Banking News Estd. 20-4-1946 4-7 AUGUST, 2015 NEWS BULLETIN from ALL INDIA BANK EMPLOYEES ASSOCIATION For a greener planet, please don't print this unless necessary PRESS NOTE - GOVT OF INDIA The Public Sector Banks (PSBs) play an important role in the economy of India. Of late, because of variety of legacy issues including the delay caused in various approvals as well as land acquisition etc., and also because of low global and domestic demand, many large projects are strained. Public Sector Banks which have got predominant share of infrastructure financing have been affected by this phenomenon. It has resulted in lower profitability of Public Sector Banks, mainly due to provisioning for the restructured projects as well as for gross NPAs. 2. As of now, the PSBs are adequately capitalized and meeting all the Basel III and RBI norms. However, the Government of India wants to adequately capitalize all the banks to keep a safe buffer over and above the minimum norms of Basel III. We have, therefore, estimated how much capital will be required this year and in the next three years till FY 2019. If we exclude the internal profit generation which is going to be available to PSBs (based on the estimate of average profit of the last three years), the capital requirement of extra capital for the next four years up to FY 2019 is likely to be about Rs.1,80,000 crore. This estimate is based on credit growth rate of 12% for the current year and 12 to 15% for the next three years depending on the size of the bank and their growth ability. We are also presuming that the emphasis on Public Sector Bank s financing will reduce over the years by development of vibrant corporate debt market and by greater participation of Private Sector Banks.
3. Out of the total requirement, the Government of India proposes to make available Rs.70,000 crores out of budgetary allocations for four years as per the figures given below: (i) Financial Year 2015-16 - Rs. 25,000 crore (ii) Financial Year 2016-17 - Rs. 25,000 crore (iii) Financial Year 2017-18 - Rs. 10,000 crore (iv) Financial Year 2018-19 - Rs. 10,000 crore Total Rs. 70,000 crore 4. We estimate that PSB s market valuations will improve significantly due to (i) far reaching governance reforms; (ii) tight NPA management and risk controls; (iii) significant operating improvements; and (iv) capital allocation from the government. Improved valuations coupled with value unlocking from non-core assets as well as improvements in capital productivity, will enable PSBs to raise the remaining Rs. 110,000 crore from the market. However, the government is committed to making extra budgetary provisions in FY 18 and FY 19, to ensure that PSBs remain adequately capitalized to support economic growth. 5. In the Supplementary Demand presented today, an amount of Rs.12,000 crore has been provided, in addition to Rs.7940 crores already provided in the budget of FY 2015-16. The remaining Rs.5,000 crore would be provided in the second Supplementary later this year. The Rs.25,000 crore capital this year will be allocated through three tranches to meet three different objectives: Tranche 1: About 40% of this amount will be given to those banks which require support, and every single PSB will be brought to the level of at least 7.5% by Financial Year 2016. Tranche 2: 40% capital will be allocated to the top six big banks viz. SBI, BOB, BOI, PNB, Canara Bank, and IDBI Bank in order to strengthen them to play a vital role in the economy. Tranche 3 The remaining portion of 20% will be allocated to the banks based on their performance during the three quarters in the current year judged on the basis of certain performance. This will incentivize them to improve their performance in the current year.
Indian banks may have to raise capital to tackle bad loans India Ratings says Rs 93,000 cr required BUSINESSLINE, MUMBAI, AUGUST 6: The stress in the banking sector may require banks to raise up to Rs 1 lakh crore ($15.7 billion) of capital over and above the Basel III requirement to manage the risks from their loan exposure to debt-laden companies, according to India Ratings and Research. Of that, public sector banks, which dominate India s banking sector with more than 70 per cent market share, will need Rs 93,000 crore to deal with stressed loans, the credit agency said in a report. That may significantly increase the Government s equity injection requirements in State-owned banks, as against Rs 70,000 crore already announced We expect private sector banks and large (State-run banks) to be better placed in handling potential credit cost hikes from these large stressed corporates, given their sufficient operating and capital buffers, it said. The agency analysed 30 large and most-exposed companies, each with individual debt of over Rs 5,000 crore, aggregating to 7-8 per cent of the overall bank credit. Debt-equity ratio It pointed out that most of these companies debt-to-equity level has increased to four-six times in FY 2015 from about two times in FY 2010. This reduces their repayment capacity or the debt servicing levels Banks will need a 24 per cent reduction in their current exposure to ensure reasonable debt servicing (1.5 times) by these corporates on a sustained
basis, said Ananda Bhoumik, Senior Director Financial Institutions, Indian Ratings. In addition, the market capitalisation-to-debt ratio has also dropped significantly to 5-7 per cent from 35-50 per cent. He added that mid-sized State-run lenders will be the most affected, with their thin margins and weak capitalisation. Most State-run lenders have high levels of bad loans and their shares are trading below their book values, limiting their ability to attract capital from the market and rely on the traditional capital infusion by the Government. PSBs grapple with increasing bad loans, dip in profits NS VAGEESH BUSINESSLINE MUMBAI, AUGUST 5: Q1 results declared so far show 42% rise in gross NPAs Public sector banks saw a sharp rise in gross non-performing assets (NPAs) and steep drop in profits in the first quarter.
For 14 of the 20 banks (excluding the SBI and its group) whose first quarter results are in, net profits were down 38 per cent. Their gross NPAs were up 42 per cent over the past one year to a level of Rs 1.64 lakh crore. Large banks, such as Bank of India, Canara Bank, Bank of Baroda and Punjab National Bank saw the biggest rise in NPAs. The pain caused by bad loans may well last a few more quarters, if the recent track-record is anything to go by. The prospect of any quick improvement in their numbers is contingent on the economy recovering fully. Although growth forecast for this fiscal has been retained at 7.6 per cent, the slightly uncertain outlook on monsoons, the recent run of poor corporate results, lack of any pick up in investment activity, low growth in rural incomes and weak export performance, point to a few more difficult quarters for banks. The poor state of bank balance sheets has already compelled the government to rework its recapitalisation programme. After initially announcing that fresh funds would be infused on the basis of performance rather than being need-based, the government has said that it will be allotting the first tranche of Rs 10,000 crore this year to banks that are financially weak. NPA Selling: SBT Top Brass to Meet CM By Rajesh Abraham, 04th August 2015 KOCHI: The State Bank of Travancore (SBT) top brass is seeking an appointment with Chief Minister Oommen Chandy after growing protest over its decision to sell its non-performing loans (NPAs) in the education loan segment to Anil Ambani s Reliance Asset Reconstruction Company (R-ARC) for a pittance. The move comes after both ruling and the opposition parties and almost all banking unions criticising the Thiruvananthapuram-headquartered PSU bank s decision, which many reckon allows a free ride to recovery agents to unleash their might on hapless students and parents.
Officials admitted that there was a huge adverse publicity for SBT after the bank sold `130 crore student loan NPAs for `63 crore from 8568 accounts to Reliance ARC. Reliance ARC will pay only Rs 9 crore immediately and the remaining `54 crore will be paid to SBT over a period of 15 years, as reported by the Express on July 24. The issue will also come up for heated discussion at the next meeting of State Level Bankers Committee, scheduled in September, they said. After the Kerala government opposing the decision of SBT in the Assembly, we can expect the matter to come up for discussion at the SLBC meeting, scheduled in September, said an official at SLBC. Union leaders said SBT top officials are seeking a hearing with CM Chandy to apprise him about the facts following all round criticism. SBT management was not available for comment. A mail seeking comments from SBT managing director Jeevandas Narayanan elicits no response till at the time of going to the press. There is immense public pressure (on the management) to retract the decision. We feel the management can still retract. We want SBT to recover the NPAs, but we are totally against selling the NPAs to a private agency for the loan recovery, said K S Krishna, general secretary, SBT Employees Union. He blamed the government decision to open up the higher education to privatecorporate sector, making it unafforable to the common man. With education becoming unafforable, people are approaching banks for loans without even considering the job prospects, he said. Out of a total of `50,000 crore education loans in the banking sector, Kerala accounts for `9370 crore from 3.93 lakh accounts, as per the latest available figures. The total education sector NPA is `746.47 crore or just over 7 per cent, from 34,398 accounts. The best performer among the banks is Union Bank. ALL INDIA BANK EMPLOYEES' ASSOCIATION Central Office: PRABHAT NIVAS Singapore Plaza, 164, Linghi Chetty Street, Chennai-600001 Phone: 2535 1522, 6543 1566 & Fax: 2535 8853, 4500 2191 e mail ~ chv.aibea@gmail.com