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

10 months 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.

Realty sector shows optimism in urban India in Q3
The air of optimism in second quarter rolled over to the third quarter and sales across eight major cities in India improved 15%, says Liases Foras in a research note
 
The performance of the Indian real estate sector during the third quarter as been encouraging and reflects continuation of the air of optimism from second quarter, says Liases Foras in a research report. 
 
“The air of optimism in second quarter (Q2) of FY2015-16 rolled over to this quarter and sales across eight major cities in India improved 15%, quarter-on-quarter (QoQ) to 78 million sqft in third quarter (Q3). Ahmedabad, Bengaluru, Mumbai Metropolitan Region (MMR) and National Capital Region (NCR) showed improvement in sales, with MMR clocking in the best performance,” says Liases Foras in a research note.
 
 
The cities mentioned in the report include, MMR, NCR, Bengaluru, Chennai, Hyderabad, Pune, Ahmedabad and Kolkata.  
 
According to the non-brokerage research centric firm, which offers data and advisory services, during Q3, all eight cities cumulatively recorded highest sales in the cost range of Rs50 lakh to Rs1 crore, at 24.4 million sqft (31%), followed by affordable segment (Rs25 lakh to Rs50 lakh at 23.2 million sqft. Ultra-Luxury segment of more than Rs2 crore bracket has recorded sales of only 12.8 mn sqft in last quarter. MMR was the highest contributor to the luxury (Rs1 crore to Rs2 crore) and ultra-luxury segment (More than Rs2 crore) sales.
 
 
Liases Foras said, during the third quarter, the weighted average price of all the major cities in India stood at Rs6,534 per sq ft, a minor change from the previous quarter. Prices in Ahmedabad have climbed 8%, while price movement across other cities were mixed.
 
Chennai found a special mention in the report due to the deluge in the city. "Chennai market saw stagnant price and muted sales. The unfortunate deluge in the city has made both the buyers and developers less confident. Buyers are less confident of investing in under construction projects while developers are wary of launching new projects," the report says.
 
During the third quarter, unsold stock increased 5% to 1124.9 million sqft, with Ahmedabad and MMR showing major increase, while Chennai and Bengaluru a decline.
 
 
Bengaluru witnessed highest additions with 15.8 million sqft, during the third quarter, the report says. While MMR has shown improvement of 33% in new launches, most of them are in the Rs25 lakh to Rs50 lakh cost bracket. The total new launches across these eight cities increased 11% to 67.1 million sqft over previous quarter, Liases Foras added.

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Nifty, Sensex in a crash mode – Thursday closing report
Investors are in a selling frenzy all over the world
 
We had mentioned in Wednesday’s closing report that Nifty, Sensex were oversold and that if the US market heads higher, Indian markets may follow suit. However, US stocks closed weak on Wednesday and the major Indian indices in the stock markets crashed by more than 3%. The trends in the major indices in the Indian stock markets on Thursday are given in the table below:
 
 
Poor corporate results, combined with falling European indices led to a selling frenzy pushing Nifty below 7000 and Sensex below 23,000. The selling pressure was accelerated by absence of any fresh positive trigger and below expected third quarter (Q3) results by the likes of banking major -- State Bank of India (SBI). The decline of crude oil prices below $30 a barrel (one barrel is equal to 159 litres) kept sentiments subdued. Investors' doubts over the central government's ability to perk up investments dragged the markets lower. In addition, a weak rupee unnerved investors. It opened lower at 67.95 to a US dollar from its previous close of 67.84 to a greenback. 
 
The weakness in rupee indicates massive flight of foreign funds from the equity markets. Investors' confidence was further eroded by the comments made by US Fed chairman Janet Yellen to the US House Financial Services Committee on late Wednesday. During her semi-annual monetary policy testimony to the committee, Yellen said that the US is unlikely to go in for a stimulus and that the rate hike cycle may continue, depending on the data. The Dow Jones Industrial Average fell 99.64 points, or 0.62%, to 15,914.74. The S&P 500 edged down 0.35 point, or 0.02%, to 1,851.86. The Nasdaq Composite Index rose 14.83 points, or 0.35%, to 4,283.59. "With gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labour market indicators will continue to strengthen," Yellen said in a testimony before the Committee on Financial Services of the US House of Representatives on Wednesday. But she acknowledged that financial conditions have become less supportive of growth, "with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labour market," Yellen said. Yellen's testimony failed to offer any signal on whether the central bank will change the interest rate on its next policy meeting on March 15-16. She only repeated that the actual path of the interest rate will depend on incoming data. Overseas, European equities rebounded Wednesday. German benchmark DAX index at Frankfurt Stock Exchange jumped 1.55%, while British benchmark FTSE 100 Index rose 0.71%.
 
Leading pharmaceutical firm Cipla Ltd on Wednesday said its standalone net profit for the quarter ending December 31, 2015 slumped by 11.02% at Rs265.98 crore against Rs298.95 crore in the same period last fiscal while consolidated profits were higher. According to the unaudited quarterly results posted on the Bombay Stock Exchange (BSE), Cipla earned a total income of Rs2,677.72 crore in the quarter under review compared to Rs2,466.23 crore in the corresponding quarter of 2014-15. The company incurred total expenses of Rs2,460.80 crore in the quarter as against Rs2,082.22 crore in the year ago quarter. On a consolidated basis, Cipla clocked a net profit of Rs343.20 crore against Rs327.85 crore while total income rose to Rs3,106.55 crore in the reviewed quarter from Rs2,765.46 crore in the last quarter.
 
Around 35,000 jewellery shops in Tamil Nadu and Puducherry downed their shutters on Thursday in protest against the central government's stipulation to provide PAN card on purchases over Rs200,000, said a senior official of All India Gems and Jewellery Trade Federation (GJF). "The PAN card rule came into effect from January 1, 2016 onwards and since than nearly 35% of the business has gone down," N. Anantha Padmanabhan, zonal chairman (southern region) told IANS on Wednesday. While jewellers across the country downed their shutters on Wednesday, the protest in Tamil Nadu and Puducherry has been fixed for Thursday. "We do not understand the rationale for bringing down the PAN card submission limit to Rs200,000 from Rs500,000 for jewellery whereas increasing the limit for real estate transactions from Rs500,000 to Rs10,00,000," he said, noting it is "common knowledge that unaccounted money is housed in real estate than in jewellery". Padmanabhan said the trade is not against PAN card submission but against the Rs200,000 limit.
 
"We have no issue if PAN card submission is made compulsory for purchase of gold coins or bars. But in the case of jewellery, nearly 70% of the purchases are made by the villagers," he said. In India, only around 20 crore people have been issued with PAN cards whereas jewellery is bought by almost all the Indians, he said. Many in villagers do not have a PAN card but gold jewellery is a must in the case of weddings or festivals in Indian families, Padmanabhan argued. According to him, the government can implement the PAN card stipulation in stages.
 
Cement major Ambuja Cements on Wednesday posted a decline of 66.53% in its stand-alone net profit which stood at Rs.109.96 crore for the quarter ended December 31, 2015. The company had earned a net profit of Rs.328.59 crore for the quarter ended December 31, 2014. According to the company, its total income decreased by 1.06% to Rs.2,379.22 crore from Rs.2,404.85 crore for the quarter ended December 31, 2014. Further, the company's board of directors recommended a final dividend payment of Rs.1.20 per equity share. The total dividend for the year 2015 including the interim dividend of Rs.1.60 per share now stands at Rs.2.80 per share. The company had paid a total dividend of Rs.5 per share in 2014. The company’s shares closed at Rs193.55, down 0.74% on the BSE.
 
The top gainers and top losers of the major Indian indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 

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COMMENTS

Sanjeev Dhabre

10 months ago

"Nifty, Sensex in a crash mode " pl write such news during trading time pl don't wait until evening. I would have not purchased today :(

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