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GNS - 100: our first subscriber Building loyalty through the stomach Kudos to NDTV... Welcome thrust on trade in Modi’s foreign visits... Wise Presidents Funding the un-funded TN-leverage strength of BHEL, NLC... Which side are you, Montek? Measuring roof tops in terms of KW/MW PPP mode for upgrading Corporation Hospitals Alexa – Talking Wikipedia There was flood of milk. Reason: no milk commissioner! …and of a popular trade leader Lesson from Chandrababu Naidu Protest masters... Preserving for the future When online building permits work…. For whom the MIDS bell tolls? Editor's Notes Where is Rajaji? Adharma of opposition politics IPL - no surprise this scam B H Kothari - a tribute Solar thermal shines… Things happen by accident and not by design... The nuclear option Rahman at CIC Where a state respects its litterateurs… Shipping woes of Chennai companies Shanti and Sadhana through Music Boy, can you beat these? Naidu’s return augurs well for Seemandhra A yen for wastage… Why land prices zoom in TN? The ‘Jayanthi Tax.’ Discoms deserve better… Delhi is distant Scientists urged to take up farmer-oriented research Sri Lanka votes for change When TN politicians can emulate Kerala's Moily’s bold thrust Air Asia India will set new benchmarks for budget travel The balancing act Breaththrough in malaria control Shale gas and its shallow future IAS invades NDDB... Varuna (rain) in 2015; Vaayu (air) in 2016. Chennai devastated When nations steal growth from one another… The sea- saw battle continues... 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Modi and the lady Lalu’s envy, India’s pride Cement prices continue to rise… Insurance companies bleeding, yet no decision on increasing FDI limit! Recognition to role of NBFCs.... Another Indian music maestro at the UN An informal presentation - analytical, forward locking... A C Muthiah – his munificent bequeaths to science An enemy’s enemy is a friend More Shakthi to Das’ elbow Remembering Indira Sivasailam... Bihar elections - the Rajaji formula worked Naidu will soon build a new Hyderabad Odisha: spectacular win by Naveen Patnaik China invests in India A proud Madrasi Liberal imports idling indigenous capacities Build close rapport with business leaders The few handicaps... Bihar – Nitish Kumar adopts the Lalu model Should we change the official year? Vibrant Gujarat Limit foreign borrowings to hi-tech, export potential projects... Put expensive assets created to use... 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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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