Things (Banks) are falling apart,
centre cannot hold. The December,15 quarter banks’ results are out and picture
has turned gloomy. Public Sector Banks are generally in red, a bold red. Bank
of Baroda (3342 cr), Bank of India (1506 cr), UCO Bank (1497 cr), Indian
Overseas bank (1425 cr), Punjab National Bank (857 cr pre tax loss), Central
Bank of India (837 cr), Dena Bank (663 cr), Oriental Bank of Commerce
(425 cr), Allahabad Bank (486 cr), , Corporation Bank (383 cr), Syndicate Bank
(120 cr)- all December, 15 quarter loses. State Bank of India's profits
fell 62% to Rs 1115 cr. Banks which were in profit a quarter before, have
started bleeding.
As per Bloomberg data, the market
capitalization of all 20 nationalized banks is less than Kotak Mahendra
Bank. Whereas, market cap of 20 nationalized banks plus SBI is
approximately equal to the market cap of HDFC Bank. What can be eked out
whether state owned banks do not have the caliber or the zeal or the will to
run the banks.
It is not that position has
deteriorated suddenly. In the competitive world, the real picture remains
hidden from all the stake holders: depositors, investors and the regulator.
United Bank of India, in 2014, boldly tried to be transparent and it’s the then
CMD had to lose her job. Now when other PSU banks are finding it difficult to
show faces, United Bank is giggling with profits of Rs 17 crore in its coffers.
Of course, the slowdown is world over
and banking stocks are getting a beat but not up to the level being witnessed
recently with PSU Banks in India. The reasons may be varied. Reserve Bank has
advised banks to clean up their balance sheets by March, 2017 and to proceed in
this direction, RBI has embarked upon Asset Quality Review of the banks. Till
now, the units which were not performing well due to slow down in the economy
and/or other factors, their accounts were still being managed, sometimes not
with the hope that they will turn around but to save them being declared
non-performing. Once declared NPA, bank ceases to earn income over the account
but also have to make higher provisions. The balance sheets of banks, by
and large, did not project the true picture. Now Reserve Bank says before we
switch over to BASEL III, banks balance sheet is required to be clean and fully
provisioned.
RBI Governor Raghuram Rajan,while explaining at the CII Conference as to
why the pain in banking sector now is good, said, “For the loans that are of
concern, the banks are attempting to regularize the loans that can be put back
on track, and are classifying those that cannot for deeper surgery - and taking
provisions in according with the degree of stress in the loans. They will also
make provisions for loans that have weaknesses. Our intent is to have clean and
fully provisioned bank balance sheets by March 2017”.
Recovery efforts under the DRT and
SARFAESI proving to be ineffective, RBI in recent past released guidelines
for additional steps to address the issues of NPAs;-
1.
Early Recognition of Financial Distress, Prompt Steps
for Resolution and Fair Recovery for Lenders: Framework for Revitalising
Distress Assets in the Economy.
2.
Creation of a Central Repository of Information on
Large Credits (CRILC).
3.
Formation of Joint Lenders' Forum (JLF), Corrective
Action Plan (CAP), and sale of assets.
4.
Flexible Structuring of long Term Project Loans to
Infrastructure and Core Industries.
5.
Willful Default/ Non-Cooperative Borrowers: to
practically close the windows for credit facilities from financial institutions
to this class of borrowers.
6.
Strategic Debt Restructuring: to bring change
in the management in case of operational / managerial inefficiency of existing
promoters.
7.
Government is also coming up with the amended
Bankruptcy Law.
All said and done, the mute question
is why the private banks are comfortable, though feeling heat of the
surroundings, but the state owned banks are bleeding. Whether time has come to
assimilate the age old adage that "government is to govern and not to do
business". P. J. Nayak Committee, to Review Governance of Boards of Banks
in India, suggested;-
1.
Scrapping and removal of Bank Nationalization Acts,
SBI Act and SBI (Subsidiary Banks) - because these acts require government to
keep its shareholding above 50%.
2.
Government should transfer its shares of PSBs to
Bank Investment Company (BIC), with functional autonomy.
3.
Conversion of PSBs into companies as per Companies
Act.
4.
Appointment of CEOs, Directors and top executives
of PSBs would be the responsibility of the Bank Boards Bureau.
The government has accepted almost
all major recommendations of the Committee except bringing down government
stake below 51%. Seeing the present scenario of the health of public sector
banks, government may review its decision and accept the recommendations of
P.J.Nayak Committee in toto.
However, we should also understand
that present position of banks is due to higher provisioning on account of
likely loses. If the loses do not materialise, banks will write back provisions
to profits. As such, after the balance sheets of banks are cleaned and fully
provisioned, we may expect PSU banks on winning edge once the economy starts
turning around. Whatever recovery and sale proceeds of securities of these non
performing assets are received, these will straight away go into the profits of
these banks. With private universal banks, small banks and payment banks in the
fray, PSU banks should be there to keep balance in the mixed Indian economy. Of
course, PSU banks will learn from their past mistakes and improve upon. With
healthy competition, a sound financial system will emerge and India will
stand on firm footing.
Tilak Gulati, Assistant General
Manager, UCO Bank.
Twitter: @tilakgulati
