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IPL type auction for VCs? Towards speedy justice Vibrant Gujarat Remembering Indira Sivasailam... Discoms deserve better… When nations steal growth from one another… Chennai and Kolkata miss opportunity to grow as Delhi and Mumbai Excel Generators provide the vital back-up Preserving for the future Which side are you, Montek? The Ports’ Pasha expands into Tamil Nadu No mega rail project for Tamil Nadu An enemy’s enemy is a friend S V Raju – a ‘good’ true liberal IPL - no surprise this scam SoA @ 80 When Ratan Tata visited SRM Moily’s bold thrust Computation of GDP – conundrums continue Pharma – overdose of copying Bihar elections - the Rajaji formula worked More Shakti to resource mobilisation... A C Muthiah – his munificent bequeaths to science Build close rapport with business leaders Reliance’s TV – 18 ready to launch Tamil News Channel 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 PPP mode for upgrading Corporation Hospitals Making ‘my Amaravati’... Tax agriculture Shale gas and its shallow future Paytm karo... Tough task taking states together Air Asia India will set new benchmarks for budget travel WTO Meet: resolved to meet again Protest masters... The ‘Ayyo-yes’ is no more Cutting the nose to spite the face Dr C Rangarajan returns to Chennai TGS- The king storyteller Gas is the way forward No Maha Koottani in TN... The star of Spencers is no more Shaming of Tamils by Tamil farmers at Delhi The balancing act PC’s preference for professionals Solar thermal shines… Editor's Notes Demise of a media baron... Return to king coal for urea... There was flood of milk. Reason: no milk commissioner! Contrarian cousins The ‘Jayanthi Tax.’ This scant respect for Law Plummeting profits of PSBs Should we change the official year? A think tank for Chennai Scientists urged to take up farmer-oriented research Insurance companies bleeding, yet no decision on increasing FDI limit! Why this malaise in medical education? The rise and fall of Annamalai University …and of a popular trade leader An inexplicable neglect Building loyalty through the stomach Telangana in top gear… Shanti and Sadhana through Music The Swadeshi Trump Funding the un-funded Online not in line with brick and mortar businesses... Fall in crude prices help in oil sector reform When the President was rendered homeless… Parliament in paralysis... Convulsions in The Hindu Focus on quality of power - its only around 170-180V Diamond jubilee of Egmore Samskrt School A rich pool of talent not utilised…. Modi and the lady The brown list of Venkitaramanan Tribute – M V Murugappan Make standards certification mandatory... 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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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