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Increasing non co-operation of state leaders EVM is tamper-proof Infrastructure funding – lessons learnt CSR and CMI: promise of another Srinivasan Ramanujan... Don’t seem to feel the pulse… The ‘Jayanthi Tax.’ Polls and promises CII projects higher growth… Kinetic Karnataka More tributes to GR Cutting the nose to spite the face Align crops to agro climate endowments… Godspeed, Chief Minister JJ Cleaning Ganga – relocate tanneries and install electric crematoria Measuring roof tops in terms of KW/MW Readers' Mail Airlines in India: cost and space The ‘Ayyo-yes’ is no more GM Technology at last! Rs.1600 crore paper board plant of TNPL Muffled voices for merit… Funding the un-funded Delhi Chalo... Tribute Building loyalty through the stomach When small is no larger beautiful.. Preserving for the future 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 There was flood of milk. Reason: no milk commissioner! Tribute – UCAL Selvan… Online not in line with brick and mortar businesses... The Jan Dhan bonanza TN – agglomerate land holdings without alienating ownership Poor representation for Kerala and TN in Cabinet Silver Years of Madras Musings Delhi returns to BJP A more liberated TN… Parliament in paralysis... Fortune 500 review IAS invades NDDB... A glass full of corruption GNS - 100: our first subscriber Kulandai was a giant A friendly business group Revive development banks... 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Wanted: a second airport for Chennai A proud Madrasi Haul over the coal He saved millions from starvation... Welcome changes that testify to Jayalalithaa’s return to health Making ‘my Amaravati’... Welcome GST Mersal magnified Shanti and Sadhana through Music Tatas moving out of urea production... Tough task taking states together S V Raju – a ‘good’ true liberal Fuel for thought Strengthen the base... More Shakthi to Das’ elbow When Ratan Tata visited SRM Gay abandon in pricing Pharma – overdose of copying Bihar elections - the Rajaji formula worked All eyes on Sankara Nethralaya An enemy’s enemy is a friend Quality education through the PPP mode Streamlining mandatory third party cover Kudos to NDTV... Not just in-laws (and outlaws); they’ve renowned academics at the helm! Towards speedy justice Tatas moving out of urea production... The few handicaps... Engineering seats go abegging CRS, a jewel among managers, is no more. 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Alexa – Talking Wikipedia Bihar – Nitish Kumar adopts the Lalu model Gas is the way forward Like Hinduism: many paths to reach God... Plummeting profits of PSBs Whistle-Stop Tour of Raghuram Rajan Permanent secretariat for TN GIM Adapt Vajpayee dinner diplomacy Should we change the official year? Nuclear power at the nucleus Delhi is distant… The Swadeshi Trump Solar thermal shines… Tribute – Manikam Ramaswami Things happen by accident and not by design... Which side are you, Montek? Computation of GDP – conundrums continue Demise of a media baron... A rich pool of talent not utilised…. 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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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