Wednesday, November 09, 2011

Health of SBI and other PS banks

State Bank of India is the biggest and the leader bank in our country. SBI is treated as largest bank because of its highest business profile and highest number of branches and it is called as leader bank among public sector banks because other banks follow what normally SBI do. It may be interest rate policy or loan policy or branch expansion policy, SBI normally shows the route to other bank. In the last week RBI deregulated saving interest rate and a few private banks raised interest rate on saving s deposit. But since SBI did not increase savings interest rate other banks are also silent on this issue.

Further SBI claims to be one of top ranked global banks and our government feels proud for it. I however feel that SBI may in near future become one of the most critically sick and sinking bank like Lehman Brother. Moreover when assets of bank like SBI starts ringing alarm signal, one can very well imagine the worst scenario prevailing in other Public sector banks. Credit growth and deposit growth, both have come down in SBI whereas NPA has gone up from 3.38%last year to 4.19% this September. Position of other banks is also bad but their exposure will take place only when fully adopt CBS system and applies honestly prudential norms of income recognition and asset classification as per system only.

It is true that net interest margin has gone up slightly because Public sector banks in general have stopped giving preferential higher rate of interest to bulk depositors. But this is one time phenomenon. Cost of deposit will slowly go up because banks have during last year increased deposit interest rate many times for retail depositors and because of probable increase in savings rate. But banks in general will not like to raise interest on their advances to compete in the market and to abide by government directive or under pressure of Ministry of Finance or to extend preferred rate to preferred borrowers who extend golden gifts to officials of bank. As a result yield on advances will come down and hence NIM will also see considerable erosion. Provisioning will go up as bad assets grow and profit will come down and government will have to infuse capital time and again to fulfill Basel norms of Capital adequacy Ratio.

Obviously when credit growth coming down, NIM s under pressure ,ratio of NPA is going up quarter after quarter , provisioning need is increasing and other income is shrinking, future of not only SBI but of all public sector bank appears to be bleak. Other banks have too published their balance sheet for the September quarter registering growth in bad assets, increase in provisioning and fall in profit. Still RBI officials and MOF say that health of Indian bank is good. It is worthwhile to mention here that total of bad assets in PS banks as on 30th September 2011 has crossed one trillion rupees. Even Moody had downgraded rating of SBI and in last few days Moody lowered its outlook on banking system, showing slowing credit growth and concerned about asset quality..

It is disheartening that even legal tools are not strong and effective enough to recover amount from willful defaulters. Lacs of cases are pending in various district level courts, DRT and high courts for several years and even if decree is granted by court of law , district administration and police officials are not interested to act swiftly and effective against bank defaulters because they also get gifts from such recalcitrant and willful defaulters.

To add fuel to fire, politicians will announce from time to time various loan waiver schemes to enrich vote bank. Moreover manpower position of all banks is very much poor qualitative and quantitatively. Human resource management is the worst in public sector banks. Flattery and bribery has become the common culture and most of top ranked officials in public sector banks are those who were involved in bribe led lending and who added more and more bad assets in bank’s portfolio to get faster promotion and cream posting..

It is worthwhile of mention here that global financial crisis is also likely to adversely affect the health of already sick bank suffering from cancer of corruption. Most of the banks have sanctioned hundreds and thousands of crores of rupees to big borrowers to increase their loan portfolio and to achieve the target given by MOF. It will not be an exaggeration if I say top 1000 borrowers of all banks have been beneficiary of 50% of total loan portfolio of the bank. As such if due to recessionary pressure any one account out of top 1000 borrowers goes bad , the health of that bank will go beyond control and not only tarnish the image of banking industry but expose of empty mind of Ministers and top regulators. It is well known that lending made in power sector, real estate sector, diamond industry, Micro Finance Institutes etc are already on the verge of slipping into sub standard category.

I am unable to understand when Government of India will wake up from its deep slumber and ministers will come out of hibernation to punish top ranked bank officials and make effective use of its administrative, police and legal powers.
I however make an appeal to RBI officials and our learned Finance Minister to open their eyes and ears and take corrective step immediately before it is too late.
I can appeal but I cannot expect good result from any corner because FM or PN or CM all are surrounded by corrupt and flatter persons.
After all who will bell the cat?
Let us however expect some good result from movement launched by Team Anna or Ramdeo like persons and various organisations.

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