Companies & Sectors
Public-sector banks: No place to hide amid increasing stress
Sharp fall in interest rates or provision of transfer of stress loans to new entity or aggressive recoveries from write-off accounts remains the only hope as of now, says a research report
 
Public sector banks (PSBs) reported one of their worst quarters in the last decade, with no near-term visibility in operational improvement. For the first time, PSBs are likely to report negative core margins for FY2016. Taking cues from near-term weak economic outlook, their valuations have corrected sharply. Aggressive write-offs helped by sharp fall in interest rates and provision of transfer of stress loans to new entity or fund or aggressive recoveries from write-off accounts remains the only hope for PSBs as of now, says a report from Motilal Oswal Securities Ltd.
 
"Significant pile-up of stress loans on the balance sheet would keep credit cost elevated (for PSBs), with limited support from core pre-provision operating profit (PPoP) or higher non-interest bearing loans on balance sheet now. The Reserve Bank of India (RBI) is also likely to come out with the guideline for increasing provisions on 5:25 and special drawing rights (SDR) accounts, which would further intensify pressure on credit cost," it said.
 
 
Motilal Oswal Securities said its calculations suggest that the RBI’s asset quality review (AQR) covered, including all three lists, is about 3.5% of the system stressed loans. Contribution from restructured loans was significantly higher at around 2.2% (0.9% relapse and 1.3% loans requiring enhanced provisioning). New stress addition at the system level from non-stress recognized standard loans was lower at 1.3% of loans. RBI AQR contributed about 50% of the slippages for the quarter. Aggressive stress recognition outside the RBI AQR surprised us. Banks have utilised the opportunity to clean up aggressively and this is likely to continue in fourth quarter of FY16 as well, it added.
 
With RBI focussing on balance sheet health, the credit cost is likely to remain elevated, the report said. Over 50% of the non-performing asset (NPA) recognition in the RBI AQR happened via relapse from restructured loan (RL), wherein the account status classification into NPA happened from date of restructuring. Hence, most loans in this category moved to over two years NPA classification (D1/D2), leading to higher NPA provisioning. 
 
 
"Total provisioning requirements on RBI AQR, including issue, rule, application, and conclusion (IRAC) norms for ageing of NPA portfolio, would be Rs40,000-45,000 crore with over 90% expected to be with PSBs, of which half would hit profit and loss (P&L) in FY16 and the rest in FY17. Significant pile-up of stress loans on the balance sheet would keep credit cost elevated. The RBI is also likely to come out with the guideline for increasing provisions on 5:25 and SDR accounts, which would further intensify pressure on credit cost," Motilal Oswal Securities said in the report.
 
Sharp rise in risk-weighted assets (RWA), significant downgrade of loans, profit before tax (PBT) losses or negligible profits and build-up of deferred tax asset (DTA) as banks used this to report PAT although DTA is deducted while calculating common equity Tier I (CET1) capital, led to sharp drop in capitalization in 3Q FY16. Most PSBs are at 7-8.5% now. With the guidance of half of the stress recognition related to RBI AQR to be taken in 4Q and dividend payout (expected in few cases though), stress on capitalization is expected to continue. 
 
Given the combination of a weak outlook for internal accruals for mid-sized PSBs, the report says need for fresh capital infusion assumes even greater significance. "In this context," it said, "the inability of such mid-sized PSBs to access capital markets, especially at such depressed valuations, implies that all of their Tier-1 capital requirements will need to be fulfilled by the government in the form of CET1."
 
 
"Inability of small PSBs and weak large PSBs to raise additional tier 1 (AT1) capital may aggravate the need for equity capital requirement. RBI relaxations for recognition of capital in the form of revaluation of assets and other strategic investments would, however, provide some relief. State Bank of India around 9.4% consolidated, Bank of Baroda, at around 9% and Indian Bank at over 11% are well placed on capitalisation in our coverage universe," the report concluded.

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COMMENTS

Gopalakrishnan T V

1 year ago

The problems in PSBs are man made. The banks, their board of Directors, the regulators, the Government , the auditors and the accountants etc have their contributions to amass wealth by the borrowers at the cost of depositors, good borrowers and the tax payers. Now to take the banks out of the rut , again all are trying to tax the stake holders of the economy. The wrong doings continue unabated and the problem is not fixed in a logical manner.I would like to quote here what I have received from a Senior banker after reading about the staggering NPAs in PSBs and their helplessness to save from the situation.Ayn Rand wrote in "Atlas Shrugged" in 1957 'When you see that trading is done ,not by consent, but by compulsion- when you see that in order to produce, you need to obtain permission from men who produce nothing,- when you see that money is flowing to those who deal , not in goods but in favours,- when you see that men get richer by graft and pull than by work and your laws do not protect you against them, but protect them against you, - when you see corruption being rewarded and honesty becoming a self sacrifice- you may know that your society is doomed.' This is the situation now all are facing and the solution is not that easy to come by.

B. Yerram Raju

1 year ago


Yes; we need to support banks in this hour of their distress. But at whose cost is the question. There is no point in opening another outfit for transferring the bad loans and that too again in the public sector.
Second, PSBs have now come into the bad books of their customers who bear their errands with a grin on their forehead. Banks should seriously engage with their clients on a win-win platform. They have lost the culture of acknowledging the letters of their customers responsibly and addressing their grievances in good time.
Their embrace with technology is not faulted but the way the staff is cultured into understanding the risk management practices needs serious look and timely correction.
Rajan may be wrong on Dosanomics but not with pronouncing the rot in them.
He is right when he said this is not the right time for mergers and acquisitions. Let the balance sheets of banks be cleaned up first.
RBI cannot put in capital and be a party to regulatory arbitrage. GoI as owner and as a party to the perpetration of largest corporate default with impunity has to supplement the capital that is eroded. Nevertheless it cannot be without conditionalities: The GoI should have an MOU with such banks on the Board responsibilities and Board accountability for the road map of correction.

Dayananda Kamath k

1 year ago

The timing of RBI action to clean balance sheets instead of cleaning people responsible for it from banking appears to be his payback to his appointer

Suketu Shah

1 year ago

I have never understood why 30 oddnationalised banks were required.They compete against each other.There shd be at the max 6.

REPLY

MG Warrier

In Reply to Suketu Shah 1 year ago

Restructuring was recommended as early as in 1991 by Narasimham Committee. If action had been initiated then things would have been different for India's banking system in the 21st Century.

MG Warrier

1 year ago

We should be prepared for several such doom-sayers, now that there is a conscious effort from RBI and GOI to bring some method in the madness of working of the banks in India. There is no point in arguing now that the overhaul and professionalization of public sector banks (PSBs) should have happened along with bank nationalisation and there should have been regular ‘health checks’ and ongoing corrections. Just as a ‘health check up’ does not change the condition of a person, the re-classification of more loans as NPAs does not alter a bank’s ability to change. The need of the hour is to support banks to recover their dues from borrowers who have the capacity to repay, infuse professionalism in the banks’ working and restore the faith in the banking system. As private sector banks have failed to perform their responsibilities and are not too willing to grow (their share in banking business is less than 30 per cent), privatising the existing public sector banks is no solution. Perhaps, GOI should consider nationalising entire banking business and restructuring the banks to serve public interest.

REPLY

Sudheer M

In Reply to MG Warrier 1 year ago

Nationalisation of all banks is not a solution. Inculcating professionalism and strict checks by RBI is the only way out. Root causes of NPA should be published and persons accountable for this should be punished.

Sudheer M

In Reply to MG Warrier 1 year ago

Nationalisation of all banks is not a solution. Inculcating professionalism and strict checks by RBI is the only way out. Root causes of NPA should be published and persons accountable for this should be punished.

Prakash Bhate

In Reply to MG Warrier 1 year ago

Nationalising the entire banking business would be a disaster. If nationalisation was a panacea for all the nation's ills we would have been in Ramrajya by now. "Supporting banks to recover their dues from borrowers who have the capacity to repay" is certainly doable, but then who will bell the cat?

US engineers achieve passive Wi-Fi at 10,000 times less power
Washington : In an effort to curb battery drainage as you use Wi-Fi to play games or watch movies, a team of engineers including Indian-origin researchers has demonstrated that it is possible to generate Wi-Fi transmissions using 10,000 times less power than conventional methods.
 
The new "Passive Wi-Fi" system also consumes 1,000 times less power than existing energy-efficient wireless communication platforms, such as Bluetooth Low Energy and Zigbee, said computer scientists and electrical engineers from University of Washington.
 
"We wanted to see if we could achieve Wi-Fi transmissions using almost no power at all. That is basically what 'Passive Wi-Fi' delivers. We can get Wi-Fi for 10,000 times less power than the best thing that's out there,” said study co-author Shyam Gollakota, assistant professor of computer science and engineering.
 
“Passive Wi-Fi” can for the first time transmit Wi-Fi signals at bit rates of up to 11 megabits per second that can be decoded on any of the billions of devices with Wi-Fi connectivity.
 
These speeds are lower than the maximum Wi-Fi speeds but 11 times higher than Bluetooth.
 
Apart from saving battery life, wireless communication that uses almost no power will help enable an “Internet of Things” reality where household devices and wearable sensors can communicate using Wi-Fi without worrying about power.
 
“All the networking, heavy-lifting and power-consuming pieces are done by the one plugged-in device. The passive devices are only reflecting to generate the Wi-Fi packets, which is a really energy-efficient way to communicate,” explained co-author Vamsi Talla, electrical engineering doctoral student.
 
To achieve such low-power Wi-Fi transmissions, the team essentially decoupled the digital and analog operations involved in radio transmissions.
 
The Passive Wi-Fi architecture assigns the analog, power-intensive functions - like producing a signal at a specific frequency -- to a single device in the network that is plugged into the wall.
 
An array of sensors produces Wi-Fi packets of information using very little power by simply reflecting and absorbing that signal using a digital switch.
 
In real-world conditions on the university campus, the team found the passive Wi-Fi sensors and a smartphone can communicate even at distances of 100 feet between them.
 
Because the sensors are creating actual Wi-Fi packets, they can communicate with any Wi-Fi enabled device right out of the box.
 
“Our sensors can talk to any router, smartphone, tablet or other electronic device with a Wi-Fi chipset," noted electrical engineering doctoral student Bryce Kellogg.
 
The technology can enable entirely new types of communication that haven't been possible because energy demands have outstripped available power supplies. It could also simplify our data-intensive worlds.
 
“Now that we can achieve Wi-Fi for tens of microwatts of power and can do much better than both Bluetooth and ZigBee, you could now imagine using Wi-Fi for everything,” said Joshua Smith, associate professor of computer science and engineering.
 
The technology has also been named one of the 10 breakthrough technologies of 2016 by the journal MIT Technology Review.
 
A paper describing those results will be presented in March at the 13th USENIX Symposium on Networked Systems Design and Implementation in California.
 
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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Smartphone ads can put users' personal data at risk: Study
New York : In-app advertising can put personal information of millions of smartphone users at risk of being leaked between ad networks and mobile app developers, says a new study.
 
The researchers from Georgia Institute of Technology examined more than 200 participants who used a custom-built app for Android-based smartphones to ascertain how much a mobile app creator may uncover about users because of the personalised ads served to them.
 
It was found that 73 percent of ad impressions for 92 percent of users were correctly aligned with their demographic profiles. 
 
The study also found that based on ads shown, a mobile app developer could learn a user's gender with 75 percent accuracy, parental status with 66 percent accuracy and age group with 54 percent accuracy. 
 
Income, political affiliation and marital status could also be predicted with higher accuracy than random guesses, said the findings presented at the Network and Distributed System Security Symposium-2016 in San Diego, California, recently.
 
The team under the direction of professor Wenke Lee reviewed the accuracy of personalised ads that were served to test subjects from the Google AdNetwork based upon their personal interests and demographic profiles.
 
"Free smartphone apps are not really free," said Wei Meng, lead researcher who is studying computer science. 
 
"Apps -- especially malicious apps -- can be used to collect potentially sensitive information about someone simply by hosting ads in the app and observing what is received by a user. Mobile, personalised in-app ads absolutely present a new privacy threat," 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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