Public sector banks have already huge hidden stock of bad assets in their loan portfolio which were hidden for last so many years but which are likely to surface due to RBI's directive to all banks to use online mechanism to ascertain and assess the quality and quantity of bad assets..
To add fuel to fire, these PSBs have to face further deterioration of assets due to RBI’s hardening attitude. On the one hand banks will find fewer opportunities for fresh lending and on the other loan given in some sector like real estate, auto, home, diamond, MIFs, educational loan etc are likely to add huge burden of bad assets in coming quarters.
As a result gross NPA percentage will definitely increase and this will increasing provisioning, reduce interest earning and cause an adverse impact on profit..Further deteriorating financial health all over the world may cause additional trouble to health of PSBs.
Government is also likely to sprinkle petrol on burning banks by advising banks for more and more lending to farmers, bad corporate house, exporters, importers, traders to enable them to cope with situation arising out of global recession.
Again there will be demand for restructuring of loans to prevent slippage of good loans into the category of Non Performing Assets. This is not my negativity but it is the reality of PSBs.
Clever bankers have so many excuses to convince government of India and on the other hand GOI have moral duty to accept their lame excuses because they know in the core of heart that they are equally responsible for the mess existing in the bank. It is high rank officials in RBI, MOF and powerful politicians who promote corrupt culture in lending, compromise and then in waiver of loan. It is GOI which promote corruption even in posting of top officials and directors in PSBs. It is politicians and top ranked bankers who recommend for lending to ineligible persons and it is they who promote default culture and then who recommend for waiver and compromise.
Root cause of all maladies is Flattery and Bribery culture prevalent in lending, recruitment, promotion, posting and in all construction and supply related works. There is close nexus among bankers, RBI officials and politicians of top rank.
Only silver lining is that due to rise in interest rates on deposit and due to falling share market there is all possibility that people of India prefer banks savings deposit and term deposit. Further due to lesser opportunities for lending at higher rates there will be surplus liquidity with all banks and due to this they will avoid High Value deposits. As a result CASA will improve and overall cost of fund will come down whereas yield on advance will grow due to continuous rise in base rate and BPLR .This will help in maintain profitability to a great extent even though the profit erosion due to growing proportion of bad assets will continue to cause pain to learned bankers. Further a few bankers have realized their guilt of promoting corrupt culture in promotion and posting and they have initiated change process , Obviously this will help in improving strength of Human Resources.