Tag: PSB

CAG flags treatment of bank recap expenditure in FY18-19, BFSI News, ET BFSI

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The Comptroller and Audit General (CAG) has raised its concerns over treatment of expenditure of bank recapitalisation during 2017-18 and 2018-19, stating that it was against the provisions of the fiscal responsibility and Budget Management (FRBM) Act.

For recapitalisation of state-run banks, the government provided ₹80,000 crore in 2017-18 and of ₹1.06 lakh crore in 2018-19 respectively.

The CAG has flagged in the expenditure budget the above mentioned expenditure on recapitalisation of the PSBs, had been netted against receipts from issue of special securities, while in the receipt budget, receipts from the securities have been netted against expenditure on recapitalisation.

It said that during the two financial years, funds for these investments were raised by the government through issue of non-transferable special securities to the same PSBs.

According to CAG, the finance ministry had stated that bank recapitalisation was not fiscally neutral but cash neutral, as issue of securities would get reflected in the total government debt and coupon payments for the special securities when made would be reflected in the deficit of the relevant year.

The concept of recapitalisation bonds was first introduced in 2017. Earlier, the capital infusion was to done by the government to a bank through cash outgo from the Consolidated Fund of India led to fiscal pressure.In 2017, the government had introduced recap bonds.

Under this, the government issues recapitalisation bonds to a public sector bank which needs capital. In turn, banks subscribe to the bond against which the government receives the money. Now the money received goes as equity capital of the bank. So the government doesn’t have to pay anything from its pocket.

The national auditor also pointed out the deficit in operation of the National Small Savings Fund (NSSF), which comprises all collections of small saving schemes.

“The balances under NSSF do not explicitly disclose the substantial accumulated deficit in the fund, which would have to be made good by the government in the future. There is also inadequate disclosure that significant amounts were being provided from NSSF for funding revenue expenditure of the government which would have to be serviced through budgetary support. It also raised concerns over inadequacies in disclosure under the FRBM rules.

The CAG pulled up the union government for adopting an erroneous process of devolution of Integrated Goods and Services Tax to states and short-transfer of cesses to reserve funds, which resulted in under-reporting of deficit figures for the 2017-18 and 2018-19 fiscals. The IGST, which is levied on inter-state sale of goods and services, is shared between the Centre and states in the 50:50 ratio.

In its report on the union government accounts tabled in Parliament, the Comptroller and Auditor General of India (CAG) found that ₹13,944 crore was left unapportioned and retained in the Consolidated Fund of India (CFI) in 2018-19, even though the amended IGST Act now provides for a process for ad-hoc apportionment of IGST.



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SBI net profit up 67% in Q2, chairman says asset quality significantly improved, BFSI News, ET BFSI

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The State Bank of India, India’s largest lender, today reported a standalone net profit of Rs 7,626 crore, up 67% on year, the highest ever for the bank.

A year ago, the bank reported a net profit of Rs 4,574 crore. On a sequential basis, the profit rose 17% from Rs 6,504 crore in the June quarter.

The bank’s asset quality has significantly improved, chairman Dinesh Khara said at the earnings announcement.

Gross non performing assets came in at 4.90% in the September quarter, lower than 5.32% in the June quarter and 5.28% in the year ago quarter.

Meanwhile, the net NPA ratio stood at 1.52% for the quarter.

The net interest income (NII) – the difference between interest earned and expended – rose 10.6% to Rs 31,184 crore in Jul-Sep.

The non interest income fell 3.7% to Rs 8,207 crore compared with Rs 8,527 crore a year ago.

Khara highlighted that the capacity utilisation of manufacturing is still very low. Advances rose by just 6.17% over last year, driven by personal retail advances, up 15.17% on year, and foreign office advances, up 16.18% on year.

Domestic advances grew 4.61%, with home loans, which constitute 24% of domestic advances, rising 10.74% on year.

Total deposits grew nearly 10% on year, current account deposits grew 19.2% and saving bank deposits grew 10.55%.



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Unions in IDBI Bank request it be re-classified as PSB

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Four unions in IDBI Bank have written to the Finance Minister requesting that the proposed sale of their bank to private players by the government and LIC of India be stopped and the bank be re-classified as a public sector bank.

This comes in the wake of the Department of Investment & Public Asset Management (DIPAM), on behalf of GoI, moving to engage legal advisor and transaction Advisor for facilitating/ assisting it in the process of strategic disinvestment of IDBI Bank along with transfer of management control.

The four unions — All India IDBI Officers’ Association, IDBI Officers’ Organisation, All India IDBI Employees’ Association and IDBI Karmachari Sangh — emphasised that all the staff had secured job in IDBI Bank through All India competitive exam.

“Many officers left their previous job with public sector banks and the Central government to join IDBI Bank,” per a joint statement.

Risk to employment

The unions feared that in case of sale of IDBI Bank to private players, as proposed by the government and LIC, the fate of around 17,000 families supported by direct employment and around 20,000 families supported by indirect employment with IDBI Bank will be at risk.

According to the statement, around 50 per cent of staff working in IDBI Bank under direct or indirect employment are female employees. More than 100 officers under direct employment are either physically challenged or visually impaired.

Serve the common man

AV Vithal Koteswara Rao, General Secretary, AIIDBIOA, underscored that IDBI Bank, being majority owned by LIC (promoter with management control) and GoI (co-promoter), is catering to the needs of the common man with zero balance Savings Bank accounts and offering aggressively various Government products and schemes.

So, if IDBI Bank is sold to a strategic buyer, various products and schemes of GoI which are meant for the common man and general public cannot be offered through a Bank owned by private entities, he added.

“India needs more government banks to improve financial inclusion parameters/aspects. Reduction in the number of government banks leads to less competition which is nothing but monopoly. This is totally against the interest of the common man and general public,” Rao said.

Possible amalgamation

He felt that the government should explore the possibility of amalgamation of IDBI Bank with either State Bank of India, Bank of India, Central Bank of India or Bank of Maharashtra so that the Government’s cause of financial inclusion, credit outreach to MSMEs and agriculture, and support to the ₹100-lakh crore ‘PM Gati Shakti Master Plan’ for developing holistic infrastructure is better served.

The Cabinet Committee on Economic Affairs had given its in-principle approval in May 2021 for strategic disinvestment along with transfer of management control in IDBI Bank.

The extent of respective shareholding to be divested by GoI and LIC shall be decided at the time of structuring of transaction in consultation with RBI, per a CCEA statement.

GoI and LIC together own more than 94 per cent of equity of IDBI Bank (GoI at 45.48 per cent, LIC at 49.24 per cent). LIC is currently the promoter of IDBI Bank with Management Control and GoI is the co-promoter.

The government intends to come out with expression of interest for strategic disinvestment of IDBI Bank by December.

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BoB pares home loan rate by 25 bps

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Bank of Baroda (BoB) has announced a 25 basis points reduction in its home loan interest rates, with the minimum rate now starting at 6.50 per cent against 6.75 per cent earlier.

This special rate, which is effective from October 7, 2021, till December 31, 2021, is available for customers applying for fresh loans and those seeking loan transfer or refinancing their existing loans.

The public sector bank, in a statement, said it has reduced the home loan interest rate with the onset of festive season and to make home buying more affordable for customers.

“Nil processing fee on home loan was already on offer and has been extended till December-end 2021,” the Bank said.

HT Solanki, GM- Mortgages & Other Retail Assets, BoB, said with this reduced rate of interest, BoB’s home loans are now available at competitive rates across categories for a limited period.

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Indian Bank picks up 13.2% stake in NARCL, BFSI News, ET BFSI

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Indian Bank on Friday said it has picked up 13.27 per cent stake in the proposed bad bank National Asset Reconstruction Company Ltd (NARCL). The lender has subscribed to 1,98,00,000 equity shares of NARCL for cash consideration of Rs 19.80 crore, it said in a regulatory filing.

The investment of equity stake of 13.27 per cent would be reduced to 9.90 per cent by December 31, 2021, Indian Bank added.

Three state-owned lenders — SBI, Union Bank of India and PNB — had picked up over 12 per cent stake each in NARCL on Thursday.

NARCL, which is yet to become operational, will take over the bad assets of banks in its own account for speedy resolution of sour loans.

Last month, the Cabinet cleared a proposal to provide government guarantee worth Rs 30,600 crore to security receipts issued by NARCL.

NARCL will pay up to 15 per cent of the agreed value for the bad loans in cash and the remaining 85 per cent would be government-guaranteed security receipts.

It will be 51 per cent owned by PSBs and the remaining by private sector lenders. State-owned Canara Bank has expressed its intent to be the lead sponsor of NARCL with a 12 per cent stake. PTI DP ABM ABM



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SBI, Union Bank, PNB pick up stake in NARCL, BFSI News, ET BFSI

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Three state-owned lenders — SBI, Union Bank of India and PNB — picked up over 12 per cent stake each in the proposed bad bank NARCL on Thursday, and said their holdings will be brought down by December. While State Bank of India (SBI) and Union Bank of India picked up 13.27 per cent stake each, representing a cumulative 3.88 crore shares in the National Asset Reconstruction Company Ltd (NARCL), PNB subscribed to 12.06 per cent stake (1,80,00,000 shares).

In a regulatory filing on the subscription to 1,98,00,000 shares of NARCL (pending execution of the investment agreement), the country’s largest lender SBI said the “investment of equity stake of 13.27 per cent by State Bank of India to be reduced to 9.90 per cent by 31st December 2021”.

Union Bank of India, in its regulatory filing, said it has subscribed to 1,98,00,000 shares of NARCL (pending execution of investment agreement).

The lender said it will bring down its stake of 13.27 per cent to 9.90 per cent by December 2021 on subscription by other public sector banks (PSBs)/ financial institutions.

“Punjab National Bank has subscribed to 1,80,00,000 shares of National Asset Reconstruction Company Ltd (pending execution of investment agreement),” the bank said in a separate filing.

PNB said it will bring down its stake from 12.06 per cent to 9 per cent by December 31, 2021.

NARCL, which is yet to become operational, will take over the bad assets of banks in its own account for speedy resolution of sour loans.

All the three lenders have subscribed to the equity in NARCL at Rs 10 per share. The completion of the acquisition by them is expected by March 2022.

Earlier this month, the Cabinet cleared a proposal to provide government guarantee worth Rs 31,000 crore to security receipts issued by the NARCL.

Incorporated on July 7, 2021, NARCL will pay up to 15 per cent of the agreed value for the bad loans in cash and the remaining 85 per cent would be government-guaranteed security receipts.

It will be 51 per cent owned by PSBs and the remaining by private sector lenders. State-owned Canara Bank has expressed its intent to be the lead sponsor of NARCL with a 12 per cent stake. PTI KPM ABM ABM



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PSB business correspondent outlets in villages shrink as private banks grow biz, BFSI News, ET BFSI

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The business correspondent outlets of public sector banks in villages have shrunk during 2016 and 2020 while private banks have shown positive growth.

“PSBs dominated the number of BC outlets in villages, but during the review period, on account of consolidation, their BC outlets showed negative growth,” according to an RBI study said.

PSBs’ share in BC village outlets has dropped marginally to 57 per cent in 2020 from 60 per cent in 2016.

The growth in BC outlets in villages was also negative for regional rural banks.

The share of PSBs in BC outlets in rural areas has remained consistently above 60% over the years, being the highest among the bank groups.

Western region

For both rural branches and BC outlets in villages, PSBs continue to account for maximum share in the western region. However, for BC outlets in villages, share of PSBs has dropped from 68% in 2016 to 45% in 2020. At the same time, PVBs have increased their share progressively across regions, with manifold increase in BC outlets in villages in NER, eastern and southern regions.

Private banks shine

As PSBs continued to maintain their hold, PVBs too registered a higher growth in both access and usage indicators during the review period. There was a growth in BC outlets in villages for PVBs with the growth being significantly high for the north-eastern, eastern and central regions, surpassing the growth of PSBs and RRBs together.

PVBs also significantly improved their tally of urban BC outlets during the five years with their share growing from 77 per cent in 2016 to 97 per cent in 2020. On similar lines, contribution of PVBs in the total number of BC agents too grew exponentially from 37 per cent in 2016 to 80 per cent in 2020.

The BC model grows

“From being an alternate delivery model, the BC model is emerging as the predominant delivery model. While the growth in number of rural branches remained subdued during the review period, there was a significant growth in BC outlets in both villages and urban pockets providing formal financial services at the doorstep of large number of unserved/underserved population,” the study said.

The study noted that about 56 per cent of total Basic Savings Bank Deposit Accounts (BSBDAs) and 65 per cent of General Credit Cards (GCCs) were channelled through BCs. While BCs of public sector banks (PSBs) dominated the deposit space, private sector banks (PVBs) accounted for a major share in GCCs through BCs.

During the review period, the total transactions routed through BC outlets increased considerably both in terms of volume as well as value, it said.

Credit-related transactions

During 2016-20, credit-related transactions at BC outlets grew for PVBs and RRBs at a CAGR of 66.91 per cent and 31.81 per cent, respectively. This was in line with the trend of increment in the number of BC agents for PVBs over the five-year period. However, during the same period, the ICT-BC Credit/OD transactions for PSBs declined marginally by 1.86 per cent.

Similarly, share of PVBs in credit/ OD transactions at BC outlets rose progressively from 82 per cent in 2016 to 97 per cent in 2020, while the share of PSBs and RRBs reduced significantly.

The number of ICT-BC Credit/OD transactions through BCs recorded an overall CAGR of 60.27 per cent over the review period, with all regions registering a positive growth. The eastern region recorded the highest growth courtesy significantly higher numbers being reported by select PVBs.



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Govt extends tenure of 4 public sector banks’ top officials, BFSI News, ET BFSI

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Four state-owned banks on Friday said the government has extended tenures of their top officials, including managing director and chief executive officers (MD and CEOs) of Punjab National Bank and Bank of Maharashtra.

Besides, the government has extended the tenures of executive directors of Punjab National Bank (PNB), Union Bank of India and Central Bank of India.

The government sent notifications to these banks on Thursday, informing them about the extensions given to the top-level officials.

“The Department of Financial Services, Ministry of Finance, vide its notification dated August 26, 2021, has extended the term of office of S S Mallikarjuna Rao, managing director and chief executive officer of the bank (PNB), for a period beyond September 18, 2021,” PNB said in a regulatory filing.

Rao’s current tenure was to come to an end on September 18, 2021, and the extension has been given till the date of his superannuation (January 31, 2022) or until further orders, whichever is earlier, PNB said.

The government has also extended the tenure of Bank of Maharashtra MD and CEO A S Rajeev for two years, the Pune-based lender said in a filing.

Rajeev’s current tenure was coming to an end on December 1, 2021.

In addition to this, two executive directors of PNB, two in Union Bank of India (UBI) and one in Central Bank of India have been given extension beyond their current tenures.

Sanjay Kumar and Vijay Dube, executive directors of PNB, have been given extensions till August 23, 2023 and November 30, 2022, respectively.

The terms of UBI’s executive directors — Manas Ranjan Biswal and Gopal Singh Gusain — have been extended.

Biswal’s term has been extended beyond his currently notified term, which expires on February 28, 2022, till the date of his superannuation (April 30, 2022) or until further orders, whichever is earlier, Union Bank of India said.

Similarly, Gusain’s term has been extended till the date of his superannuation, (January 31, 2022) or until further orders, whichever is earlier. His term was coming to an end on September 19.

The Department of Financial Services, through a notification on August 26, has also extended the term of office of Ashok Srivastava, executive director of Central Bank of India, the lender said in a separate filing.

His term has been extended beyond January 22, 2022, till the date of his superannuation (November 30, 2022) or until further orders, whichever is earlier, Central Bank of India said.



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Sitharaman to meet CEOs of public sector banks today, BFSI News, ET BFSI

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New Delhi: Union finance minister Nirmala Sitharaman will meet heads of public sector banks (PSBs) on Wednesday to review the financial performance of the lenders and progress made by them in supporting the pandemic-hit economy, sources said.

The meeting with MD and CEOs of PSBs assumes significance given the importance of the banking sector in generating demand and boosting consumption. Recently, the finance minister had said the government is ready to do everything required to revive and support economic growth hit by the Covid-19 pandemic.

The meeting is expected to take stock of the banking sector and progress on the restructuring 2.0 scheme announced by the Reserve Bank of India (RBI), the sources said, adding that banks may be nudged to push loan growth in productive sectors.

The revamped 4.5 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) would also be reviewed during the meeting likely to be held in Mumbai, the sources said.

Besides, the finance minister is expected to take stock of the bad loans or non-performing assets (NPAs) situation, and discuss various recovery measures by banks, they said.

As a result of the government’s strategy of recognition, resolution, recapitalisation and reforms, NPAs have shown a declining trend, from 7,39,541 crore on March 31, 2019 to 6,78,317 crore on March 31, 2020 and further to 6,16,616 crore as on March 31, 2021 (provisional data).

At the same time, comprehensive steps were taken to control and to effect recovery in NPAs, which enabled PSBs to recover 5,01,479 crore over the last six financial years, the government informed Parliament recently.

Besides, Sitharaman is expected to declare the results of Ease 3.0 Index for 2020-21, they said, adding that PSBs would be rated on various indexes for the year. PTI



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High stress: PSBs set aside over 60% of operating profit as provisions

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The road ahead for overall asset quality remains uncertain and would depend on the likely emergence of a new wave of the pandemic.

Public sector banks (PSBs) have set aside more than 60% of their aggregate operating profits in the June quarter as provisions, the bulk of which is for loan losses and restructured assets. This is an indication the stress on lenders’ books remains fairly high. For the private sector, the share of operating profits that was allocated for total provisions was almost 50%.

Bankers say the first quarter saw stress mounting in the retail and small business segments as a result of the second Covid wave. Moreover, the demand from borrowers, asking for a recast of loans, was higher than last year. While Punjab National Bank’s provisions accounted for a whopping 77% of its operating profit, in the case of Bank of Baroda (BoB) the share was over 72%.

At BoB, for instance, the management confirmed the demand for restructuring has been higher this year than it was last year, leading to an increase in the provisioning for standard assets. Separately, the State Bank of India (SBI) management told analysts on August 4 the provisions relating to restructured accounts had been included in the provisioning of Rs 15,700 crore for standard assets.

PSBs reported a growth in loans for the June quarter of just 3.6% year-on-year; the total advances in FY21 grew 2.5%. The standing committee on finance observed, in its report presented before Parliament earlier this month, the present crisis is transient and should not become an alibi for privatisation of PSBs.

SBI, which saw asset quality deteriorate in the consumer loans segment in Q1FY22, said it had managed to recoup retail bad loans to the extent of Rs 4,700 crore after the June quarter.

Smaller PSBs like UCO Bank, Indian Bank and Indian Overseas Bank provided more aggressively out of their profits compared to their larger peers.

Sanjiv Chadha, MD and CEO, BoB, told FE that credit costs were likely to trend down through the rest of FY22 due to a turn in the corporate cycle. “If we look at the overall corporate cycle, it is improving significantly. Corporate slippages are coming down, that trend will continue and credit costs will come down,” Chadha said. In Q1FY22, a majority of BoB’s new bad loans came from the MSME segment, followed by the retail and agri portfolios. The bank said that it is already seeing a pullback from many of these small accounts.

Data from Capitaline shows that for a clutch of 12 PSBs, the share of operating profits earmarked for provisions was 63% while for a group of 18 private banks, the share was 49%. The data reveals absolute provisions in the June quarter fell year-on-year.

The road ahead for overall asset quality remains uncertain and would depend on the likely emergence of a new wave of the pandemic. On Tuesday, rating agency Moody’s said that while the economy would return to growth in FY22, the severe second coronavirus outbreak will delay improvements in asset quality. Regulatory measures will play a role in mitigating stress. “We expect loan-loss provisions will decline from 2020 levels across Asean and India but remain elevated compared to historical levels as banks continue to proactively make provisions against future increases in NPLs (non-performing loans),” Moody’s said.

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