New Delhi, December 1:
With bad debts rising and profit margins depleting, the Centre will use crowd sourcing to help improve the performance of public sector banks (PSBs). There are total of 27 public sector banks, including five associate banks of State Bank of India.
“Suggestions from the general public as to how to improve performance of public sector banks on various parameters are invited by Department of Financial Services, Ministry of Finance, Government of India,” a Government statement said. Suggestions can be given on www.mygov.in.
In order to assist the public in suggestion-making, the Centre has uploaded comparative data on various parameters of public and private banks. “It can be observed that there is a huge scope for improvement of public sector banks in all parameters, especially efficiency parameters,” the Government said. The data is for 2013-14. However, much of the updated data (up to September 30 in the current fiscal year) on the same subject was given to the Lok Sabha in response to a question on November 28. Minister of State for Finance Jayant Sinha said it had been observed from the data that public sector banks lagged private ones on asset quality and profitability parameters.
The issue of bad debts (non-performing assets or NPAs) had figured prominently during a review meeting taken by Finance Minister Arun Jaitley last month. After the meeting, a senior Finance Ministry official had termed NPAs as a ‘legacy’ issue and claimed that things would change now.
“It has happened because of a number of reasons. For two-three years, no good projects were coming. So, when total asset size does not increase, naturally your percentage of NPA will go up. These are all legacy issues. Now when the economy looks up, when new portfolio is generated by banks, these percentages will start coming down,” he said.
The Centre has already initiated some measures, such as changing the appointment process of chairman and managing director and executive director in public sector banks. It is also planning to separate the post of chairman and managing director.
At the same time, the Finance Ministry also told the Lok Sabha that it is considering reducing its stake in public sector banks to 52 per cent. Currently, regulation prescribes a minimum of 51 per cent government shareholding in public sector banks, however informally it has been kept at 58 per cent.
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Jaitley said private banks are circumspect whom to give loan and whom not to give while PSU banks have social commitment and cater to a large segment of population, particularly in rural areas.
Jaitley said private banks are circumspect whom to give loan and whom not to give while PSU banks have social commitment and cater to a large segment of population, particularly in rural areas.
"We cannot compare PSU banks with private banks. Their nature and functions are different," he said.
Jaitley said RBI guidelines on restructuring of advances by banks are divided into four categories - (i) guidelines on restructuring of advances extended to industrial units, (ii) guidelines on restructuring of advances extended to industrial units under corporate debt restructuring mechanism.
Time is running out for PSU banks
If the stressed asset of banks crosses the 20% mark, RBI might limit the loan-sanctioning powers of banks with stressed asset ratios near 20%
Worst is yet to come for public sector banks if one goes by recent reports and RBI governor’s statement. A Business Standard report says RBI is planning to limit loan-sanctioning powers of banks with stressed asset ratios near 20%.
The 20% number might look that most banks will be spared, but that depends on the definition of stressed assets. Currently gross non-performing assets (GNPA) and restructured advances as a percentage of advances are considered for stressed asset calculations. But if assets that were written off are added to the list, few banks that are bordering the 20% mark will become eligible for stricter norms.
HSBC, in a report on the banking sector says India’s financial system has been made vulnerable by the deterioration of the loan books of PSU banks with stress assets being at the worst level since 2002.
According to HSBC, the key reason for this is that the level of corporate leverage is higher in India than most emerging markets. RBI governor Dr Raghuram Rajan in a talk in Anand, Gujarat said that the reason so many projects are in trouble today is because they were structured with too little equity, sometimes borrowed by the promoter from elsewhere.
It is because promoters have too little skin on the table that willful defaults or non-payments of loans have increased. Banks, especially PSU banks had to bear the cost as they, at times have been pressurized to extend loan on account of political pressure.
As of now public sector banks are running out of time to improve their balance sheet on account of various reasons. First, with the economy, especially the manufacturing economy, refusing to budge, most of the corporate continue to bear the pain and are not capable to service their debt.
Second, RBI wants to maintain its stringent policy as far as restructuring and forbearance is concerned. Reports suggests that the central bank will stick to its date of restructuring and forbearance.
The restructuring window is expected to close by March 2015. Credit Suisse in a report on Indian Financial Sector has pointed out that restructuring referrals have dropped after RBI’s guidelines on the matter. The research firm does not expect problem asset addition to come down for the second half of current fiscal on account of few large stressed corporate are likely to be restructured before the restructuring window closes on Mar-15.
Governor Rajan has strong words for those banks and corporates who seem to be teaming up on the issue of forbearance. He made the point in his talk in Anand that a restructured loan is as bad as a non-performing loan. Mutilating Shakespeare he said that an NPA by any other name smells as bad.
Rajan has given hints that he is unlikely to extend the April 2015 deadline on treatment of bad loans in the bank’s books. Bankers have been demanding an extension of the forbearance for a year. The central bank had relaxed provisioning norms on restructured loans by allowing banks to provide for only 5% for standard restructured advances as compared to 15% for sub-standard assets.
What this means is that provision of those banks having restructured assets in their books will increase substantially post April 2015. Profits will thus take a hit if that happens.
What is worst is if the stressed asset of banks crosses the 20% mark, RBI might limit the loan-sanctioning powers of banks with stressed asset ratios near 20%. This restricts the banks capacity to grow its asset book and proportionately reduce their non-performing asset.
For public sector banks the clock is ticking away and the only way out of the current mess is a growth in the economy, which is stubbornly unwilling to move.
The 20% number might look that most banks will be spared, but that depends on the definition of stressed assets. Currently gross non-performing assets (GNPA) and restructured advances as a percentage of advances are considered for stressed asset calculations. But if assets that were written off are added to the list, few banks that are bordering the 20% mark will become eligible for stricter norms.
HSBC, in a report on the banking sector says India’s financial system has been made vulnerable by the deterioration of the loan books of PSU banks with stress assets being at the worst level since 2002.
According to HSBC, the key reason for this is that the level of corporate leverage is higher in India than most emerging markets. RBI governor Dr Raghuram Rajan in a talk in Anand, Gujarat said that the reason so many projects are in trouble today is because they were structured with too little equity, sometimes borrowed by the promoter from elsewhere.
It is because promoters have too little skin on the table that willful defaults or non-payments of loans have increased. Banks, especially PSU banks had to bear the cost as they, at times have been pressurized to extend loan on account of political pressure.
As of now public sector banks are running out of time to improve their balance sheet on account of various reasons. First, with the economy, especially the manufacturing economy, refusing to budge, most of the corporate continue to bear the pain and are not capable to service their debt.
Second, RBI wants to maintain its stringent policy as far as restructuring and forbearance is concerned. Reports suggests that the central bank will stick to its date of restructuring and forbearance.
The restructuring window is expected to close by March 2015. Credit Suisse in a report on Indian Financial Sector has pointed out that restructuring referrals have dropped after RBI’s guidelines on the matter. The research firm does not expect problem asset addition to come down for the second half of current fiscal on account of few large stressed corporate are likely to be restructured before the restructuring window closes on Mar-15.
Governor Rajan has strong words for those banks and corporates who seem to be teaming up on the issue of forbearance. He made the point in his talk in Anand that a restructured loan is as bad as a non-performing loan. Mutilating Shakespeare he said that an NPA by any other name smells as bad.
Rajan has given hints that he is unlikely to extend the April 2015 deadline on treatment of bad loans in the bank’s books. Bankers have been demanding an extension of the forbearance for a year. The central bank had relaxed provisioning norms on restructured loans by allowing banks to provide for only 5% for standard restructured advances as compared to 15% for sub-standard assets.
What this means is that provision of those banks having restructured assets in their books will increase substantially post April 2015. Profits will thus take a hit if that happens.
What is worst is if the stressed asset of banks crosses the 20% mark, RBI might limit the loan-sanctioning powers of banks with stressed asset ratios near 20%. This restricts the banks capacity to grow its asset book and proportionately reduce their non-performing asset.
For public sector banks the clock is ticking away and the only way out of the current mess is a growth in the economy, which is stubbornly unwilling to move.
Wage discord: bank staff to begin relay strike today _Hindu Business Line
Starting December 2, banking services across the country will be hit over the next four days as about 10 lakh public sector bank employees will participate in a relay strike over the lingering wage-settlement issue.
This time the strike will be held in four phases with the unions adopting a relay method to go on strike. The unions will strike work for one day each in four different regions of the country.
The employees in southern zone will strike work on Tuesday, those in northern zone on Wednesday, eastern zon on Thursday and western zone on Friday.
Banking services such as cheque clearing and issue of demand draft are likely to be affected during these days in the respective locations.
The Indian Banks’ Association (IBA), representing bank managements, said in a statement that wage negotiations have reached a stalemate. The IBA is unwilling to go beyond the 11 per cent wage hike it has offered to its employees, citing “difficult” financial conditions of the banks.
Bank unions contend that this increase is too little. Their latest demand is for a 23 per cent increase in salary and allowances, down from 25 per cent demanded till last month.
The last full-day strike happened last month on November 12, when almost all employeesstayed away from work.
‘Unreasonable, unwarranted’
While both sides blamed each other for stonewalling negotiations, MV Tanksale, Chief Executive of the IBA, said in a statement, “The relay zonal strike programme being launched by unions/associations from December 2, 2014, is unreasonable, unethical and unwarranted.”
The bank managements have often cited rising non-performing assets (NPAs) of the banking system for their inability to pay higher wages. Even in the previous wage-settlement round, banks had given a 16.5 per cent hike.
According to Vishwas Utagi, Vice-President, All-India Bank Employees Association, “Who is responsible for the NPA? Bring those responsible to book. Why should regular bank employees suffer?”
Public sector banks follow a five-year wage-settlement process, at the end of which wages are renegotiated.
The last such bi-partite settlement expired in October 2012 and the new wages need to be paid effectively from November 1, 2012. However, due to prolonged discussions, there has been no substantial headway on this.
Other demands of the bank employees include a five-day working week, regulated working hours, recruitment of additional staff and pension scheme on the lines offered to Central Government employees
Curbs on free ATM use are a lever to push plastic money
Reducing free ATM transactions is less about curbing ATM usage and more about spurring debit and credit card use
Banks want account holders to visit automated teller machines (ATMs) less, and the central bank concurs. But their primary reason to press for this change appears to be different from what they have stated.
With effect from 1 November, the Reserve Bank of India (RBI) has reduced the number of free transactions a consumer can make in a month in ATMs located in metros: five in ATMs of own bank (previously unlimited) and three in those of other banks (previously five). Announcing this change, an RBI circular dated 14 August cited representation by banks about the rising cost of ATM deployment and maintenance and inter-bank payments.
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