nanda Patel

2 years ago

The lender who is unable recover money, has no business of being in business. Sooner or later they all will be wiped out.

Here, The issue is the common man pays for governments mistakes in the way of TAX or inflation.

'Improving loan origination quality must for securitisation market to develop'
Chennai : Securitisation of loan accounts is one way of improving liquidity of banks' assets but the development of securitisation market depends on improving the quality of loan origination, said a senior official of the Reserve Bank of India (RBI) here on Friday.
 
"For the securitisation markets to develop, we need to improve the quality of loan origination, which solely depends upon 'ownership of decisions' relating to loan origination," said deputy governor R.Gandhi.
 
He was speaking at the 'Union Bank Conference on Financial Stability, Credit distress and Economic Growth: The way forward' at the Great Lakes Institute of Management near here.
 
Simply put, securitisation is the sale of loan accounts to another player for a sum. The loan accounts thus transferred will not figure in the books of the seller.
 
According to Gandhi, directed lending in whatever form and outsourcing the loan appraisal function dilutes the concept of owning up this crucial decision of loan origination and contended that those who outsource the loan origination process have no commitment to the loan quality.
 
He also said central government - the owner of public sector banks - will be more than compensated by increased revenues and better valuations if the costs of social banking is provided through budgetary support after costing them on commercial principles.
 
Noting people perceive the public sector banks are relatively immune to destabilising impacts owing to government's support, he said that the same sense of safety evades the government-owned banks when it comes to their valuations which in turn has an efficiency imperative - when judged by their returns on asset or capital employed.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Rs.5,000 crore to be infused in state-run banks in Q4: Official
New Delhi : The government will infuse around Rs.5,000 crore into state-run banks in the fourth quarter ending March 2016 to strengthen their balance sheets, a senior official said on Wednesday.
 
"As committed, banks will get infusion of funds in the fourth quarter of this fiscal. Banks will get about Rs.5,000 crore," Financial Services secretary Anjuly Chib Duggal told reporters on the sidelines of an event here.
 
Under the Indradhanush recapitalisation plan announced by the government last year, it will pump in Rs.70,000 crore in state-owned banks over four years, while they will have to raise an additional Rs.1.1 lakh crore from the markets to meet their capital requirements under the Basel III risk norms put in place after the US financial meltdown in 2008-09.
 
As per the Indradhanush plan, public sector banks will get Rs.25,000 crore in this fiscal and also in the next financial year. A further Rs.10,000 crore each would be infused in 2017-18 and 2018-19.
 
Duggal said banks were addressing last-mile connectivity issues vis-a-vis widening the scope of financial inclusion, social security and direct benefit transfer, while her department is in regular discussion with them to sort out various problems quickly.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Chandragupta Acharya

2 years ago

SS Tarapore, who passed away a couple of days ago, had suggested banks should curtail lending and shrink their Balance Sheets. This is the only sensible & politically palatable solution to fix these banks, other options such as selling them off being impossible to execute. Public sector banks should completely exit large corporate loans, especially term loans and project finance. This will improve capital adequacy without any cost to the taxpayer & harm to the economy.

Ramesh Poapt

2 years ago

yesterday's article in the matter was superb!
only yesterday, Jayant Sinha declared in an interview that banks have 8 lacs crores of stressed assets!
how much the Govt will extend support?!
Any guess about financials of PSUs after 2-3 yrs?!one more article on this please!

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