Money & Banking
Indian PSBs need Rs 1.2 lakh cr capital infusion: Moody's
Indian public sector banks (PSBs) will require a capital infusion of Rs 1.2 lakh crore by 2020, in view of the heavy losses reflected in their balance sheets in 2015-16, global credit rating agency Moody's Investors Service said in a report on Friday.
 
This is far higher than the additional Rs 45,000 crore capital infusion planned by the government by 2018-19.
 
"After the release of their results for FY2016, our analysis suggests capital requirements of about Rs 1.2 lakh crore for the 11 rated PSBs, far higher than the remaining Rs 45,000 crore included in the government's budget for capital distribution to the banks until 2020," Moody's Investors Service said in its report titled "Weak Financial Performance Highlights Banks' High External Capital Needs".
 
The agency said the capitalisation profile of the PSBs will further deteriorate lest the government provides additional capital support.
 
The government in the budget allocated Rs 25,000 crore for capitalisation of banks during the current fiscal.
 
The government has in total planned a capital infusion of Rs 70,000 crore till 2018-19, out of which it has already spent Rs 25,000 by March 2016. Apart from the Rs 25,000 crore in the current fiscal, it has planned to spend Rs 10,000 crore each in 2017-18 and 2018-19.
 
"If additional capital is required by these banks, we will find the resources for doing so. We stand solidly behind these banks," Finance Minister Arun Jaitley had said in this year's budget speech.
 
The Moody's report said the banks' asset quality is expected to remain under pressure over the next 12 months on account of bad loans to steel and power sector.
 
As a result, the elevated provisioning expenses will continue to constrain profitability and limit internal capital generation, the report said.
 
The PSBs suffered suffered losses of Rs 18,000 crore in 2015-16 because of high non-performing assets (NPAs).
 
Most bank shares are trading below book value, which constrains their ability to use public offerings to raise capital, the report said.
 
The asset quality review mandated by the Reserve Bank of India in the second half of the fiscal year 2015-16, in an effort to clean up the banks' balance sheets, has adversely affected their profitability.
 
Nevertheless, the banks also reported improved capital levels on the back of new RBI rules that have broadened their capital base. The rules, amended in March 2016, allow them to recognise revaluation reserves, deferred tax assets, and foreign currency reserves as common equity tier 1 capital, in turn, resulting in a one-off boost to capital levels.
 
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

Tikam Patni

8 months ago

It is all the after effects of Bank Nationlisation, Loan Melas, crony socialism and crony capitalism , 365 days 24/7 election fever and a defective system of governance called Parliamentary democracy.

REPLY

B. Yerram Raju

In Reply to Tikam Patni 8 months ago

Why blame democracy for the solution for democracy lies in more of it. As long as voter population is with the poor and illiterate the results will be as we have been witnessing. Indian Constitution that has over 120 amendments needs to be re-written and the election pattern has to change for better India.

B. Yerram Raju

In Reply to Tikam Patni 8 months ago

Why blame democracy for the solution for democracy lies in more of it. As long as voter population is with the poor and illiterate the results will be as we have been witnessing. Indian Constitution that has over 120 amendments needs to be re-written and the election pattern has to change for better India.

B. Yerram Raju

8 months ago

If the PSBs recover 20% of the NPAs this much capital is not required and the tax payer is spared. It is not just in the hands of the banks. Once the NPAs turned bad debts, the recovery lies in the Courts that decide the cases at will. The entire NPA cases lodged in the Courts had a recovery rate of 20% during the last three years.
Why blame it on the RBI for ordering the clean up of the balance sheets? Several NPAs under the carpet have come to surface with this exercise. Both the powerful PSBs and corporates are aggrieved over the efforts of the RBI and now the rating agencies also echo the sympathy for the delinquent!!

Ramesh Poapt

8 months ago

'most of the banks trading below their book value' actually, considering NPA, net worth has become negative in some PSU banks. And NPA figures are yet not fully disclosed yet.
Hidden/restructered NPA, if included fully,will make most of the PSU banks networth negative..

Bengal farmers' cooperatives to go digital
The West Bengal government is planning to build a digital database of farmers' cooperative societies to ensure transparency, a minister said here on Thursday.
 
State Food Supplies Minister Jyotipriyo Mullick said work will start in October on the computerised system encompassing details on farmers and the cooperatives.
 
"It will contain all information about the farmer, land owned by farmers, details regarding output and sale, on paddy bought by cooperatives from farmers," Mullick told the media here.
 
On the yield of paddy, he said around 45 lakh tonne production is expected by September.
 
"This is much higher than last year," he added.
 
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

B. Yerram Raju

8 months ago

It is high time that all the farmers' cooperatives are digitised on a mission mode. Leaving to themselves these cooperatives will not be able to accomplish the task. The Government that capitalises the PSBs year after year for refurbishing the performance why it should feel shy of transforming the farmers' cooperatives into economic entities that would alone stabilise the financial inclusion effort? These cooperatives being the seedbeds of political careers of quite a large number of politicians today and who milked them could be averse to correct the mis-governance and mis-management the two evils of the cooperative system in the country. The subject being a state subject as per the Indian Constitution, it is the states that should take to this transformation. West Bengal deserves compliments for ushering in such change.

When Bank of Baroda goofed up on Mallya's loan guarantor
An internal enquiry by Bank of Baroda (BoB) in freezing the accounts of a marginal farmer in Uttar Pradesh for being a 'guarantor' to the Rs 550 crore loan it gave to tycoon Vijay Mallya revealed that the state-run bank had mistaken the farmer to be the real guarantor, who goes by the same name.
 
Investigation by leading news portal 'FirstPost' found how casual the country's second largest public sector bank was in lending and recovering loans doled out to corporates like Mallya's defunct Kingfisher Airlines Ltd.
 
Though the bank tried to cover up its blunder of mistaken identity as a 'technical error', the inquiry found how the bank failed to be commercially prudent while lending to Mallya's airline.
 
As reported by FirstPost on Thursday, the bank on December 15, 2015 froze the twin accounts of Manmohan Singh, a 52-year-old farmer of Khajuria Naviram village in Pilibhit district of Uttar Pradesh, who had taken a Rs 4 lakh crop loan from its rural branch at Nand, for being a 'guarantor' for the Rs 550 crore loan Mallya raised to fund his airline.
 
"We had never ever heard the name Vijay Mallya before that. After running around the bank branch for six months, we had to go to the media for help. Within a week of the news hitting national headlines, our accounts were re-activated (May 26, 2016)," Manmohan's younger son Harvindar, 22, told FirstPost.
 
As the news of a marginal farmer's accounts being frozen for being a 'guarantor' to Mallya's loan spread, the bank admitted to the inadvertent mistake.
 
In the course of investigation, FirstPost found in Manmohan's house a letter from the bank's Nariman Point office to its concerned branches, in which nine persons were listed with their names, account numbers, location of accounts and balance therein as directors/guarantors of the loan.
 
"The first four were Vijay Mallya and three of his relatives. 'Manmohan' figured fifth on the list. While all the Mallyas have their accounts in Mumbai, Bengaluru or Vadodara, Manmohan is the only one off the grid," the portal reported.
 
When asked how a small farmer from a Pilibhit village could be a 'guarantor' for Mallya, one of the bank's officers said that action was taken against Manmohan not as a 'guarantor' but as a director' (of Kingfisher Airlines).
 
When the national media reported that Manmohan became 'guarantor' due to a technical glitch, the bank clarified that Manmohan was wrongly proceeded against, but did not dispel the public perception that he was actually penalised for being a 'director' on the Kingfisher board.
 
A look at the Kingfisher board of directors list, filed with the Registrar of Companies (RoC), revealed that among the seven directors, including Mallya, was 'Manmohan Singh Kapur', a well-known name in banking circles, for his stint as chairman of the state-run Vijaya Bank from August 2002 to March 2006. He is also on the boards of other firms and lives in Mumbai.
 
To a questionnaire by FirstPost, the bank's corporate office admitted that the technical error occurred because of the "similarity of names".
 
Though Manmohan's 'directorship' on the Kingfisher board ended in over five months, freezing farmer Manmohan's accounts left many questions unanswered.
 
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

Param

8 months ago

kudos to the farmer for being aware of the power of media. one wonders the fate of those who do not know how to get justice outside of the judicial system...

B. Yerram Raju

8 months ago

When King Fisher was granted loan against the collateral of brand, who was the Chairman of the Bank? Who were the Director nominated by the government and the RBI? Why no action is initiated against these three in spite of proven loss due to bad credit origination? Why the consortium members at that material time endorsed this brand as collateral? How many such loans are there that were granted crores of rupees based on the brand? Why should not the RBI reveal these details so that the credit risk can be tackled more effectively by the present generation of boards and managements?

Dr Anantha K Ramdas

8 months ago

During the time when Vijay Mallya received financial support from Bank of Baroda, I wonder who was the Managing Director of this Bank? On what basis were the loans
and credits given? It would be interesting to find more details on this score. Simply put, who goofed in Bank of Baroda?

Gopalakrishnan T V

8 months ago

It is unbelievable that officials do not apply their mind when letters are issued , do not think on the subject matter and do not have any sense of the sensitivity of the subject. Vijay Mallya and his banks' dealings have been in the news for quite some time and officials involved in dealing with such sensational cases are completely ignorant of all these when follow up actions are initiated. From my experience, the banks' officials at several levels have no knowledge of both inside and outside developments in banking and they have no reading habit. They some how manage to do their daily routine work mechanically without any understanding of what they do . The technology has also become handy .This is perhaps one of the major reasons why the banks fail to transmit the monetary policy as except perhaps the top management and some senior level officials many do not understand the objectives of monetary policy , the role of credit in an economy, the implications of interest rates, etc. With the invasion of technology, the banking has undergone a sea change but the absence of human intervention essential to run banks efficiently and effectively has been creating catastrophe and needs to be fixed. Things were better when the banks officials used to have exposure to Central Bank training in Bankers Training College, Mumbai. Now the ground reality is that except the top management and some officials who take some personal interest to keep themselves up to date about the developments of economy , banking and finance , others have no knowledge even of the Presence of Reserve Bank of India, the advantages of having an effective credit management for the banks and the economy etc. Unfortunately ,RBI has also ignored the need to enhance knowledge, skill and expertise among bank officials. The stress was on the Risk management without understanding and recognising the major risk on banks through human resources. The greatest risk bank face these days is not on account of stressed assets but on account of human resources . Knowledge of banking is virtually absent among many a bank officials and unless and until this is adequately addressed, more such goofs can be seen in banks . But making the tax payers and depositors to foot the bill and make up for all the losses banks incur is too much and this cannot go on for ever. Many such goofs are hidden and the balance sheets are fudged and covered up.

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