Tuesday, March 20, 2012

All is NOT Well with Banks , says Banking Pundits

SBI's non-performing assets (NPA) rose sharply to 4.99 percent as on June 30, 2012 raising concerns over the bank's asset quality. The bank's gross non-performing assets was at 3.52 percent at the end of the first quarter of 2011-12 financial year.
At the end of the last financial year bank's non-performing assets was 4.44 percent.
Increase in non-performing loans led to a sharp drop in the company's share price. Share price of SBI slumped by 4.03 percent to Rs.1,892.45 at the Bombay Stock Exchange (BSE) after the announcement of the first quarter financial results.
"SBI's numbers disappointed on the NPA front. While we were expecting about Rs.4,000 crore increase in gross NPAs, the bank reported more than Rs.7,000 crore increase," said Vaibhav Agrawal, vice president, research-banking, Angel Broking.
Agarwal said the bank's net NPA and interest income were also disappointing.
"The numbers are overall reflective of the weak macro-economic trends and while we will watch out for the management's commentary on the outlook for slippages and recoveries, but overall for the next couple of quarters at least, asset quality concerns are likely to continue," he said.
Earlier UBS downgraded SBI to "sell" from "buy", saying a weak monsoon would put further pressure on bank's non-performing assets.

SBI bad loans hurt shares Q1 net profit surges
SBI-RESULTS-STATE-BANK-SHARES:SBI bad loans hurt shares Q1 net profit surges
Reuters / By Swati Pandey
MUMBAI Aug 10, 2012, 13:40 IST
State Bank of India, the country's largest lender, posted a second-straight surge in quarterly net profit on strong loans growth, beating street expectations, but a rise in bad loans pulled its shares down.

The results show that government-owned SBI's efforts to clean up its books since last year are yet to pay off and it is yet to bridge the gap between the quality of its earnings and those of private sector lenders such as ICICI Bank and HDFC Bank .

Government-owned lenders account for 70 percent of the market in India but their lending decisions are not always driven by commercial considerations. State-run banks last month reported a spike in bad loans for the June quarter, while the private lenders showed stable asset quality.

SBI's net profit more than doubled to 37.52 billion rupees from 15.84 billion a year earlier. Analysts, on average, had expected a net profit of 36.17 billion rupees.

Its non-performing loans rose to nearly 5 percent at end-June from 3.5 percent a year earlier but provisions, or the funds set aside for bad loans and contingencies, were down 41 percent to 25.6 billion rupees.

SBI shares were down 4.5 percent on Friday afternoon, in a Mumbai market that was down 0.4 percent.

Graphic on Indian banks performance and bad loans, click http://link.reuters.com/zyn89s
Starmine data set on banks, click http://link.reuters.com/xuw89s
Net interest income, or the difference between interest earned and interest expended, rose 14.6 percent to 111.19 billion rupees.\

Standard Chartered said in a post-earnings note SBI's new bad loans at end-June were at a record 108.4 billion rupees compared to the 55 billion rupees guidance given by the management.

SBI, in which the government owns about a 60 percent stake, had posted an improvement in its bad debts in the March quarter. Its shares have risen by a third from lows hit in December, about double the broader market's rise.

But, with a slowdown of India's economy accelerating and its monsoon rains failing, things might get tricky again.

Earlier in the day UBS downgraded the bank to "sell" from "buy" saying a weak monsoon would add to its already high bad loans.

The International Monetary Fund has sharply downgraded growth estimates for India to 6.1 percent this fiscal year and 6.5 percent in the next.

SBI's exposure to embattled Kingfisher Airlines and Air India is also causing some nervousness to investors.


SBI: SME bad loans a concern, will meet margin target

State Bank of India today said the increase in non-performing assets of the bank in the SME sector was a concern but maintained that it will meet its net interest margin(NIM) target of 3.75 percent for the full year.
The bank’s NIM in the first quarter came down marginally to 3.57 percent from 3.62 percent in the year ago quarter, Chairman Pratip Choudhury said.
He attributed in the increase in the bank’s non-performing assets (NPA) to the SME sector. Weak rains have pushed up the slippages in the agriculture sector, he said hoping a trend reversal in the second quarter.
He said the bank has been able to contain NPAs in large corporates to a large exgtent.
He sees Rs 3,600 crore of assets becoming standard in the next two quarters.
The bank’s return on net worth stood 18.41 percent. Making a strong defence of the government recapitalising banks he said the while the government’s borrowing cost is 8-8.5 percent, the bank is giving a return of 18.4 percent post tax.
Choudhury said the first quarter is generally a weak quarter for banks. And considering this, the bank’s performance is good and this has become the new normal for the bank.
The bank has managed to contain staff cost growth at 6 percent, which has improved the operational efficiency of the bank.
The bank’s an mark to market gain of Rs 521 crore In treasury operations in the first quarter

Dip in interest margins, rising bad loans lower banks' profitability in FY12


Fortunes of the banking system are linked to the performance of the real economy. Growth of the Indian economy slowed significantly from 8.4 per cent in 2010-11 to only 6.9 per cent in 2011-12. This was because of a host of factors, including the hike in policy rates 13 times.
How has the growth slowdown affected banks in India? We consider the performance of nationalised banks (NBs) which account for around three-fourths of the assets of the banking system in India.


We first look at how the banking business has grown in 2011-12. If we consider the year-end numbers, deposits and advances of the banking system grew 17.4 per cent and 19.3 per cent, respectively, in 2011-12 compared with 15.9 per cent and 21.5 per cent in fiscal 2010-11.
However, as on March 23, 2012, the last reporting Friday for the banks, the growth in deposits and advances were only 13.4 per cent and 17 per cent respectively. The sharp rise in deposits and advances in the last week of March 2012 reflects window dressing by banks.
If we consider the March 23 figure, which is devoid of window dressing, both deposit and credit growth have slowed down. However, the deceleration has been much more acute on the resource mobilisation front.
This is partly reflected in the higher money market rates and the rise in average daily borrowings of banks from the repo window, especially in the last five months of 2011-12.
For NBs as a group, business growth has decelerated appreciably from 22.3 per cent in 2010-11 to 16.3 per cent in 2011-12. The deceleration is seen both in resource mobilisation and credit disbursement. While deposit growth has shrunk from 21 per cent in 2010-11 to 15 per cent in 2011-12, credit growth has slowed from 25.2 per cent in 2010-11 to 18.1 per cent in 2011-12.
The subdued growth of deposits has multiple implications for banks. It raises the cost of funds in their bid to boost deposits by offering higher rates. This affects the interest margin. In an environment where credit growth is robust, banks can pass on the higher cost to borrowers. However, when economic activity is restrained, it limits the ability of banks to pass on the higher cost of funds to borrowers and can result in shrinking of interest margins.
In fact, NIMs of NBs fell by 58 basis points in 2011-12 over the levels seen in 2010-11.
This implies that nationalised banks have not been able to pass on completely the increase in cost of deposits to the lenders. The lowering of growth has kept demand for loans subdued, which has prevented the banks to pass it on to the borrowers fully.
Seen from a different perspective, net interest income (NII) has increased by only 10 per cent in 2011-12 compared to 48 per cent in 2010-11.
The subdued growth in NII is due to much higher growth in interest expenses at 46 per cent in 2011-12 compared to 33 per cent growth in interest income. The growth in interest income and interest expenses were 23 per cent and 12.6 per cent, respectively, in 2010-11.


Higher interest rates affect the loan servicing capacities of some categories of corporate and retail borrowers, and is ultimately reflected in deteriorating loan quality.

One of the major worries is the sharp rise in NPAs in 2011-12. Gross NPAs in absolute terms increased by 56 per cent in 2011-12 compared to only 21.6 per cent in 2010-11.

Gross NPAs as percentage of assets increased from 1.92 per cent in 2010-11 to 2.5 per cent in 2011-12. Net NPAs have also increased by 83 per cent in 2011-12 and the net NPA percentage has gone up from 1 per cent in 2010-11 to 1.4 per cent in 2011-12.

The drop in net NPAs in 2011-12 implies that the provision-coverage ratio for nationalised banks would have deteriorated in 2011-12


The dip in NIM coupled with an increase in NPAs has eroded profitability of the nationalised banks in 2011-12.

We find the RoA for NBs has declined by 14 bps in 2011-12 compared with the levels in 2010-11. Growth in net profits has been much lower at 3.5 per cent compared to 23.2 per cent in 2010-11.


Unlike in 2010-11, when the growth in employee expenses was to the tune of 40 per cent because of the implementation of second pension option for bank employees, it has been only 1 per cent in 2011-12.
This has helped the banks to post some improvement in their operating efficiency measured through the cost-to-income ratio. This ratio has improved slightly from 46 per cent in 2010-11 to 44.3 per cent in 2011-12.

Performance of banks is not only conditioned by the larger macroeconomic environment but also by specific policies and regulations for the banking sector.

In 2011-12, apart from a challenging macroeconomic environment, a number of changes in the policy and regulatory domain affected banks' performance.

Some of them include the deregulation of savings bank rates on October 25, 2011, and regulatory mandate to migrate to the system tracking of NPAs of the entire loan book by September 2011.
The cleaning-up exercise on the NPA front in an elevated interest rate regime coincided with the slowdown in the economy. This has led to a triple whammy for the nationalised banks, resulting in their lacklustre performance in 2011-12.

Economist Prime Minister says Indian banks are safe and there is nothing to worry for rising Volume of Non Performing Assets. Pranab Mukherjee reasserts by saying that banks in India are maintain adequate Capital Ratio to safeguard banks from disaster. RBI Governor and Deputy Governor say that they will not dilute provisioning norms, income recognition and asset classification norms to help banks contain rising NPA.

Rating Agencies have downgraded rating of various banks including top and biggest bank State Bank of India. Below are some links which tell how confusion prevails in banking circle and why conflicting statement are coming from RBI, Rating Agencies , Ministry of /finance and Chief Executive Officers of various banks.

When people talk of price rise Doctor Manmohan Singh has been making promises to control price rise but he has completely failed. Now learned PM says that price rise indicates that India is in growth trajectory.

When opposition parties cry to help 100 hundred crore poor in the country and discard pro rich policy of reformation, they say that number of poor has come down. For this purpose Manmohan led government has not revised the definition of poverty to bring it in tune with current price position. Three decades ago, a person having annual income of Rs6400 was treated as a person 'Below Poverty Line' and even now a person earning roughly Rs.9000 is called poor. During the same period annual income of salaried class and businessmen has gone up by at least fifty times and prices of all commodities have gone up by same multiple. This is why that number of poor person has come down by 10 % during last five years of UPA rule. And learned economist Manmohan Singh is proud of it. Flatterer leaders of Congress Party treat it a grand achievement. 

Similarly Value and volume of NPA in banks have been increasing every quarter. During last one year it has gone up by 50% as per Government statistics. Now government has set up a new panel to revise NPA norms so that even bad assets could be treated as standard assets as they are treating about 50 crore persons above poverty line by treating a person earning more than  Rs.28 per day as not poor. 

Since top bankers, RBI officials and top politicians are working in nexus with each other they do not want to stop their blame game and neither do they want their brothers in banks are punished for their involvement in corruption. They are bent upon concealing their bad assets somehow or other. RBI have eased CRR and SLR and now likely to consider relaxation in NPA norms.

At best top bankers may make make junior officers as scapegoat if at all they are forced to fix accountability for high value NPA. They willfully ignore the fact that all advances with value more than one crore rupees are sanctioned only after the sanction from top level executives of the bank.

Best way for banks is to submit a false and stereo type certificate to RBI in prescribed format that banks have assessed staff accountability in all NPA accounts. It is different that all real guilty are acquitted. After all , as per inculcated habits and in-built culture of Indians , India is treated good on the basis of certificates given by corrupt set of officers only . Government is least worried of ground reality.

Poor people do not repay bank loan because they are poor and they are confident that sooner or later government will announce waiver of loan. Rich people do not repay because they blame inflation, high interest rate, global recession, natural calamities, and bad weather for their nonpayment of bank loan in time.

If Obama eats meat in USA, economy of India and repaying capacity of Indian business class high profile borrowers is badly disturbed. Obviously when money lent is not repaid in time, it creates asset-liability mismatch and give rise to liquidity crunch.

It is only medium class borrower, middle class people and medium management officials in bank who are sufferers and who have to bear the brunt of bad policies, bad intentions of top officials, bad politicians and the bad systems of the country. On price front too, it prices rise it does not affect rich or poor class, it badly hits middle class dwellers only.

20 MAR, 2012, 04.42PM IST, PTI 
PSU bank NPAs up 51 pc to over Rs 1 lakh crore

Panel to advise sector-specific cure for NPAs
14 MAR, 2012, 07.07PM IST, PTI 
RBI not in favour of relaxing norms on loan restructuring, says government

Various news on banks published in last few months will tell the true story of banks

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