The Narendra Modi government has so far remained somewhat non-committal when it comes to the issue of capitalisation of state-run banks, which are reeling under heavy non-performing assets (NPA).
The steps taken so far, such as offering capital only to those banks that are deemed efficient, are largely cosmetic since these entities have lacked autonomy and are often micromanaged institutions for several years now.
Whether the budget will offer a roadmap for bank capitalisation, is something keenly watched by economists and financial sector watchers, who aren’t quite impressed with India’s China-matching growth rate as depicted in the re-based GDP numbers.
The reason: unless the state-run banks, which control about 70 percent of the banking industry, are refuelled with adequate funds, it is difficult to take the economy back on track by expanding the much-need credit support to industries and individuals.
But, the government banks, which are neck-deep in bad debt, require substantial amount of capital to revitalise their operations but the capital support from the government has been weak so far.
Of the committed Rs 11,200 crore capital in state-run banks for 2014-15, the government has so far infused only about Rs 6,990 crore in a handful of large banks.
Funding the India-story
With the ability of a fiscally constrained government limited to push growth by way of public spending, the onus of breathing back life back into the economy largely rests with banks, especially state-run banks.
A significant portion of corporations remain heavily dependent on bad loans even though some top-rated companies have tapped the bond market. But that’s not the case with majority.
One of the reasons for the slow-credit offtake seen in the recent years is the capital shortage of state-run banks. In the last two years, in particular, loan growth has been anemic.
On the other hand, most of the companies had seen an escalation in their project costs in the face of high interest rates and demand slowdown in a sluggish economy.
Subsequently, many companies had to opt for loan restructuring to stay afloat in the business. To get these projects up and running again, companies need cash and state-run bank’s capitalisation is highly critical.
While the revised GDP numbers suggest a new picture of the economy is indeed on course of recovery, some of the macro-economic indicators haven’t supported the super-growth story.
For instance, bank lending to industry has grown by just 2.1 percent for the fiscal year until December as compared with 8.1 percent in the corresponding period last year.
Even in the infrastructure segment, which consists of power, telecom and roads, loan growth has remained tepid at 6.8 percent compared with 10.3 percent a year back.
Absence of a pick-up in fresh money flow to industries indicates some sort of mismatch in the GDP numbers and the actual situation on the ground.
Widening capital gap
As Firstpost has noted earlier, government banks would need a substantial amount of capital to meet the mandatory capital requirements under the Basel-III norms, to make provisions for a sizeable chunk of stressed assets on their books and to get ready for an expected pick up in credit growth.
The estimated equity capital requirement for state-run banks to meet the Basel-III norms alone is about Rs 2.4 lakh crore.
Basel-III is the advanced capital norms all banks worldwide need to comply with in a phased manner. For Indian banks, the deadline is 2019. With the deadline to meet the advanced capital requirements under the Basel III norms fast approaching, sate-run banks will need to raise substantial amount of capital.
Global ratings agency Moody’s Investors Service estimates the state-run banks would need anything between Rs 1.5 lakh crore and Rs 2.2 lakh crore, or $26 billion and $37 billion, to comply with Basel-III.
Remember, this estimate covers just 11 state-run banks that the agency rates. These are estimates and the actual requirement could vary, likely on the upside.
Basel-III requirement is only one side of the story. The bigger worry is the stressed asset scenario, which could emerge as a major risk for state-run banks.
At present, the stated amount of bad loans or NPAs in the banking system is Rs 2.9 lakh crore, while the restructured loans are estimated to be between Rs 5 lakh crore and Rs 6 lakh crore.
According to the PJ Nayak committee, which looked at various aspects of public sector banks, state-run banks would need over Rs 3 lakh crore capital if their loan book grows 16 percent per year and if about one-third of their restructured loan portfolio turns bad.
Global rating agencies have already sounded caution saying the government must offer a clear, convincing picture of structural reforms in the economy to get the economy back on actual growth path and fiscal prudence.
Until the time the government remains the majority owner in state-run banks, it can’t escape from the responsibility of funding these entities. The budget will be keenly watched on this.
Banks crack heads over Rs 40,000 crore Bhushan steel loans-DNA
Cash-strapped Bhushan Steel may get some time to repay Rs 40,000 crore loans to banks as bankers plan to restructure the company's account. Lenders to the steel company have called for a meeting on Friday to restructure the company's massive loans
Banks are considering the 5:25 scheme introduced by the Reserve Bank of India (RBI) for the company. The central bank first introduced this flexible financing scheme in July 2014, whereby banks can extend duration of loans to 20-25 years to match the cash flow of the project, while refinancing them every five or seven years. Until this provision came into being, banks were not lending beyond 10 to 12 years, which had put infrastructure firms in strain as their cash flows were stretched.
A senior banker involved in the discussions told dna, "We will consider if the company can qualify for the 5:25 scheme or the plain restructuring. A decision will be taken on Friday after a brain storming session in Mumbai. The plants of the company are all working very well and we believe that if the company gets some time to repay the loans, then it may come out of the stress."
With close to Rs 40,000 crore of loans at stake, lenders have formed a steering committee with representations from State Bank of India (SBI), Punjab National Bank (PNB), Bank of India, Bank of Baroda and IDBI Bank to closely monitor the functioning of the company. Two bankers from SBI and PNB are already on the board of the company.
The promoters, Singhal family, holds a 63.24% stake with Brij Bhushan Singhal, founder chairman, holding 19.31% stake, as on quarter ended December 2014. Bhushan Steel is India's third-largest secondary steel producer company with an existing capacity of two million tonnes per annum
The new RBI scheme is a flexible refinancing and repayment option for long-term infrastructure projects where total exposure of lenders is more than Rs 500 crore. The option will also be available for projects that have already been classified as bad debt or stressed but it will be treated as restructuring and the project will continue to be termed as a non-performing asset (NPA) till the project gets upgraded after satisfactory performance on servicing the loans.
In the third quarter ended December 31, 2014, Bhushan Steel's net loss widened to Rs 454.24 crore on higher expenses and finance costs. It had reported Rs 54.79 crore net loss for the corresponding quarter of last fiscal, 2013-14. Its income from operations grew marginally to Rs 2,460 crore, from Rs 2,407 crore a year earlier. Expenses, on the other hand, also increased to Rs 2,336 crore, from Rs 2,047 crore. Besides, a nearly Rs 150-crore higher finance costs made its bottomline shrink during the third quarter of the current fiscal. The company incurred Rs 580 crore finance costs, up from Rs 432 crore in the corresponding quarter of the last fiscal.
Govt clears criteria to appoint 5 PSU bank chiefs-Money Control
The Appointments Committee of Cabinet today approved the criteria and method for selection of managing director and chief executive officers in five public sector banks -- posts that have been lying vacant for long.
The Appointments Committee of Cabinet today approved the criteria and method for selection of managing director and chief executive officers in five public sector banks -- posts that have been lying vacant for long.
The five banks are Bank of Baroda , Punjab National Bank , Bank of India , Canara Bank and IDBI Bank ."The guidelines envisage that both governmental and non-governmental candidates can apply," the government release stated. "The candidate should have at least 15 years of mainstream banking experience, of which three years should at least be at the Board level. The candidate should be in the age group of 45 to 55 years and will have a fixed tenure of three years, subject to normal age of superannuation of 60 years."
Bank of Baroda stock priceOn February 26, 2015, Bank Of Baroda closed at Rs 172.40, down Rs 4.8, or 2.71 percent. The 52-week high of the share was Rs 231.50 and the 52-week low was Rs 101.80.
The company's trailing 12-month (TTM) EPS was at Rs 18.38 per share as per the quarter ended December 2014. The stock's price-to-earnings (P/E) ratio was 9.38. The latest book value of the company is Rs 167.11 per share. At current value, the price-to-book value of the company is 1.03.
The company's trailing 12-month (TTM) EPS was at Rs 18.38 per share as per the quarter ended December 2014. The stock's price-to-earnings (P/E) ratio was 9.38. The latest book value of the company is Rs 167.11 per share. At current value, the price-to-book value of the company is 1.03.
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