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വായന

12 June, 2018

Banking sector's worrisome woes continue

BRP Bhaskar
Gulf Today

India’s largest public and private sector banks are grappling with problems arising from systemic weaknesses and their unhealthy consequences.

The State Bank of India, with a customer base of 420 million and balance-sheet of more than Rs 30,000 billion, is the only bank from the country among the world’s top 50. It reported a net loss of Rs 65.47 billion for the financial year that ended on March 31 as against a net profit of Rs 104.84 billion in the previous financial year.

It attributed the loss to “an increase in provisions for non-performing assets (NPAs) and mark-to-market investment portfolio”. In plain language, this means the bank had to take into account possibilities of non-recovery of some loans and fall in market value of securities.

NPAs, always a source of worry, have become a cause for increased concern in view of the ease with which high-profile borrowers like playboy-businessman Vijay Mallya and diamond merchants Nirav Modi and Mehul Choksi have been able to slip out of the country.

Of the 21 state-owned banks, 19 were in the red when the last financial year closed. Their total loss was about Rs 873.57 billion.

The Punjab National Bank, which is at the centre of the Nirav Modi-Choksi scam topped the list with a loss of Rs 122.83 billion, followed by IDBI Bank with Rs 82.38 billion. SBI was in the third place.

At the end of 2017, the gross NPAs of all banks stood at a whopping Rs 8,409.58 billion. Industrial loans accounted for Rs 6,092.22 billion in NPAs, the services sector for Rs 1,105.20 billion and the agricultural sector for Rs 696 billion.

According to information provided to Parliament, the industrial sector led in delinquency with 20.41 per cent of the advances turning into NPAs, as against the agricultural sector’s 6.53 per cent and the service sector’s 5.77 per cent.

SBI, the largest bank, has the highest NPA figure of Rs 2,015.60 billion, and is followed by the Punjab National Bank with Rs 552 billion and IDBI Bank with Rs 445.42 billion. 

Among private sector banks, the ICICI Bank has the most NPAs: Rs 338.49 billion. A large loan it gave to Videocon Industries, a home-grown consumer durables company, is now under investigation for suspected quid pro quo as that company pumped money into NuPower Renewables, a firm owned by Deepak Kochar, husband of ICICI Bank CEO Chanda Kochar.

Videocon, which was once a highly profitable company, filed an insolvency petition before the National Company Law Tribunal last week. It owes about Rs 200 billion to a consortium led by SBI.

The steady rise in the growth of NPAs over the years raises the question whether the Reserve Bank of India has been diligent in the performance of its role as the central bank. 

Last February, while going through SBI’s documents relating to the financial year ending March 31, 2017, RBI found that it had understated its NPAs by 21 per cent and overstated its profits by 36 per cent. The standard RBI practice is to publicly report the divergence if it exceeds prescribed limits, which are quite liberal, with a view to naming and shaming the bank. No one is punished for misleading the regulator and the general public.

In April, RBI reportedly put 11 state-owned banks under its prompt corrective action framework which entails restriction on their lending activities.

Three days ago Piyush Goyal, who is officiating as Finance Minister, announced the setting up of a committee with instructions to submit recommendations for the formation of an asset reconstruction company for quick resolution of stressed bank accounts in a transparent manner.

When gross irregularities are investigated, bank officials get caught and are charged with corruption. But bankers do not always bend the rules for personal gain. Sometimes they do so at the behest of politicians who want to help their financiers.

Former RBI Governor YV Reddy has said that the government is pressing banks to lend to infrastructure projects, which are not an area in which they have competence, and to make depositors share the burden of bank frauds. 

A lasting solution to the banks’ woes cannot be found until the political overlords learn to respect the professional judgment of bankers.--Gulf Today, Sharjah, June 12, 2018

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