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Modi and the lady When the President was rendered homeless… A Grand Finale for SN’s MS centenary at the US… Delhi is distant Telangana in top gear… Computation of GDP – conundrums continue London, London Narayan Paytm karo... Polls and promises Sweet news for TN sugar mills All eyes on Sankara Nethralaya Contrarian cousins Tax agriculture Medical costs hit the roof... GM Technology at last! IAS invades NDDB... Quality education through the PPP mode The few handicaps... Lalu’s envy, India’s pride Delhi Chalo... The power-full Hindujas Robber barons everywhere The ‘Ayyo-yes’ is no more Limit foreign borrowings to hi-tech, export potential projects... Rahman at CIC A proud Madrasi to the lack of interest on the part of these to focus on original research. This despite the much lower costs of such research in India. The industry which thrived on the protection of a closed economy and the advantage of a vast domestic market, has failed to organise its evolution on healthy lines Welcome thrust on trade in Modi’s foreign visits... The Jan Dhan bonanza A professional at the helm of IRDA... West Bengal: mindless malignancy More Shakti to resource mobilisation... An informal presentation - analytical, forward locking... Tribute – Manikam Ramaswami Breaththrough in malaria control Tribute – UCAL Selvan… Things happen by accident and not by design... Not just in-laws (and outlaws); they’ve renowned academics at the helm! Fortune 500 review Shipping woes of Chennai companies For whom the MIDS bell tolls? A welcome initiative by the judiciary Strengthen the base... Towards speedy justice Land reclamation from sea appears cheaper! Adharma of opposition politics A glass full of corruption Road development slows down No mega rail project for Tamil Nadu A C Muthiah – his munificent bequeaths to science Silver Years of Madras Musings Haul over the coal Recognition to role of NBFCs.... Excel Generators provide the vital back-up Demise of a media baron... Protest masters... Tihar, Puzhal not different from Parappana Agrahara Welcome focus on core competence Another Indian music maestro at the UN Muffled voices for merit… Revive development banks... B H Kothari - a tribute Plummeting profits of PSBs Preserving for the future Delhi is distant… Why land prices zoom in TN? Come elections, come advertisements... IPL type auction for VCs? How Air-India loses customs... Pharma – overdose of copying The rise and fall of Annamalai University TELANGANA at last…BUT EEC at the National Media Centre Quality silica from Neyveli A more liberated TN… Should we change the official year? Tatas moving out of urea production... 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TN-leverage strength of BHEL, NLC... Where is Rajaji? Varuna (rain) in 2015; Vaayu (air) in 2016. Chennai devastated Readers' Mail Welcome changes that testify to Jayalalithaa’s return to health Solar, solar everywhere … Measuring roof tops in terms of KW/MW Reliance’s TV – 18 ready to launch Tamil News Channel Don’t seem to feel the pulse… TN accounts for the largest recruits by the IT sector Permanent secretariat for TN GIM S V Raju – a ‘good’ true liberal More heat than light Whistle-Stop Tour of Raghuram Rajan Where a state respects its litterateurs… Dr C Rangarajan returns to Chennai Delhi returns to BJP The balancing act Roaring Ro-Ro facility The Gulf aviation boom MHC should not return to its old indisciplined ways Shanti and Sadhana through Music Remembering Indira Sivasailam... 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Maximising the micro pricing … Moily’s bold thrust Russi Mody – a tribute Online not in line with brick and mortar businesses... TIAM turns a full cycle Colour-Chem’s colourful KRVS TN – agglomerate land holdings without alienating ownership Increasing non co-operation of state leaders
 
Plummeting profits of PSBs

The results of the third quarter performance of public sector banks are a great shock to the investors.    

First, we had the results of three public sector banks – Central Bank of India, Allahabad Bank and Dena Bank - that reported losses of Rs 836.62 crore, Rs 486.14 crore and Rs 662.85 crore respectively. Then came the bombshell from State Bank of India, the country’s largest lender, reporting a 61.7 per cent drop in net profit to Rs 1115 crore from Rs 2910 crore in the previous year’s corresponding figures. This reduction resulted in the Sensex plunging by a 21-month record figure of 807.07 points. Later we had the healthy PSB, Bank of Baroda, reporting a loss of Rs 3342 crore, the highest ever quarterly loss posted by any public sector bank in the industry, thanks to a provisioning of a whopping Rs 6474 crore compared to the Rs 1149 crore it provisioned in the previous quarter. The gross NPA was shown as Rs 38,934 crore (9.68 per cent) and net NPA Rs 21,806 crore ie. 70 per cent rise.

Breaking the convention, the NDA-II government drafted bank managers from the private sector to head public sector banks.  Ravi Venkatesan, the new Chairman (drafted from Microsoft India) and P S Jayakumar, the new MD & CEO (drafted from Citibank) of Bank of Baroda, were not weighed down by the baggage and came out boldly with such hefty provisioning.  

IE has been pointing to the gay abandon with which bank chairmen of several public sector banks were lending. We had pointed to Indian Overseas Bank as an instance of such profligacy. Then CMD, M Narendra was enjoying a field day getting kudos for such largesse from industry associations. He was cleverly hedging his bets by having gala functions year after year presenting high ups at the policy level from Finance Minister P Chidambaram to Minister of State for Finance, Namo Narain Meena to Reserve Bank of India Governor, Deputy Governor, et al in lavish functions.

PSBs have seen a surge in their bad loans following directions from the RBI to classify some large corporate accounts as bad debts. Banks have been avoiding to classify these as NPAs, as it would hurt their bottom line. But thanks to RBI Governor Raghuram Rajan voicing seriousconcern, public sector banks started provisioning more. SBI’s provisions for bad loans soared 59 per cent to Rs 7645 crore.

A staggering Rs 52,542 crore of bad loans have been waived off by PSBs, a 52.6 per cent increase over the previous fiscal. Public sector banks indulged in massive settlements in which unrecoverable loans were settled at huge discounts. These are attributed to pressures from politically powerful personalities, eg. a Rs 10 crore outstanding loan settled for around Rs 3 crore with suggestions of liberal kickbacks from political intermediaries.

Such bad management resulted in an inevitable low valuation of the banks’ stocks. This is in contrast to private banks including the large HDFC, ICICI and Axis Bank and smaller ones like City Union Bank, Karur Vysya Bank and Lakshmi Vilas Bank showing healthy balance sheets.

The urgent need is for bold reform of the banking sector. Union Finance Minister Arun Jaitley announced at the CNN Asia Business Forum 2016, his plans to go for a series of banking reforms. There is the hint of the government reducing its holdings in PSBs to 51 per cent.

Such a step would bring in twin advantages: it will make the banks more accountable to the shareholder and secondly force these to earn higher profits and relieve the government of the burden to capitalise these frequently.  Such a step will also pave the way for more mergers and acquisitions. Of course, the task is not easy. Bank employees’ unions are strong and have resisted successfully such significant reforms.

 

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