Privatisation Of Bank: Two banks to be sold in the country, centre to speed up law change process

 

The Centre speed up the process of privatising two State-owned banks. News agency PTI quoted a source from the Centre as saying on Wednesday. The Modi government at the Centre had earlier amended the 'Banking Regulation Act' to pave the way for private investment in State-owned banks. According to sources, the Centre wants to pass a bill in this regard in the upcoming monsoon session of Parliament.

Union Finance Minister Nirmala Sitharaman had said last year that the Centre wants to start the process of privatising some state-owned banks. Therefore, the Bank Nationalization Acts of 1970 and 1980 will be amended and the Bank Control Act of 1949 will be amended. According to finance ministry sources, the process has begun. The government has also started preparing the draft of the 'Banking Regulation Act'. If all goes well, the amendment will be passed in the monsoon session. Of course, there is a good chance of the opposition being hindered. However, due to the majority, the government should not have any problem in passing this law.

The amendment has been passed in parliament and there will be no bar on the privatization of State-owned banks. Only then will the process of privatization of state-owned banks begin. Initially, two state-owned banks have also been listed for disinvestment. The name of which two banks will be privatised is yet to be announced by the Centre. According to sources, the Modi government initially chose four medium-sized banks for privatisation. The four banks that were placed in the initial list for privatisation are Bank of Maharashtra (BoM), Bank of India (BoI), Indian Overseas Bank(IOB) and Central Bank of India. Later, niti aayog proposed that most of the shares of Indian Overseas Bank and Central Bank of India be sold. The Modi government can go ahead with the NITI Aayog's proposal.

This is not the end of it, the government also wants to complete the privatization process of the tate-owned company BPCL quickly. Sources claim that only 52.3 per cent stake in BPCL held by the Centre will be sold. Earlier, the Modi government had taken the initiative to sell the shares of BPCL. Initially three companies showed interest in buying bpcl shares. But in the end, only one company survives in the race, the sources claim.

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IOB, Central Bank divestment on the fast-track

The Centre plans to accelerate the process of privatisation of the Indian Overseas Bank (IOB) and Central Bank of India after the two banks posted good quarterly results, finance ministry sources said. The government’s public policy think tank Niti Aayog has already proposed the names of these two PSBs to the core group of Secretaries on Disinvestment (CGD) for privatisation.

“We had to put a halt to the privatisation process in between because of the protests by bank associations and State elections. But now, after the banks registered positive results in the December quarter, it will gather steam. CGD is assessing the proposal submitted by Niti Aayog, which will then go to the Cabinet committee for final approval,” an official told this newspaper.

Another official pointed out that there is no provision for privatisation of banks in the Bank Nationalization Act. So, an amendment is needed in the Act to privatise the state-owned lenders. “A few amendments have been proposed to the Banking Regulation Act and Bank Nationalisation Act to facilitate the privatisation.

We are trying to make an attractive scheme related to employees’ compensation to avoid strikes,” he added. In the October-December quarter, Chennai-based IOB’s net profit doubled to Rs 454 crore against Rs 213 crore in the year-ago period. In the same period, Mumbai-based Central Bank of India registered a 69% increase in its net profit at Rs 279 crore.

More banks to be identified later

After the completion of the privatisation of IOB and CBI, the Centre will identify other banks for disinvestment in the coming years. The government wants only four large PSBs in the country.

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Indian Overseas Bank net profit up 154%

State-run Indian Overseas Bank (IOB) has posted a 154 per cent increase in net profit during the second quarter of the current financial year ended on September 30 to Rs 376 crore, as compared to Rs 148 crore during the same quarter in 2020-21.

The lender's total income for the reporting quarter was down marginally by about 1 per cent to Rs 5,376 crore, from Rs 5,430 during the July to September quarter of 2020-21. The bank’s managing director and chief executive officer P P Sengupta said the reasons for the better financial numbers is owing to a better outlook in the economy due to higher rates of vaccination and better performance in retail, agriculture, MSME (RAM) and corporates.

The bank’s asset quality showed signs of improvement with its gross non-performing assets falling by 11.29 per cent from Rs 17,660 crore during the second quarter in 2020-21 to Rs 15,666 during the same quarter this fiscal. During the quarter GNPA reduced by Rs 286 crore. GNPA ratios improved to 10.66 per cent from 13.64 per cent on a quarter on quarter basis. The bank came out of RBI's Prompt Corrective Action (PCA) on September 29, 2021.

Reduction in NPA for the quarter ended September 2021 stood at Rs. 1798 crore as against Rs.1,616 crore achieved for quarter ended June 2021. Net NPA during the quarter was seen at Rs 3,741 crore with a ratio of 2.77 per cent as against Rs 3,998 crore with a ratio of 3.15 per cent during the previous quarter.

The bank's net interest margin was 2.43 per cent in Q2 FY22, as against 2.57 per cent a year ago. During the quarter under review, IOB’s operating profit zoomed by 5.42 per cent to Rs 1,419 crore, as compared to Rs 1,346 crore seen during the September quarter last fiscal. Total deposits were seen up by 9 per cent to Rs.2,50,890 crore as on September end as compared to Rs 2,42,941 crore as on the quarter ended in June 2021.

Gross advances stood at Rs 1,46,940 crore during the quarter compared to Rs 1,38,944 crore during the end of Q1. The bank said that it has grown its retail and agri segments and rebalanced the advance balance by consciously reducing the stressed sector in the corporate segment.

CASA of the bank improved to 42.57 per cent during the period under review compared to 40.26 per cent during the same time last financial year. Total CASA also increased to Rs 106,806 crore as against Rs 92,436 crore during the second quarter of 2020-21. Provision Coverage Ratio improved to 92 per cent as against 89.36 per cent in Q2FY21.

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RBI removes PCA framework from this PSU bank

  

The Reserve Bank of India on September 29 announced that it has lifted the curbs on Indian Overseas Bank and taken the bank out of the Prompt Corrective Action (PCA) framework, the central bank said in a release.

The board for financial supervision reviewed the performance of Indian Overseas Bank and noted that as per its published results for year ended March 31, 2021, the bank is not in the breach of PCA parameters, RBI said.

Further the bank has provided a written commitment that it would commitment that it would comply with the norms of minimum regulatory capital norms, net NPA and leverage ratio on an ongoing basis, RBI said.

Taking all the above into consideration, it has been decided that Indian Overseas Bank is taken out of the PCA restrictions subject to certain conditions and continuous monitoring, RBI said.

RBI had brought Indian Overseas Bank under the PCA framework in October 2015. The bank had been requesting to the central bank to take it out of the PCA framework.

The bank's MD & CEO, Partha Pratim Sengupta had said post the Q4FY21 results that, “As far as all the PCA ratios are concerned, we have been achieving it in the past quarters also, barring one ratio, which is the leverage ratio. With the ploughing back of the profits and also with the infusion of funds by the government of India, we are very, very comfortable in all the parameters.”

Indian Overseas Bank had received Rs 4,100 crore from the government.

Under the PCA norms, the central bank imposes business restrictions on banks having weak financial metrics and the restrictions are decided on a case to case basis.

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Indian Overseas Bank(IOB) Q1 results: Net profit doubles as provisions decline

 

Chennai-based public sector lender Indian Overseas Bank (IOB) on Tuesday reported a 170% jump in its net profit to `327 crore for the first quarter of this fiscal as compared to Rs 121 crore in the corresponding quarter last fiscal.

The bank has attributed the growth in the bottom line to an increase in other income and a robust recovery during the quarter. The total income of the bank stood at Rs 5,155 crore as against Rs 5,234 crore in the corresponding period last year.

Speaking to media persons in a virtual interaction, Partha Pratim Sengupta, MD & CEO, IOB, said after making losses for 18 quarters, the bank has started making profits since the March 2020 quarter, and this quarter it added around Rs 200 crore to the profit. “We have been making profits and have fulfilled all the requirements to come out of the prompt corrective action. The regulator is examining as we have furnished all the details,” he said, adding that it is now for the RBI to take a call on it.

Interest income of the bank stood at Rs 4,063 crore for the quarter as against Rs 4,302 crore, while non-interest income was at Rs 1,092 crore as compared to Rs 932 crore due to increase in other income.

He said the bank could make a decent recovery in the first quarter despite the impact of the second wave of the pandemic. “While fresh slippage was at Rs 1,158 crore, cash recovery was itself to the tune of Rs 1,130 crore, offsetting the impact of bad assets,” he said.

IOB’s gross NPAs stood at Rs 15,952 crore, with a ratio of 11.48% as against 18,291 crore with a ratio of 13.90%. It achieved a total reduction in NPAs of Rs 1,616 crore in Q1FY22 as against the NPA reduction of Rs 1,969 crore.

Net NPAs were at Rs 3,998 crore, with a ratio of 3.15% as against Rs 6,081 crore, with a ratio of 5.10%, a decline of Rs 2,083 crore in absolute terms. Provision coverage ratio improved to 91.36% from 87.97%.

Sengupta said the bank has approval to raise Rs 2,000 crore as tier I capital, Rs 1,000 crore as tier II bonds and will look to raise funds as and when required. “As of now, we are comfortably capitalised with CRAR of 15.48%. First we will try to raise the tier II bonds by November, and later on will decide when to go for tier I funds,” he said.

On the advances growth, he said the bank will go for an incremental increase of Rs 14,000 crore to Rs 15,000 crore, over the last year. “While retail, agri and MSME sector will be our focus area, corporate book needs to be also grown. Though we will be cautious, we will go for rated corporate entities,” he said.

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Government may shortlist two PSU banks for privatization

 The Centre has shortlisted Central Bank of India (CBI) and Indian Overseas Bank (IOB) for divestment.The two state-run banks might see 51 percent sale in the first phase of disinvestment.

The government will amend the Banking Regulations Act, and some other banking laws for divestment, the news channel reported.

Following the news, shares of CBI and IOB surged 20 percent on June 21.

The weak financial metrics of lenders like CBI and IOB could lead to unexpected hurdles in the government's plan to privatise the lenders, banking analysts.

Both the IOB and CBI are currently under the Prompt Corrective Action (PCA) framework imposed by the Reserve Bank of India (RBI). Under the PCA framework, the central bank imposes certain business restrictions on lenders with weak financial metrics.

The Centre has set an ambitious divestment target of Rs 1.75 lakh crore for FY22.

The government's plans to sell its stakes in Air India, Bharat Petroleum Corporation (BPCL), Shipping Corporation of India and some other companies have been disrupted due to the COVID-19 pandemic

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Indian Overseas Bank(IOB) Q4 profit jump over two times

 

State-owned Indian Overseas Bank (IOB) on Monday reported a jump of over two times in its net profit at Rs 349.77 crore in the last quarter of the fiscal ended March 2021.

The bank had posted a net profit of Rs 143.79 crore in the same period a year ago.

Total income during Q4FY21 rose to Rs 6,073.80 crore as against Rs 5,484.06 crore in Q4FY20, IOB said in a regulatory filing.

Provisions for bad loans and contingencies for the reported quarter increased to Rs 1,380.46 crore as against Rs 1,060.38 crore parked aside in the corresponding period a year earlier.

For the full year 2020-21, the bank reported a net profit of Rs 831.47 crore. There was a net loss of Rs 8,527.40 crore in 2019-20.

Total income during the year increased to Rs 22,524.55 crore from Rs 20,712.48 crore in the previous fiscal year.

Bank's asset quality showed improvement with the gross non-performing assets (NPAs) falling to 11.69 per cent of the gross advances as of March 31, 2021 from 14.78 per cent by year ago same period.

In value terms, the gross NPAs or bad loans were of the order of Rs 16,323.18 crore, down from Rs 19,912.70 crore.

Net NPAs fell to 3.58 per cent (Rs 4,577.59 crore) from 5.44 per cent (Rs 6,602.80 crore).

The bank said its board of directors has approved the capital plan for 2021-22 under which it will issue equity shares up to a maximum extent of 125 crore shares by way of follow on public offer/rights issue.

The issue may be with or without participation from the government or to qualified institutional buyers (QIBs), the lender said.

It may be also on a preferential basis to LIC and other insurance companies or mutual funds/QIBs. The issuance of shares is subject to shareholders approval, IOB said.

Besides, the board also approved to raise tier II capital by issuing Basel III compliant bonds up to Rs 1,000 crore in one or more tranches. The issue may be through a private placement or to retail segment by public issue, either domestically or overseas, it added.

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Government is considering mid-sized to small banks for its first round of privatisation.

Government has shortlisted four mid-sized state-run banks for privatization, under a new push to sell state assets and shore up government revenues, three government sources said.

Privatisation of the banking sector, which is dominated by state-run behemoths with hundreds of thousands of employees, is politically risky because it could put jobs at risk but Prime Minister Narendra Modi's administration aims to make a start with second-tier banks.

The four banks on the shortlist are Bank of Maharashtra, Bank of India, Indian Overseas Bank and the Central Bank of India, two officials told Reuters on condition of anonymity as the matter is not yet public.

Two of those banks will be selected for sale in the 2021/2022 financial year which begins in April, the officials said. The shortlist has not previously been reported.

The government is considering mid-sized to small banks for its first round of privatisation to test the waters. In the coming years it could also look at some of the country's bigger banks, the officials said.

The government, however, will continue to hold a majority stake in India's largest lender State Bank of India, which is seen as a 'strategic bank' for implementing initiatives such as expanding rural credit.

A finance ministry spokesman declined to comment on the matter.

India's deepest economic contraction on record caused by the pandemic is driving the push for bolder reforms, economists say.

Government also wants to overhaul a banking sector reeling under a heavy load of non-performing assets, which are likely to rise further once banks are allowed to categorise loans that soured during the pandemic as bad.

PM Modi's office initially wanted four banks to be put up for sale in the coming fiscal year, but officials have advised caution fearing resistance from unions representing the employees.

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