Money & Banking
'Tough times ahead for public sector banks'
Government-owned banks command a market share of around 70 percent
 
Government-owned mortgage lenders are suffering slippages in their non-performing assets (NPA) and would continue to lose business to private sector players till the Indian economy picks up, say experts.
 
"It is seen from the results declared by the government-owned banks they are continuing to suffer slippages in their NPA levels. Many banks are posting profits due to income from treasury operations and others," P.Karthikeyan, research analyst, Cholamandalam Investment and Finance Company Ltd, told IANS.
 
"The credit growth for banks remain muted. The NPA slippages have peaked out and should start coming down once the economy recovers and interest rates go down," he added.
 
According to Karthikeyan, the government-owned banks would lose market share to private banks in the meantime.
 
"Their profits would improve only from lower NPA when economy improves rather than increased business volumes. It would be difficult for government banks to regain from private banks the lost market share," he said.
 
Government-owned banks command a market share of around 70 percent.
 
Global credit rating agency Moody's Investors Service also expressed a similar view.
 
According to Moody's, the improvement in the credit profiles of Indian public sector banks will be achieved only in the medium term, given their high levels of impaired loans and weak capital positions.
 
"The improvement in the asset quality of Indian public sector banks for the fiscal year ended March 31, 2015, was marginal and much weaker than we had expected at the start of the same year," said Srikanth Vadlamani, a vice president and senior credit officer at Moody's.
 
Vadlamani was speaking at the first Moody's and ICRA Annual Credit Conference in Mumbai on Wednesday.
 
"A longer time-frame is needed for the credit profiles of public sector banks to improve, because their asset quality is tied to the slow, multi-year recovery of corporate balance sheets, and the lagging recognition of associated credit costs," he added.
 
According to Vadlamani, public sector banks exhibit significant capital requirements over the next few years, but their internal capital generation capacity is weak, while access to equity markets has been difficult.
 
The banks are therefore highly dependent on the Indian government (Baa3 positive) for fresh capital.
 
Experts however say that government will not be infusing additional funds into banks as in the past.
 
The central government has said capital infusions into its banks would happen only to relatively profitable banks.
 
"This may result in some weak banks getting merged with stronger one," Karthikeyan said.
 
"Given the low capital levels of public sector banks as a whole, the government's selective approach to capital infusions will put further negative pressure on the credit profiles of weaker banks," Vadlamani said.
 
On the modifications to India's framework for corporate bankruptcy, Vadlamani said the Indian budget's proposed introduction of a new bankruptcy law is credit positive if implemented as recommended, because the current weak framework is a major impediment in the banks' enforcement of creditor rights.
 
According to him, poor implementation of such bankruptcy regimes in the past was due to institutional capacity issues, and unless such issues are addressed, the weak mechanisms for the resolution of stressed corporates will remain a structural weakness within the Indian banking system.

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HC notice to Delhi government on non-appointment of Lokayukta
The Delhi High Court on Friday issued notice to the AAP government in Delhi on a plea seeking directions to fill up the post of lokayukta, which has been lying vacant since November 2013.
 
Justice Rajiv Shakdher also issued notice to the Centre, lieutenant governor of Delhi and chief minister and sought their respective responses by July 24.
 
Hearing the plea filed by Sat Prakash Rana, a former legislator, the court asked government to fill the post "as soon as possible".
 
"The quicker you (Delhi government) do, the better it would be," the court said.
 
The Delhi government counsel told the court that to fill the post of lokayukta, the Centre's nod was needed.
 
The petitioner told the court that though the Aam Aadmi Party (AAP) government assumed charge on February 14, it has not yet taken any steps for the appointment of the lokayukta and uplokayukta here, even after a lapse of 18 months.
 
The plea sought "immediate appointment" of lokayukta saying the non-appointment is "adding to the pendency of cases and, more importantly, has blocked a legal right of the residents of Delhi".
 
On September 26 last year, the Delhi High Court, while hearing a different PIL on the same issue, had asked the lieutenant governor to initiate the process to fill the post of lokayukta saying the statutory provisions make it mandatory on the part of the state to ensure that the post is filled "without any delay".

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COMMENTS

G.KRISHNASWAMY

2 years ago

Not only in Delhi but also in other states also. Why the SC or HC not directed or reminded or pass a stitch on other states too. by saying the statutory provisions make it mandatory on the part of the state to ensure that the post is filled "without any delay" . We expect other states also shall introduce immediately without any delay as directed by H.C.

Looking forward to the establishment of the BRICS bank: Kamath
Days after being appointed as the head of the up-coming BRICS (Brazil, Russia, India, China and South Africa) New Development Bank, banker K.V. Kamath on Friday said he looked forward to the establishment of the financial institution and commencement of its operations.
 
"I look forward to the establishment of the bank and commencement of its operation for the service of the BRICS nations," said Kamath, 67, who is the non-executive chairman of ICICI Bank as well as the non-executive chairperson of the Indian IT giant, Infosys.
 
Kamath said in a statement that he was honoured and humbled by the government of India's decision to nominate him as the first president of the new development bank for the BRICS nation. 
 
Kamath will have a five-year term at the BRICS bank, which is likely to be operationalised within one year.
 
Kamath is expected to take over as the first president of the $100 billion BRICS Bank within a span of 10 days post his resignation from various board positions which he currently holds.
 
Previously, he served as ICICI Bank's managing director and chief executive from May 1996 until his retirement from executive responsibilities on April 30, 2009.
 
The BRICS bank is promoted by the five major emerging global economies (Brazil, Russia, India, China and South Africa) to cater to the financial needs of these countries for developmental purposes.
 
With an authorized capital of $100 billion, it has been christened New Development Bank (NDB) and will start its operations with an initial capital of $50 billion with each of the five member nations contributing $10 billion.
 
Leaders from the BRICS countries agreed upon the NDB at a meeting last year. It was agreed that the new bank will be set up in the Asian financial powerhouse, Shanghai with India being given the right to nominate its first president.
 
The BRICS nations together account for nearly $16 trillion in gross domestic product and house 40 percent of the world population.

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