Bank of India(BoI) aims to recover large amount in FY19, after gross NPAs declined in Q1

State-owned Bank of India aims to recover about Rs 17,000 crore from all sources in the current financial year ending March 2019. After reporting a turnaround in net profit at Rs 95 crore for the first quarter ending June 2018, the lender's chief said it has identified Rs 8,000 crore worth of assets to be sold to asset reconstruction companies (ARCs).

Total recovery during April to June quarter stood lower at Rs 2,699 crore as against a whopping Rs 11,417 crore in the March quarter. “The recovery journey will continue in Q2 (July-September quarter) also at about Rs 4,000-5,000 crore... Recovery from all sources will be Rs 17,000 crore in FY2019," said Dinabandhu Mohapatra, MD and CEO, Bank of India.

He said the bank's target is that recovery and upgradation should be more than slippages so that
net slippage will be minimum.

Recovery from Project 'Sashakt'

Bank of India has also identified 7-8 accounts, with an exposure aggregating Rs 2,000-3,000 crore, to be shifted to the proposed AMC, envisaged for resolution by the Sunil Mehta-led panel under Project Sashakt.

The high-level committee on restructuring stressed assets and creating more value for public sector banks, which was headed by Sunil Mehta, Non-Executive Chairman, Punjab National Bank, recommended that for loans above Rs 500 crore, an independent AMC should be set up.

“We have already discussed some of the accounts under the project…We will be doing it (shifting accounts) before August-end. Already, the preparation is on..."

"But again, it depends on (the provision level, the asset quality and valuations) negotiation and discussion," the Bank of India chief added. Additionally, some accounts to the tune of Rs 2,700 - 2,800 crore  are being considered to be resolved under the one-time-settlement (OTS) scheme under "mission Samadhaan" for smaller accounts. Mohapatra said, "We have got good demand for OTS from several borrowers given the restriction the case goes to NCLT."

Slippages and NPAs

Slippages into non-performing loans also reduced to Rs 6,671 crore during the quarter from Rs 12,973 crore in the previous quarter. Further, the bank is "quite hopeful that around Rs 500 crore will be realised during Q2 (through monetisation of non-core assets). Let us see how it happens. We have some real estate, some shares," the bank's chief said.

Although the gross non-performing assets (NPAs) declined by Rs 1,724 crore to Rs 60,604 crore as on June-end 2018, the gross NPA ratio nudged up to 16.66 percent of gross advances against 16.58 percent in the preceding quarter.

Consolidation and Branch rationalisation

Mohapatra stated that the bank is emphasizing on consolidation and profitability and thereby reducing low-yielding assets as well as rebalancing its portfolio to pump up RAM — Retail, Agriculture and MSME (micro, small and medium enterprises).

In a bid to rationalise business, it has closed down almost 294 ATMs and will further close 260 ATMs across the country.

Bank of India has reduced its total ATMs to 7,423 from 7,717 a year ago, while branch network remained steady at 5,127.

"We also identified 40 loss-making branches over three years even as about 28-30 branches have improved productivity. But we will take a final call by September," Mohapatra said.

The bank is also planning to close about 9-10 overseas business units over the next 6-7 months with two offices already closed. Within a quarter or two, Mohapatra hopes to continue the momentum to say NPA cycle is over.

Read More

The five R’s central to bank NPAs

Let’s consider five aspects relating to bank non-performing assets (NPAs) – NPA recognition, bank recapitalization, NPA resolution, reforms going forward, and finally, the realpolitik surrounding this.

Recognition of NPAs

Since the RBI launched the Asset Quality Review (AQR) in 2015, Indian banks have had to progressively reveal the true extent of their NPAs. These went up from 4.6 percent of advances in fiscal year 2015 (FY15), to 7.8 percent in FY16, 9.6 percent in FY17, and 11.6 percent in FY18.

The much-debated February 2018 RBI circular on resolution of stressed assets increased FY18 disclosures, and should help achieve full recognition in FY19.

Some have sought dilution of the circular, arguing that the tight timelines in the new insolvency process could force even viable businesses into liquidation.

That may be a reason to review the resolution process, but not an excuse to delay recognition. Institutional investors, analysts and markets have anyway known of skeletons in our banking closet for a while now. Only small investors could be misled by any accounting or disclosure forbearance.

RBI is right to insist that we restore credibility with full NPA disclosures. Criticising RBI for ensuring disclosures is akin to the emperor blaming his new clothes on the mirror.

Recapitalisation of banks

PSBs will likely need another round of recapitalisation to credibly stay within Basel III guidelines.

For one, per the June 2018 RBI financial stability report, the FY18 Capital Risk Asset Ratio (CRAR) of PSBs under RBI’s Prompt Corrective Action (PCA) is at 10.8 percent, below the eventual Basel 3 minimum of 11.5. Worryingly, the same report projects the FY19 baseline CRAR of PSBs to drop further - PCA banks to 6.5 percent, and non-PCA to 10.6 percent — both well below 11.5 percent.

Secondly, the loan loss provisions of Indian banks likely need to be enhanced.

FY18 PSB loan loss provisions were at 42 percent of stressed assets, across gross NPA and restructured assets. These may not be conservative or credible enough.

RBI’s December 2017 report on trend and progress of banking in India shows that during 2015-17, PSBs managed a recovery rate of only 25 percent on their NPAs.

This is visibly improving with the insolvency and bankruptcy code (IBC), with the first few steel sector resolutions coming through.

But there are many other cases facing delay, and questions around sectors such as power and telecom. PSBs will need a further INR1.65T just to raise the loan loss provision from 42 percent of stressed assets to 60 percent.

In summary, while the INR2.11T recapitalisation plan of October 2017 was a welcome acknowledgment of a festering problem, PSBs need more capital. Whatever our views about Basel 3, we may have little choice but to make sure our financial ecosystem is seen as adequately capitalised.

Of course, this additional capital should not be obtained without progress on banking reform.

Resolution of NPAs

The IBC process is a welcome development. The resolution of Bhushan Steels and Electrosteel Steels is particularly heartening, and should allow banks to write back some provisions in Q1 FY19.

However, there is a backlog of cases building up at the National Company Law Tribunal (NCLT). Credit Suisse’s June 2018 India corporate health tracker points out that while 2,200 cases have been referred to NCLT, the tribunal has only admitted 700 cases. The 270-day deadline for resolution has been breached for many large cases. The IBC/ NCLT process is likely a bottleneck for now.

Which brings us to the question of a bad bank. Hopefully, the newly appointed committee under Sunil Mehta will take a call on this idea that’s repeatedly brought up, trashed, and resurrected.

Personally, I think a bad bank makes sense. For one, while the IBC/ NCLT process will work on a steady state basis, we need a one-time framework for the existing long list of cases. Second, resolution of distressed assets of this scale requires skills and flexibility that any disparate collection of commercial banks will struggle to demonstrate.

While no two countries are comparable, the experience of Malaysia’s distressed debt AMC (Danaharta) post the Asian crisis bears studying. Danaharta offered to buy distressed loans at a discounted purchase price. Banks could either take up the offer, or take steep loan loss provisions. In return for the sale, the banks would get back 80 percent of the excess recoveries made by Danaharta over the purchase price. Aided by state muscle, resolution plans, reforms, consolidation, and recapitalisation bonds, this experiment worked reasonably well.

Reforming our PSBs

Neither recapitalisation nor a one-time resolution of stressed assets guarantee that these cycles of lend and write-off will stop. We need serious banking reforms, and the recommendations of the PJ Nayak Committee report fit the bill.

The committee recommended the formation of a Bank Investment Company (BIC) to hold government’s PSB stakes. The government would then distance itself from managing banks, repeal the Bank Nationalization and State Bank of India acts, and put all PSBs and the BIC under Companies Act.

This would in turn allow the BIC to operate as a professional manager of PSBs. It would allow PSBs to develop market-linked human resource policies including pay, promotion and performance accountability, in line with other professionally managed companies. It would also bring all of banking regulation under RBI, rather than the dual government/ RBI framework for PSBs today.

Eventually, the BIC would downstream governance fully to individual bank boards, including the responsibility for selecting CEOs, business strategy, financials, risk and human resources.

The government could then consider bringing the stake of the BIC to below 50 percent in each bank. That would also allow PSBs to be outside the ambit of CVC/CAG/RTI, bringing them on a par with private sector banks.

Interestingly, the PJ Nayak Committee also makes this observation – “in loan and expenditure cases, deviations from procedure should not constitute the sole basis for initiating criminal action (against bankers)”.

Realpolitik

The steps recommended therefore are (i) fully recognise and disclose banking NPA (ii) provide adequately for loan losses and future business needs, alongside another round of PSB recapitalisation (iii) set up a bad bank for a one-time resolution of the growing list of IBC/NCLT cases and (iv) implement the PJ Nayak Committee report, as an enduring reform of Indian banking.

It’s easy to list all this, but politically, very challenging to implement. Each stage has ramifications that cannot be ignored.

Full disclosure of NPAs, provisioning, and recapitalisation will be portrayed as a reflection on the current government performance – never mind that the seeds were sown many, many years ago.

A big political issue around the bad bank would be the transfer of loans at a haircut. This will be portrayed as waivers to big borrowers; many of whom are also suspected of malpractice, while ordinary retail borrowers are given no such respite.

Lastly, imagine babus and netas implementing the PJ Nayak Committee recommendations, which will end up disempowering them from Indian banking. Also, while economists and experts will largely applaud the steps, there will be popular protests – including from bank unions - portraying this as backdoor bank privatisation.

Each of these objections can be countered by logical arguments, consultations and reassurances. But political discourse is not dictated by rational logic alone.

We need a government that is both convinced on the way forward, and is confident it has the political capital and savvy to shape the narrative. Or is patriotic enough to do the right thing, even if it means paying the supreme political price!

Read More

Govt accepts 5-point plan to resolve NPAs, rules out bad bank

The government on Monday agreed to a five-pronged strategy to resolve toxic loans, with the larger ones among them going to an asset management company (AMC) or an alternative investment fund (AIF).

Finance minister Piyush Goyal, who accepted the report by a committee of bankers set up in this regard, told reporters that the strategy, called Project Sashakt, will help retain the value of the asset through operational turnaround. The finance ministry had set up the committee, led by Punjab National Bank chairman Sunil Mehta, in June.

There is no proposal to create a bad bank, and Project Sashakt does not require any regulatory forbearance, Goyal said.

Project Sashakt outlines the resolution of bad loans depending on their size. Bad loans of up to Rs. 50 crore will be managed by a focused vertical to be set up at the bank level itself, which will ensure the loan is resolved within 90 days. For bad loans of Rs. 50-500 crore, banks will enter into an inter-creditor agreement, authorizing the lead bank to implement a resolution plan within 180 days, which includes appointing turnaround specialists. If the lead bank does not complete the process in time, the asset would be referred to the National Company Law Tribunal (NCLT).

For loans above Rs. 500 crore, the committee has recommended setting up an independent AMC supported by institutional funding in stressed assets or an AIF. The idea is to help consolidate stressed assets under the AMC model for better and faster decision making.

“There can be more than one AMC. It will be completely market-driven. Small equity required. No capital required from the government. Investors can come and invest. It’s an open process.” Goyal said.

Bigger loans which cannot be resolved through any of the above methods will be transferred to the NCLT for resolution under the Insolvency &

Bankruptcy Code (IBC). The committee also recommended an asset trading platform for both performing and non-performing assets.

“It should create a more vibrant market and each sector requires specific skills. For instance, institutional investors can decide their sector of interest,” Mehta said.

Besides Mehta, the committee included State Bank of India chairman Rajnish Kumar, Bank of Baroda managing director and chief executive officer P.S. Jayakumar and SBI deputy managing director C. Venkat Nageswar.

“Having an AMC will consolidate the bad loans of all lenders at one place,” a banker told Mint. “However, what is crucial is where the AIF is going to get funding from to invest in these stressed assets,” he said on condition of anonymity.

Read More

Banks' Gross bad loans may rise to over 12% in FY19: RBI

The gross non-performing assets (GNPAs), or bad loans, ratio in the Indian banking system is likely to rise from 11.6 per cent in March 2018 to 12.2 per cent by the end of March next year, the Reserve Bank of India said on Tuesday.

Referring to the 11 state-owned banks under prompt corrective action framework (PCA) on account of NPAs, the RBI, in its Financial Stability Report (FSR), also said these may see a worsening of their GNPA ratio from 21 per cent in March 2018 to 22.3 per cent by the end of the ongoing 2018-19 fiscal.

“Macro-stress tests indicate that under the baseline scenario of current macroeconomic outlook, SCBs’ (scheduled commercial banks) GNPA ratio may rise from 11.6 per cent in March 2018 to 12.2 per cent by March 2019,” it said.

Of the 11 banks, six are likely to experience capital shortfall relative to the required minimum risk-weighted assets ratio (CRAR) of 9 per cent, the central bank said.

The 11 banks under PCA framework on account of their high bad loans are IDBI Bank, UCO Bank, Central Bank of India, Bank of India, Indian Overseas Bank, Dena Bank, Oriental Bank of Commerce, Bank of Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank.

Though the overall system level CRAR may come down from 13.5 per cent to 12.8 per cent during the period in review, the FSR said profitability of all commercial banks had declined partly reflecting increased provisioning on account of bad loans.

“The stress in the banking sector continues as GNPA ratio rises further,” the report said “Spillover risk from advanced financial markets to emerging markets has increased,” it added.On the domestic situation, the RBI said economic growth is firming up.

“However, conditions that buttressed fiscal consolidation, moderation in inflation and a benign current account deficit over the last few years, are changing, thereby warranting caution,” the report said.

Read More

Bank write-offs in FY18 widens to large amount

Public sector banks have written off bad loans worth a whopping Rs 1.20 lakh crore, an amount that is nearly one-and-a-half times of their total losses posted in 2017-18, according to official data. This is a double whammy for the struggling PSBs as they had massive write-offs as well as huge losses in the last financial year. This is for the first time in a decade that banks have made huge write-offs of bad loans along with booking of hefty losses. Till 2016-17, 21 state-owned banks made combined profit while in 2017-18, they posted a staggering loss of Rs 85,370 crore, as per the data.

During 2016-17, PSU banks wrote off non-performing assets (NPAs) worth Rs 81,683 crore as against combined net profit of Rs 473.72 crore. SBI alone has written off bad loans of Rs 40,196 crore, nearly 25 per cent of the total write-offs during 2017-18. This was followed by Canara Bank (Rs 8,310 crore), Punjab National Bank (Rs 7,407 crore) and Bank of Baroda (Rs 4,948 crore).

As per the data provided by rating agency Icra, Indian Overseas Bank has written of NPAs worth Rs 10,307 crore, followed by Bank of India (Rs 9,093 crore), IDBI Bank (Rs 6,632 crore) and Allahabad Bank (Rs 3,648 crore). These banks along with 7 others come under Prompt Corrective Action framework of RBI. As per the government data, banks’ write-offs stood at Rs 34,409 crore in 2013-14. The figure has jumped nearly four-fold in five years. In 2014-15, the banks wrote off Rs 49,018 crore ; Rs 57,585 crore in 2015-16, Rs 81,683 crore in 2016-17 and hitting a record high of Rs 1.20 lakh crore (provisional) in 2017-18.

The write-off in banking parlance means that the bank has made 100 per cent provision from its earning against that account. Following this, NPA is no longer part of its balance sheet. However, a write-off puts pressure on balance sheet of banks as it erodes operating profit. Indian banking sector is grappling with mounting NPAs and host of scams and frauds. NPA in the banking sector stood at Rs 8.31 lakh crore as of December 2017.

Weak financials due to mounting bad loans have already pushed 11 banks, out of 21 , under the Prompt Corrective Action (PCA) framework of RBI. The recent tight prudential norms released by RBI on February 12 have added to the NPA woes. Interim Finance Minister Piyush Goyal has announced setting up of a committee to give recommendations in two weeks on formation of an Asset Reconstruction Company (ARC) for faster resolution of stressed accounts.

The committee under Sunil Mehta, non-executive chairman of PNB, will make recommendations for the same.  The finance minister said the committee will consider whether such an arrangement will be good for the banking system and, if any such suggestion is advisable, it will also consider the modalities by which such an ARC should be set up.
Source- Financialexpress

Read More

Modi Government is losing the plot on Public Sector Banks(PSBs)

Narendra Modi government seems to have run out of ideas to turn around public sector banks which are in dire straits. As a result, old ideas appear to be having a re-run. One is the idea of creating a vehicle, asset reconstruction or management company (ARC/AMC), to take over troubled loans and pursue them for whatever they will fetch. This will enable the banks, relieved of their large non-performing assets (NPAs), to begin life anew, so to speak, with a clean slate or balance sheet.

Like all ideas which have been around for some time but have not been accepted, the ARC/AMC has pluses and minuses. While banks will indeed get a new lease of life, the same result can be achieved by recapitalising the banks so that they can provide adequately for the bad loans, turn over a new leaf and get ahead with a normal way of life. Moreover, having seen the loans turn NPA under their own eyes, they will be better than most to pursue recovery.

The other issue is that a committee has been appointed under the chairman of a large public sector bank to present a report to the minister on the feasibility of the ARC/ARM idea in 15 days. This exercise is quite unlikely to yield anything new. All the relevant ideas and information already exist within the finance ministry itself and depending on which way the government wishes to move, the necessary papers can be prepared and forwarded to the cabinet/PMO for approval.

The impression that is created is that a new minister, who is holding additional charge of a portfolio as critical as finance, while also looking after such important portfolios as railways and coal, is keen to both educate himself and be seen to be doing something. In the event, salvation for the troubled banks seems to remain as far away as ever.

Another old idea which has just been reworked is bank mergers. At a meeting with the minister during a discussion on achieving global scale for Indian banks, the chairman of the State Bank of India (SBI) made a presentation on his bank’s experience of merging with itself its associate banks. The reigning thought seems to be that 21 is too big a number for public sector banks. Why too many or too few should be an issue is not clear. What should matter is whether a bank is weak or strong. It is quite possible and perhaps desirable to have a whole lot of mid-sized banks (state-owned if need be) focused on particular geographies which they historically know well (like some of the erstwhile SBI associates) where they can lend to businesses with potential and keep good track of them.

After mergers have been officially touted for so long, the SBI chairman has now said that his bank is big enough so as not to want to inorganically grow any more. The whole point is there are not enough big and strong public sector banks to be able to absorb weak ones and it is quite right for the SBI chief to not want to weaken his bank further by being forced to absorb any more weak banks. It is high time the government stopped considering mergers as a solution.               

While old ideas which have been around for long are being looked at afresh, action is not being taken where it is due or overdue. Several public sector banks are headless and the minister has promised that this situation will end in 30 days. This is as much of an admission that this should not have happened in the first place. Not only should no bank find itself headless, particularly when there is an NPA crisis on hand, with superannuation dates known far in advance, new incumbents should have been in place to take over from those departing.

One of the key areas which the Banks Board Bureau under Vinod Rai was meant to address was identifying in good time the right professional talent for top slots in public sector banks. But in its wisdom, the government chose to let the bureau have limited powers and sphere of engagement so that today Rai is gone and the bureau has become yet another faceless bureaucratic construct which can do little to change the way banks are run.

Top public sector slots remaining vacant is not something new. In the life of the present administration (2014-18) the gross NPAs of listed public sector banks have gone up by a phenomenal more than four times. It is not as if the rot has taken place in these years. It had set in earlier. What has now happened is that banks have been forced to call an NPA an NPA and not keep sweeping them under the carpet. Also, and this is critical, there has been no change in the last four years in the way the government oversees these banks. So a better governance culture has not emerged which could enable them to run professionally and competently.

Vacancies persist and are not filled up on time because of intensive lobbying by politicians, bureaucrats and bankers which ties the hands of the bureaucrats who have to move the papers. The persistence of top vacancies indicates that the present government is being held to ransom by lobbying the same way the previous one was.

The sad truth is that under UPA-rule, public sector banks, for the most part, were allowed to run to the ground and under NDA rule little has been done to change the way they are run. The insolvency and bankruptcy code will speed up recoveries of past bad debts and create a consciousness about the ills of over leveraging among promoters and bankers. But a lot more needs to be done for banks to be run professionally. That is what Rai tried to do with his multiple recommendations. But the government found them too difficult to swallow.

Now, with just about a year to go for elections, a finance minister who can only slowly recover from major surgery and get back to work full time, and leadership in the hands of a minister holding additional charge along with a whole lot of other serious responsibilities, there is little chance of a new regime being put in place soon. This is not much of a record to speak of, going into the polls.

Source - The Wire

Subir Roy is a senior journalist and the author of Made in India: A study of emerging competitiveness (Tata Mcgraw Hill, 2005) and the forthcoming Ujjivan: The microfinance frontrunner (OUP).

Read More

PNB expects to recover large amount from NPAs in Q1FY19

Enthused by the successful resolution of Bhushan Steel, Nirav Modi fraud-hit Punjab National Bank (PNB) is hopeful of Rs 8,000 crore recovery from bad loans in the first quarter of the current fiscal.

The bank, with its focus on recovery of dues from defaulters, has managed to surpass the total amount recovered in the last fiscal in the first two months of this financial year, a senior PNB official told PTI.

"This is due to renewed focus on recovery by PSB banks including referral of many cases to NCLT under the bankruptcy code is forcing many of the defaulting companies to settle their NPAs. While PNB had recovered Rs 5617.55 crore in the whole of last year, the bank's recovery stands at Rs 6,000 crore by first week of June," the official said.

By the time, this quarter (April-June) ends, PNB expects to complete recovery of almost Rs 8,000 crore, the official said, adding that large corporates like Religare, Arcotech and Surya Alloys have recently settled bad loans worth Rs 350 crore in the last two months via the recovery camps setup by PNB.

It is to be noted that PNB posted loss of Rs 13,416.91 crore for the fourth quarter ended March, 2018, the biggest ever by any domestic lender.

The bank last month said it provided for Rs 7,178 crore, 50 percent of the total amount of Rs 14,356 crore in the fourth quarter of 2017-18, with regards to the loss incurred on account of Nirav Modi fraud. According to the bank, the remaining amount will be covered in the three quarters of the current fiscal year.

PNB further said it has paid Rs 6,586.11 crore to other banks to discharge its liabilities towards Letter of Undertakings (LoUs) and Foreign Letter of Credits (FLCs) issued fraudulently and in unauthorised manner to certain overseas branches of Indian banks through the misuse of SWIFT system of the bank, which was then not integrated with CBS (core banking solutions).

Modi and his associates in connivance with some officials of PNB defrauded the bank of over USD 2 billion dollar. To focus on recovery, PNB has moved over 3,000 personnel from operations across the country into the stressed assets vertical, the official said.

"The stressed assets vertical has started operating from June 1. Four General Managers from the Corporate office have been tasked with heading the recovery vertical as part of the bank's management strategy to fast track recovery of NPAs," the official said.

Read More

Coming years challenging for banks, need to look beyond NPAs: SBI

The coming years will be very challenging for banks which will have to look beyond the bad loan resolution and address pressing issues such as frauds, cyber security and governance, SBI has said. 

The operating environment has become increasingly complex, the state-owned bank said in its Annual Report 2017-18. 

Resolution of stressed assets has progressed satisfactorily and the final outcome will take some more time to reflect in the profit and loss (P&L), it said, adding that this delay is mainly because new laws take some time to mature in practice, . 

"The coming years will be very challenging for the banking system as a whole," said the country's largest lender. 

"The structural transformation of banks must move beyond the non-performing asset (NPA) resolution and address other pressing issues, such as frauds, customer retention and servicing , human resource, cyber security and governance," it added. 

Of all the 21 public sector banks (PSBs), 19 have registered a staggering loss of Rs 87,300 crore in 2017-18, topped by scam-hit Punjab National Bank (PNB) which posted a net loss of nearly Rs 12,283 crore during the year. Indian Bank and Vijaya Bank were the only two PSBs which made profits. 

SBI said the policy initiatives over the last four years have gathered momentum with far reaching structural transformation in all sectors and banks are unlikely to remain untouched by these changes. 

With capital infusion in PSBs, it will be up to them how they grab the opportunity and deploy technology to address some of these pressing issues, the SBI report said. 

As on March 31, 2018, the gross NPAs of SBI increased to Rs 2,23,427 crore (10.91 per cent of the gross advances), from Rs 1,77,866 crore (9.11 per cent) by end-March 2017. 

The net NPAs or bad loans grew to Rs 1,10,855 crore (5.73 per cent) from Rs 96,978 crore (5.19 per cent). 

The largest lender of the country suffered a net loss of Rs 6,547.45 crore in 2017-18, as against a net profit of Rs 10,484.1 crore in the preceding fiscal. 

"The year 2017-18 was a difficult year as far as net profits are concerned. The main contributing factors being increase in loan loss provisions, mark to market losses on government securities and provisions and payments to employees," Chairman Rajnish Kumar said in the report. 

The banking environment remained eventful in 2017-18 as asset quality, resolution of stressed assets and muted credit growth in fist half continued as major challenges for most banks. 

"Higher NPAs impacted interest income adversely and led to elevated provisions, thus putting pressure on the profitability of banks. Further, some PSBs have been put under the Prompt Corrective Action (PCA) framework of RBI, which puts restrictions on key areas viz. dividend payment, branch expansion..," the report said.

The external environment has also become more uncertain, despite a positive outlook on growth, it said, adding that trade wars have become more acute and the situation will continue in 2018 in the same direction. 

So, the banks across the world have revisited their foreign business strategy in line with growing risks, it said. 

"Such cautions prevails among Indian banks as well. The government has advised banks to rationalise their foreign branches. However, this does not constitute a blanket withdrawal but a more realistic strategy in line with changing trade patterns of the country. This rationalisation in foreign business will therefore continue," SBI said. 

Terming the year gone by "an exceptional year" in many ways, SBI said the future strategy of the bank has to be clearly articulated and executed. 

"Potential leaders will be identified and mentored through customised training programmes to create a strong leadership pipeline. Some of these works are already in progress and concrete action plan will be implemented in the next two years," said the report. 

As per the report, the Chairman and Managing Director Rajnish Kumar, who was elevated to the post from October 7, 2017, drew a gross salary of Rs 14,25,594.10 by March 31, 2018 as the new chairman. 

Ex-chairperson, Arundhati Bhattacharya, took home a gross salary of Rs 14,69,975.81. She retired from the post on October 6, 2017. 

Source- EconomicTimes

Read More

Will 'bad bank' be good for the banking sector?

It's a commonly known fact that India's public-sector banks are in a bad shape. Then why would anyone want to create another 'bad bank' from scratch? Well, the idea of setting up a bad bank doesn't mean a bank that would be bad in its business but that it will take over bad business of other banks. A bad bank handles the bad business of other banks, freeing them of the burden of resolving their bad loans themselves. 

Why is the bad bank in news? 

The government has set up a committee under Punjab National Bank non-executive chairman Sunil Mehta to consider the establishment of an asset reconstruction or asset management company in yet another push to help resolve the bad loan burden that afflicts the banking industry. That company will be what is generally called a bad bank. 

What is a bad bank? 

A bad bank is an entity or structure that buys non-performing assets (NPAs) or distressed loans from banks and financial institutions (FIs), mostly at a discounted market price. It then works to recover and turnaround the assets through professional management, sale or restructuring.

This helps banks or FIs clear-off their balance sheets by transferring the bad loans and focus on its core business lending activities.

Addressing the media after a long brainstorming session with heads of PSBs in Mumbai on Friday, Piyush Goyal, who temporarily holds additional charge of the finance ministry, said a committee under Punjab National Bank’s non-executive chairman Sunil Mehta, has been formed.

The committee members will include SBI Chairman and one of its Managing Directors and Bank of Baroda CEO who will appraise the desirability of an ARC and frame the possible modalities of its structure and framework in next two weeks.

How 'bad' are India's PSU banks 

The 21 banks majority-owned by the government, which account for two-thirds of banking assets in the country, hold close to 90 percent of bad loans. 

Gross NPAs of banks increased to around Rs 10.3 lakh crore, or nearly 11.2% of advances, as on March 31, 2018, compared with Rs 8 lakh crore, or around 9.5% of advances, as on March 31, 2017. Higher provisioning and the resultant losses have materially eroded the Rs 1.2 lakh crore of capital raised by PSBs last fiscal, of which Rs 90,000 crore was from the government in the form of a bail-out plan. Crisil has said the government's bailout plan may not be enough. “Given the higher-than-expected losses last fiscal, probable loss in the current fiscal, and recall of the Additional Tier 1 instruments by a few PSBs, the Rs 2.1 lakh crore recapitalisation program announced in October 2017 may be insufficient to meet the capital requirements of PSBs by the end of this fiscal. 

Success or Failure?

The concept of a bad bank has been experimented in several countries especially after the financial crisis of 2008-09. It has witnessed some success in places like Malaysia, Sweden, Spain and few other countries.

In theory, the concept works well. However, it must be properly implemented and can probably be the starting-point for broader reforms to turnaround the banking sector, which is the backbone of any economy.

Experts have argued that the existing ARCs whose functions are largely confined to recovering stressed loans through liquidation of asset can’t address the problem.

Former RBI governor Raghuram Rajan also said that it would simply mean the transfer of NPAs from one entity to other. However, the larger focus must be on the ‘Twin Balance Sheet’ (TBS) problem of corporates and banks.

For a bad bank to find success, lenders will require to assign a realistic value to banks’ soured loans and also cooperation from the promoters of those assets.

This would mean banks may have to take hefty hair-cuts or discounts while selling the loans, even at the cost of their profitability. Further, equity may be required from owners and private investors.

Two weeks later, the banking sector might see more clarity on the structure and modalities of the bad bank, if at all the idea gets implemented. Meanwhile, banks continue to hope improved recovery from the ongoing time-bound resolutions under the insolvency and bankruptcy code (IBC).

If implemented, this may come to aid the 19 public sector banks of the total 21, which have made losses worth nearly Rs 60,000 crore in the January to March period this year. Strict provisioning norms to set aside capital for bad loans, losses in bond portfolio and a string of scams are straining the balance sheets and finances of most state-owned banks, especially the ones under PCA.

Bad loans or gross non-performing assets (NPAs) with these government-owned banks touched a staggering Rs 10.25 lakh crore as of March 2018.

Source- Moneycontrol

Read More