IMF sounds a warning note to Indian banks-15th April 2015
After Russia, Indian banks have the least capacity among lenders in emerging markets to absorb losses --By Asit Ranjan Mishra
Indian banks have the least capacity, after Russian ones, among lenders in emerging markets to absorb losses—a fact that could destabilize the country’s banking system, the International Monetary Fund (IMF) warned on Wednesday.
“Loss-absorbing buffers appear particularly low in Chile, Hungary, India, and Russia, and deterioration in loan quality could threaten capital levels. Furthermore, in India, Russia, and Turkey, loss absorbing buffers have deteriorated quite substantially in recent years,” the Fund said in its bi-annual Global Financial Stability Report.
According to the report, the loss-absorbing buffer of the Indian banking sector is 7.9% of risk-weighted assets against 7.8% in Russia and 11.3% in China.
“A significant share of debt in Argentina, Brazil, China, India, Nigeria, and Turkey is owed by firms with relatively constrained repayment capacity in terms of interest-coverage ratios, and in Turkey a significant share of this debt is in foreign currencies,” the report said.
The Reserve Bank of India (RBI) on 30 March allowed banks to use up to 50% of their counter-cyclical buffer to provide for non-performing assets (NPAs), up from the 33% that they were allowed to use so far.
A counter-cyclical buffer is the mandatory capital that banks are required to keep aside, beyond their minimum capital requirements, to deal with extraordinary situations. Counter-cyclical buffers were introduced globally after the financial crisis of 2008 to ensure that banks are not short of capital whenever systemic risks increase.
RBI said on 30 March that banks could use up to 50% of the counter-cyclical provisioning held by them as at the end of 31 December 2014, for making specific provisions on NPAs. In India, bank provisions above the compulsory 70% provision coverage ratio are considered counter-cyclical.
Indian banks have seen a dramatic jump in bad loans with many infrastructure projects stuck, largely due to issues related to the acquisition of land, the availability of fuel, or delays in securing environmental approvals as well as due to poor credit evaluation procedures in some banks.
With the National Democratic Alliance government managing to push through key coal and mining bills in Parliament and announcing a bailout package for stranded gas-based power projects, bankers are hoping that stalled projects will be revived.
Gross non-performing assets in the Indian banking system stood at 4.5% of total loans at the end of December, with bad loans of state-run banks increasing to 5.1% of all advances at the end of the fiscal third quarter in December, according to estimates by rating agency Icra.
The reported level of bad loans is also set to go up starting fiscal 2016, as a benefit given to restructured loans was withdrawn starting 1 April. Under that benefit provided by RBI,, in the first year after restructuring, banks needed to provide for only 5% of the loan. Now the restructured loans will be categorized as bad loans, attracting a minimum provision of 15%.
The government hopes to improve the health of commercial banks to boost credit growth and prepare the lenders to meet tighter capital requirements. However, with the government deciding to capitalize state-run banks only on the basis of performance, many lenders have been left with little option but to raise capital in the absence of government support.
Though finance minister Arun Jaitley said banks are free to raise capital from the markets, bankers have expressed concern that the lenders may not be able to raise funds from the market when the government—their majority stakeholder—is reluctant to inject more capital.
The government had announced in February that it would infuse only Rs.6,990 crore in nine public sector banks in 2014-15. The budgetary allocation in 2015-16 is only Rs.7,940 crore, which is unlikely to meet the capital requirements of all state-run banks.
The low loss-absorbing capacity of Indian banks is a matter of concern and isn’t being taken seriously enough because it is implicitly assumed that the government will bail out public sector banks, which control 70% of the Indian banking system, should they fall into trouble, said Bobby Parikh, partner at BMR and Associates Llp.
“A complete overhaul of the public sector banks (PSBs) is needed, including their governance, ownership and lending procedures. Private banks do not even remotely have the same problem regarding bad loans as the public sector banks. PSBs should also be allowed more independence in their functioning without political interference,” he said.
Last year in April, the International Monetary Fund had said that high debt in some Indian companies could pose a risk to the country’s economic stability. A third of the corporate debt in India has a debt-to-equity ratio of more than three, the highest degree of leverage in the Asia-Pacific region, the Fund said.
A high debt-to-equity ratio indicates that a company has been borrowing to fund expansion instead of raising money from the market. This can harm the health of a firm if interest rates rise and economic growth falters.
Bank credit growth lowest in 18 years as companies borrow less-Times of India
MUMBAI: Bank credit growth dropped to a 18-year low while deposit growth fell to a 19-year low in 2014-15 with fresh investment proposals from corporates drying up completely and projects announced in the past remaining stuck because of legacy issues. Credit growth would have been substantially lower had it not been for the smart pick-up in personal loans.Data released by the Reserve Bank of India on Wednesday shows that bank credit as on April 3, 2015 stood at Rs 70.4 lakh crore, up 12.6% from Rs 62.5 lakh crore on April 4, 2014. Banks report their business position to the RBI every alternate Friday. The data pertaining to the first Friday of the new financial year is taken as an indication of the business in the previous year as it factors in the year-end surge arising out of large loans and bulk deposits undertaken on March 31.
This year too there has been a surge in activity in March-end. Bank lending which was struggling with 9% growth rate until early March surged ahead on the back of bulk loans to successful bidders of telecom spectrum auctions.
"We expect that demand for working capital credit to pick up in the second half as companies ramp up products. But new private sector projects will take time as there is still a lot of unused capacity," the chief of a private bank told TOI.
"Traditionally, bank credit has been growing at two-and-a-half times the growth of the gross domestic product. But in recent years the composition of growth is changing and a large part of the growth is coming from the services sector where demand for credit is lower," a banker said.
Also, oil marketing companies, which are traditionally big borrowers, sought lesser funds as lower crude prices reduced inventory costs.
Bank deposits on April 3, 2015 stood at Rs 91.5 lakh crore, which is again 12.6% over the deposit base of Rs 81.2 lakh crore as on April 4, 2014. The last time bank credit grew less than 13% was in 1996-97 when loans grew by a measly 9.6% during a period of political uncertainty.
Even the 12.6% growth in bank credit this year has been largely on the back of retail lending. Data available until February 2015 shows that the fastest growing segment was consumer durables (16.9%), followed by vehicle loans at 14.7% and housing 14.5%. Credit to industry, which accounts for bulk of bank lending, grew by 3.5% while personal loans (home, auto and consumer loans, among others) grew by over 13.5%.
Who are actually responsible for growing sickness in banks and growing corruption in entire system?--By Danendra Jain written three years ago ( Oct 2012)
When person like me say that game of fraud and manipulation is the key of success in banks and all government offices, it is treated as sign of negativity. Now positive minded persons are slowly and gradually accepting the bitter truth that top officials who were proud for their banks and who used to claim or who used to make promises of becoming number one in banking industry in three to five years were real bluff masters,real manipulators and cheaters with investors, with bank staff and bank customers.
Newspaper link given here will throw adequate light on this bitter truth. RBI set committee has accepted the ground reality of public sector banks.
Media men and veteran economists who are flatterer of ministers and that of Congress Party ,who boast of having best knowledge of economics and who used to predict best future of banks to give a boost to stock prices of banks during last five to ten years will now be exposed.
READ the news items published today and submitted below carefully. This is also the views of media , not mine. I may simply add here that actual of dimension of sickness in state run banks is many times more than what is projected in newspaper and TV media.
RBI or Government of India cannot cure the sickness until they have to first understand the real dimension of sickness, repercussion of growing sickness on other sectors as well as on survival of banks and root causes of the sickness. If the causes identified as reason of sickness or as symptom of future sickness are wrong and ill motivated , the dignosis prescribed by doctors sitting in RBI and GOI will also fail to arrest growing sickness, rather add fuel to fire. Real causes are not global recession or high interest rate regime or natural calamities.
Persons who were assigned the duties and responsibilities of framing right policies , executing the policy in right spirit and regulating and monitoring banks to prevent and mitigate risks failed to provide desired safety to banks only because most of them acted as puppet in hands of powerful ministers and powerful politicians.
Trade union leaders in banking industry who were supposed to protect banks and protect the interest of bank staff also thought it better to work in tune with corrupt top bank officials to earn name, fame and wealth .
Top ranked Bank officials and Chief Executive officers of various banks who were given unbridled powers in the name of reformation used the power not to serve the common men and not to safeguard bank's interest but to flatter and win the hearts of ministers and powerful politicians so that they themselves become rich and powerful in the society of High profile people totally neglecting the basic banking business for which banks were nationalised in 1969.
Human Resource Development Department of various Bank ignored the basic tenets of empowerment of workforce,recognition of performing bank staff,basic principles of natural justice to staff who devotedly perform employees and value of experience of employees working in the bank.They promoted nothing but flattery and bribery culture .Mismanagement of top officials during last five tot en years have only resulted in growing quantum of bad assets.
Last but not the least politicians left no stone upturned to exploit banks to serve their self interest and to expand their vote banks.Sometimes they promoted loan Mela culture and some other time they promoted loan waiver culture to please their voters which in turned adversely affected the culture of bank employees.
Unfortunately even Mr. Janardhan Pujari who propagated the theory of mass loan disbursement through loan melas and Mr.V P Singh and Devi Lal who advocated loan waivers as a tool to please voters failed to protect even their political career for long , not to speak of protecting the interest of common men , interest of bank staff and health of banks and that of government of India as a whole.
Now leaders of the country have to think , investigate , analyse and ascertain the pros and cons of three periods of banks, Pre -nationlisation, post nationlisation and post reformation.Then only they can plan the future course of action which will be best suited for Indian banks and Indian people.
Restructuring of advances affecting ‘credibility’ of banking system : Click Here to Read the Full Article http://www.thehindubusinessline.com/industry-and-economy/banking/article3893448.ece?ref=wl_industry-and-economy
RBI or Government of India cannot cure the sickness until they have to first understand the real dimension of sickness, repercussion of growing sickness on other sectors as well as on survival of banks and root causes of the sickness. If the causes identified as reason of sickness or as symptom of future sickness are wrong and ill motivated , the dignosis prescribed by doctors sitting in RBI and GOI will also fail to arrest growing sickness, rather add fuel to fire. Real causes are not global recession or high interest rate regime or natural calamities.
Persons who were assigned the duties and responsibilities of framing right policies , executing the policy in right spirit and regulating and monitoring banks to prevent and mitigate risks failed to provide desired safety to banks only because most of them acted as puppet in hands of powerful ministers and powerful politicians.
Trade union leaders in banking industry who were supposed to protect banks and protect the interest of bank staff also thought it better to work in tune with corrupt top bank officials to earn name, fame and wealth .
Top ranked Bank officials and Chief Executive officers of various banks who were given unbridled powers in the name of reformation used the power not to serve the common men and not to safeguard bank's interest but to flatter and win the hearts of ministers and powerful politicians so that they themselves become rich and powerful in the society of High profile people totally neglecting the basic banking business for which banks were nationalised in 1969.
Human Resource Development Department of various Bank ignored the basic tenets of empowerment of workforce,recognition of performing bank staff,basic principles of natural justice to staff who devotedly perform employees and value of experience of employees working in the bank.They promoted nothing but flattery and bribery culture .Mismanagement of top officials during last five tot en years have only resulted in growing quantum of bad assets.
Last but not the least politicians left no stone upturned to exploit banks to serve their self interest and to expand their vote banks.Sometimes they promoted loan Mela culture and some other time they promoted loan waiver culture to please their voters which in turned adversely affected the culture of bank employees.
Unfortunately even Mr. Janardhan Pujari who propagated the theory of mass loan disbursement through loan melas and Mr.V P Singh and Devi Lal who advocated loan waivers as a tool to please voters failed to protect even their political career for long , not to speak of protecting the interest of common men , interest of bank staff and health of banks and that of government of India as a whole.
Now leaders of the country have to think , investigate , analyse and ascertain the pros and cons of three periods of banks, Pre -nationlisation, post nationlisation and post reformation.Then only they can plan the future course of action which will be best suited for Indian banks and Indian people.
Restructuring of advances affecting ‘credibility’ of banking system : Click Here to Read the Full Article http://www.thehindubusinessline.com/industry-and-economy/banking/article3893448.ece?ref=wl_industry-and-economy
Loan recast: Banking system credibility at stake : Click Here to Read the Full Article
Growing Sickness in Government Banks ---Why-By Danendra Jain -3 years ago
Public sector banks are passing through worst days because these banks are managed by team of corrupt officials. There is growing sickness in Public sector banks due to the fact that corrupt top officials are selected as ED or CMD by MOF and due to the fact that protectors of officers called as trader union leaders are also hand in glove with corrupt executives of the banks. Corrupt ED and CMD then keep corrupt GM and DGM around them to promote culture of flattery and bribery. As a result GM os these banks also adopt the same culture of flattery and bribery. This is why an officer become DGM, CM,AGM, or other senior level or middle management officers only when he or she has some God father at Head office or controlling offices or he or she has good relation with members of Interview panel members.Trade Union Leaders are nothing but other side of same mutilated coin which represent character of management of bank.
Munsi Prem Chand ji wrote in his books that "Jab Rakchak hi Bhakchak ho jaye to Vinash nishchit Hai" .
Since only corrupt officers are promoted to executive rank, decisions taken at upper level and policy framed by such corrupt officers are opposite to each other. These officers never bother for the health of the bank but only think for growth in their promotion, their posting, personal wealth and personal bank balance and this is why NPA in PSBs is fastly growing and growing without any break.
The most disheartening bitter truth is that officers who indulge in bribe based bad lending is promoted and the officer who recover the bad advances is made scapegoat. None can therefore save these sick banks. Mass transfer to far places may satisfy the ego of corrupt executive but cannot improve the health of sick banks; they may add fuel to fire and nothing else. These clever executives know how to befool MOF by submitting lame excuses for their lapses. They talk of global recession or inflation to conceal misdeeds.
One should therefore never expect consistent and respectful growth in career in such banks without involving oneself in evil work without and supporting evil works of bosses. Flattery and bribery is the only key to success. Attrition rate is therefore much higher in PSBs even though private banks are paying less than PSBs to low level or middle level officers. I am unable to visualize any benefit for banks if scale I officers are transferred from Hindi belt to Non Hindi belt or vice versa.
Man power planning is in hands of money power makers and hence quality of manpower and adequate quantity at all branches is non imaginable proposition. Corrupt officers are given enough manpower to enable him to earn money through illegal means and share with bosses whereas on the contrary officers who believes in safe lending and lending without any greed of money as bribe is always subjected to shortage of manpower so that his image is tarnished and he is either punished or thrown in critical remote places.
Banks suffered in the past due to large scale expansion of branches in eighties and nineties and hence for few years top bankers and politicians started closing unviable branches. Loss making branches were closed or converted into satellite branches. Government started suggesting merger and acquisition of banks. But unfortunately the same government is now pleading for opening of more and more branches in remote villages even if there is no possibility of profit. Same government is now talking of giving license to new entrepreneurs. No consistency policy. Banks are managed by whimsical politicians and corrupt officials.
People may say me as pessimistic but I am not over optimistic too particularly when I know the field level reality. I do not believe in financial data published by various banks and certificates issued by corrupt officials of RBI or corrupt ministers because I know ground level bitter truth.
Saturday, September 13, 2014
Why Public Sector Banks Are Sick? - By Danendra Jain
In Public Sector Banks , Human Resource Department is not at all working the way they are supposed to work. HRD is functioning as if they are Human Record Keeper. You may name them HRK. RBI and Ministry of Finance work on certificates submitted by Banks that they (banks ) are healthy. Auditors and inspectors are selling their signatures. Very few are true vigilance officers , mostly it is VO who provide umbrellas to corrupt officers. And so on....Corrupt officers are exonerated by corrupt team of inquiry and investigative officials.
Otherwise there is no paucity of talented persons. Staff who join bank should be properly groomed, trained and motivated .The freshers should be treated in such a way that they start feeling proud of bank they joined. Good work of each staff should be praised before all and bad works of any staff should be dealt with in closed door room and such bad work should be taken as an opportunity to upgrade the quality of staff and not as an opportunity to abuse and rebuke
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