Now Finance Minister Accepts Bitter Truth of Public Sector Banks

Provisioning for bad debt pushes IOB net down 88%-Business Line

CHENNAI, APRIL 29:  

The net profit of Indian Overseas Bank plummeted by 88 per cent to Rs 59 crore for the quarter ended March 31, 2013, against Rs 529 crore in the corresponding quarter last year.

The decline was an outcome of provisioning for bad and doubtful debts and restructured accounts, said Chairman and Managing Director M. Narendra.

Total income was Rs 5,898 crore — a 8.92 per cent increase over the same quarter last year.

For the financial year ending March 31, 2013, net profit was down by nearly half, to Rs 568 crore from Rs 1,050 crore the previous year. Total income was Rs 22,649 crore (Rs 19,578 crore).

HIGHER NPA

The bank’s gross non-performing assets (NPAs), or loans in jeopardy of default at the end of the financial year, increased to Rs 6,607 crore, against Rs 3,920 crore the previous year.

“It was a difficult period. Not many companies came forward to restructure their loans,” Narendra told newspersons.

Narendra said the NPAs of international clients have gone up substantially. “We are going for speedy recovery this year,” he said.

On the domestic front, the NPAs were mainly with small and medium businesses that are going through tough market conditions.

“This year, we should be able to contain the NPA level,” Narendra said.

The bank is cautious on bulk deposits, which have dropped to 11 per cent from 35 per cent. However, core deposits have increased substantially, he said. “This trend is a good sign for the bank and has helped in overall business growth,” he said.

Our Coimbatore Bureau adds: The IOB share price, hovering around Rs 68 for most of the day, took a sharp dive once the results were flashed on the Web sites of stock exchanges just after 3 pm and crashed to a 52-week low of Rs 62.20 on the BSE before pulling back marginally to Rs 63.70 at close.

The stock shed a third of its value in three months after touching a 52-week high of Rs 94.85 on January 7. The bank has cut the dividend payout by half to Rs 2 (Rs 4.50 last year).

Commenting on the results, Vaibhav Agrawal, VP, Banking, Research, Angel Broking, Mumbai, said the bank had reported a “disappointing operating performance” for Q4 of last year.

ASSET QUALITY

He felt that because of the asset quality pressures, provisioning expenses had more than trebled on a y-o-y basis, leading to earnings decline by 89 per cent y-o-y.

He said ‘more clarity from the management’ was being awaited about the asset quality pressure faced during the quarter.

http://www.thehindubusinessline.com/industry-and-economy/banking/provisioning-for-bad-debt-pushes-iob-net-down-88/article4667305.ece

What I Observe:-

I am negative minded but those who are at powerful post either in banks or in government or in RBI are positive minded.This is why person like me foresee or can visualize the hidden bitter truth and   maladies in the system but powerful person either do not want to read realities or they wish to willfully and cleverly avoid accepting truth to fulfill  their self interest.

I told many times about inherent weakness of Indian banks, I wrote a  few years ago that volume of Non Performing Assets (including stressed and restructured assets ) in government banks ranges from 5 % to more than 10% of total loans but none of financial experts believed this . RBI deputy governor Mr Chakravorty accepted almost a year ago that banks are hiding bad loans by using various unethical tools, ,no effective action was initiated .

Now Finance Minister has accepted openly the Bitter Truth of Public Sector Banks and without any hesitation the learned Finance Minister has admitted that PSBs are overstating profits, making less provision and concealing Volume of Non Performing Assets to hide their evil deeds and to protect top executives in banks. Top ranked bank SBI has already declared NPA upto the extent of 4.46% of total advances. Many other banks are in que behind SBI yo follow the same path.

Last year it was also detected that banks did not make even adequate provision towards payment of pension, gratuity and provident fund. Profit of giant bank SBI drastically came down but it did not trigger action against erring bank officials particularly who are ED, CMD, GM , AGM,CM, DGMs and Regional or Circle Heads  of various banks who manage and manipulate data as per their whims and fancies to hide their ill works.

If a branch manager is found to involved in window dressing of business he is immediately taken to task provided he does not any Godfather in upper echelon.At the same time it is also a undeniable truth that most of the top executives who are now at  the top position have attained such top position only by resorting to window dressing during their posting at various branches as Branch Manager or in a Regional Office as Regional Head or in a Zonal Office as Zonal Head.

In fact Window Dressing is an art to get continuous and fast promotion and also to remain in good books of higher bosses and t be counted as Star Performer. This culture does not change even after one is elevated to the oost of ED or CMD of a bank.

Even when profit of even star performing banks started coming down, government did not take it seriously. What will happen when bitter truth of smaller banks who have not fully adopted CBS till now will surface and precipitate after they adopt technology honestly, fully and perfectly?

Politicians who have used public sector banks for vote banks for decades together are also silent spectator of loot of banks in the name of credit growth or GDP growth or Industrial growth of development of agricultural and real estate sector or to give a boost to automobile sector. 

I do not know much economics or much about intricacies of GDP calculation or about side effects of punitive action against top bank executives but I am very much sure that if curative and corrective actions are not taken in time, volume of NPA in banks will go on rising till banks succumbs and collapses under the burden of debt turning bad year after year. 

Adequate manpower with best quality, knowledge, experience ,honesty and devoted attitude can only bring about desired change in the system and that too when government machinery supports wholeheartedly in recovery of loan from defaulters.Ill-motivated recruitment from campuses in higher scale,arbitrary rejection of experienced officers in promotion process and whimsical promotion of young flatterers at he cost of dignity of senior staff may only add fuel to fire. Reckless Firing by bosses and building unwarranted and unbearable pressure on juniors may prove counter productive in near future.

Ultimately it is poor investors and depositors who will bear the repercussion of bad performance of top bankers and top politicians and due to non performance of judiciary in proper and time bound framework.

When A Raja , telecom minister was exposed and when CAG told about loss of 170000 crores of rupees , government told that without A Raja public could not have enjoyed fruits of revolutionary change in internet and mobile .When Suresh Kalamadi was accused of corrupt deals in Commonwealth Games, PM talked of image of India in International forums.When Madhu Koda and Lalu Yadav was accused of involvement in scam, the then central government started talking of democracy and secularism.   And so on.......

Similarly now when bad assets are getting  exposed quarter after quarter in banks , top bankers and politicians will talk about GDP growth and credit growth and industrial growth and justify the ill motivated actions and evil deeds of corrupt bankers.

System cannot improve until it learns to award devoted workers and discard flatterers.

FinMin urges PSU banks not to overstate profit

 NEW DELHI, FEB 16: 

The Finance Ministry has written to all public sector banks asking them to ensure profits are not overstated and to make appropriate provisions for bad loans.

In a letter to heads of public sector banks, the Finance Ministry said “instances of over-reporting of profit have been continuing year after year and no corrective action seems to have been taken to stop the recurrence“.

The letter assumes significance in the light of rising bad debts in the banking sector.

According to a senior official of a public sector bank, the letter has been issued recently by the Finance Ministry.

Sometimes there could be a difference of opinion about the classification of NPA which gets sorted out at the time of external audit or Annual Financial Inspection (AFI) by the Reserve Bank of India (RBI), the official said.

If the bank is unable to convince the RBI for not classifying some loans as NPA and subsequently not making provisions, then the bank has to make provision after AFI, the official said. To that extent the profit is depressed later, the official said.

Banks have been trying to follow prudential guidelines of RBI on NPA in letter and spirit but there could be differences of opinion which gets resolved after AFI and reconciliation of accounts takes place, the official added.

During the third quarter of the current fiscal, banks profitability was hit due to raise in bad loans and restructured loans.

There has been about 19 per cent rise in restructured loan against the previous quarter as textiles, steel and infrastructure companies have suffered due to lower output and higher cost of funds.

Besides, there is NPA pressure for banks from the aviation and power sectors. They are struggling to recover Rs 19,000 crore from the ailing national carrier Air India.

Worried over rising bad loans in certain sectors, RBI is expected to meet banks to take stock of the NPA situation soon.

http://www.thehindubusinessline.com/industry-and-economy/banking/article2900011.ece

Finmin asks PSU banks not to overstate profit

The Finance Ministry has written to all public sector banks asking them to ensure profits are not overstated and to make appropriate provisions for bad loans.

In a letter to heads of public sector banks, the Finance Ministry said "instances of over-reporting of profit have been continuing year after year and no corrective action seems to have been taken to stop the recurrence".

The letter assumes significance in the light of rising bad debts in the banking sector.

According to a senior official of a public sector bank, the letter has been issued recently by the Finance Ministry.

Sometimes there could be a difference of opinion about the classification of NPA which gets sorted out at the time of external audit or Annual Financial Inspection (AFI) by the Reserve Bank of India (RBI), the official said.

If the bank is unable to convince the RBI for not classifying some loans as NPA and subsequently not making provisions, then the bank has to make provision after AFI, the official said.

To that extent the profit is depressed later, the official said.

Banks have been trying to follow prudential guidelines of RBI on NPA in letter and spirit but there could be differences of opinion which gets resolved after AFI and reconciliation of accounts takes place, the official added.

During the third quarter of the current fiscal, banks profitability was hit due to jump in bad loans and restructured loans.

There has been about 19 per cent rise in restructured loan against the previous quarter as textiles, steel and infrastructure companies have suffered due to lower output and higher cost of funds.

Besides, there is NPA pressure for banks from the aviation and power sectors. They are struggling to recover Rs 19,000 crore from the ailing national carrier Air India.

Worried over rising bad loans in certain sectors, RBI is expected to meet banks to take stock of the NPA situation soon.

"Stress sectors are well known, the issues which are there. But we don't think there is a great concern as of now," RBI Deputy Governor K C Chakrabarty had said earlier this week.

"But any how we are going to discuss it (NPA issue) with the banks in the coming days. We are going to meet banks during this month or first week of March," he had said.

SOURCE: financialtimes.com

 http://debtrecoveryguru.com/news/india/1135-rising-bad-asset-pose-a-challenge-for-indian-banks-rbi-to-meet-the-banks-soon.html

http://www.livemint.com/2012/02/13142450/State-Bank8217s-profit-bad.html

Rise in NPAs, loan recast spoils banks' show

ET Bureau Feb 16, 2012, 02.10AM IST

 A jump in bad loans and restructured loans marred the December quarter performance of banks, with restructuring jumping 19% from the previous quarter as textiles, steel and infrastructure companies bleed due to lower output and higher cost of funds.

There is no end in sight for troubles faced by some companies in sectors such as aviation and power as factors are beyond the control of companies, or in some cases even policymakers. Rising costs of coal and crude oil are among factors that are making things difficult. "There are areas affected by global factors, like textile and infrastructure, and we don't find any solutions to these problems in the near short term or proactive steps being taken by policymakers either," said BK Batra, executive director, IDBI Bank.

Total restructured loans for the December quarter were at least 23,400 crore, calculations by ET show. This adds to 1.21 lakh crore as of September registered for restructuring with the Corporate Debt Restructuring Forum.

"The situation is under control, but there is an underlying reality that it is not very comfortable," RBI deputy governor Anand Sinha was quoted as saying. "From 15% in 1995, NPAs came down till 2008, but they have risen sharply by 91%in 2006- 2011."

In the third quarter, Central Bank of India's restructured loan was the highest among banks with 3,616 crore, followed by Indian Overseas Bank at 2,828 crore. For SBI, it was 2,188 crore.

"All these are fresh NPAs. And so, there is a propensity of upgrading these accounts and we are working towards it. Secondly, we are looking at improving our recovery efforts to minimise the impact of damage, if any." said MV Tanksale, CMD, Central Bank of India. "But the important thing is that profits suffered because of migration from manual calculation of NPAs to an IT-based system. And this may have some impact on bottomline in the coming quarter."

PSU banks bore the brunt, with most banks reporting a decline in profits led by Central Bank of India which posted a 72% fall in profits followed by Union Bank of India at 66%. For some like SBI, the worst may be over after a clean-up of books. "NPAs have plateaued and we don't see any acceleration. The NPA storm that hit us in 2011 is now hitting other banks," said Pratip Chaudhuri, chairman, SBI. But that can not be said about all the banks.

"We could see some more recast for one more quarter, then it might start tapering off," said S Raman, CMD,Canara Bank.

SBI disappoints St as bad loans grow as fast as net profits

http://www.firstpost.com/business/sbi-disappoints-st-as-bad-loans-grow-as-fast-as-net-profits-211357.html

State Bank of India’s (SBI’s) December quarter results highlight the issue facing public sector  banks. While income and profits are increasing steadily, bad loans continue to be a drag.

SBI announced a net profit of Rs 3,263 crore as compared to Rs 2,810 crore in the September 2011 quarter while its net profit in December 2010 was Rs 2,828 crore.

Though the profit is  better than expected, its asset quality continues to worry. The bank has gross non-performing assets (NPAs) of Rs 40,098 crore, which is almost 4.61 percent of its loan book as compared to 4.19 percent in the third quarter. Almost Rs 6,152 crore has been added to gross NPAs.

Net NPA is at 2.22 percent – at Rs 18,803 crore as compared to 2.04 percent, or Rs 16,120 crore. Around Rs 2,683 crore has been added to net NPAs in three months.

Provisioning has increased marginally from Rs 2,921 crore to Rs 3,006 crore.

Other income of the bank is substantially lower, down from Rs 3,427 crore in the previous quarter to Rs 2,125 crore as the bank has booked a Rs 817 crore loss on its equity portfolio.

The bank’s capital adequacy ratio (CAR) has improved marginally to 11.60 percent during the quarter as compared to 11.40 percent in the previous quarter. Tier 1 capital stands at 7.59 percent, which Chairman Pratip Chaudhuri is confident will touch the 9-percent mark by March 2012 after taking into account the Rs 7,900 crore  the government will pump in and the bank’s profits. On the capital adequacy front,  the bank expects to close the fiscal year with a figure of 13 percent.

The treasury’s contribution to the bottomline has been the highest. While treasury has been making losses in the earlier quarters, the division posted an earnings before interest and tax of Rs 692.50 crore. Treasury operations had resulted in a loss of Rs 49.82 crore in the September quarter and a loss of Rs 724.53 in the December 2010 quarter.

On the net interest income front the bank has done reasonably well with a 26.7 percent growth to Rs 11,463 crore. This has been possible due to the bank increasing the share of retail deposits as compared to high-cost bulk deposits. These high-cost bulk deposits currently stand at an all-time low of 12 percent.

This has resulted in the net interest margin (NIM) of the bank improving to 3.82 percent as compared to 3.7 percent in the previous quarter. Buoyed by the third quarter numbers, the management has revised the NIM for the year at 3.80 percent as compared to 3.75 percent earlier.

SBI’s management is confident of touching a net profit run of Rs 3,000 plus crore going forward on higher margins. However, its deteriorating asset book seems to be growing faster than its profit.

Till the time the bank addresses the issue of its NPAs, the stock  market is unlikely to give Pratip Chaudhuri the discounting of 12-13 times its profits which he was seeking in the press conference. It was on this concern that the stock closed the day 2.15 percent lower at Rs 2,125.