Exempt public sector and commercial banks from Deposit Insurance Scheme: AIBEA

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Ahead of the Lok Sabha taking up the Deposit Insurance Bill for passage, the All India Bank Employees’ Association (AIBEA) has urged Finance Minister Nirmala Sitharaman to exempt from its purview public sector banks and/or commercial banks, which are covered under Section 45 of the Banking Regulation Act.

Commercial banks pay about ₹12,000 crore of premium to the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is an unwarranted expenditure as it would otherwise have gone to the banks’ profit, CH Venkatachalam, general secretary, AIBEA, said in a letter to the Finance Minister on Sunday.

Recast deposit insurance

Venkatachalam pointed out that Section 45 empowered the government and the RBI to amalgamate any bank with another bank to avert closure and loss of customers’ deposits.

“That is why, while hundreds of banks were getting closed prior to 1960, with this amendment to Banking Regulation Act, not a single commercial bank has been liquidated or closed,” he pointed out, adding there was thus no question of any commercial bank getting closed down. The AIBEA strongly felt that the deposits of commercial banks and, importantly, public sector banks, need not be covered by the deposit insurance scheme, he said.

Leg-up for depositors

He highlighted that, year after year, public sector banks and all commercial banks were required to pay a huge premium to DICGC, yet the claim ratio was nil since there was no likelihood of liquidation. The AIBEA letter highlighted that the claim settled so far, since 1962, was only ₹5,200 crore, and that too for cooperative banks.

The AIBEA’s missive comes at a time when the government is looking to increase the deposit insurance coverage to ₹5 lakh from ₹1 lakh at present. The Lok Sabha is expected to take up the Bill for passage on Monday.

The AIBEA letter also highlighted the fact that of the 2,067 banks covered by the DICGC, the 1,923 cooperative banks were the only ones facing threats of closure and their deposits need protection. Even in their case, the premium should be charged only to the extent of deposits covered by insurance, rather than the total assessable deposits, which is much higher, the association said.

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Corporate lending by major PSBs declines

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In what could be a matter of concern in rekindling the Covid-hit economy, corporate lending by major public sector banks has been on the wane.

The Q1 data of banks show a significant decline of corporate advances compared to the year-ago period.

For instance, State Bank of India’s domestic corporate advances decreased 2.23 per cent at ₹7,90,494 crore in the quarter ended June 30, 2021, compared to ₹8,09,322 crore in the same quarter last year. However, in the first quarter of FY21, SBI reported 3.41 per cent growth in corporate advances.

According to SS Mallikarjuna Rao, Managing Director and CEO, Punjab National Bank: “Corporate growth was almost muted or negative” during the quarter. For PNB, corporate advances marginally decreased by 0.57 per cent at ₹3,264,66 crore in June 2021 compared to ₹3,28,350 crore in the year-ago period.

For Union Bank of India, the share of industry exposure in domestic advances fell to 38.12 per cent at ₹2,40,237 crore from 39.4 per cent at ₹2,47,986 crore in the year-ago period. The same is the case with Indian Bank which saw a 3 per cent dip in the corporate loans during the period under review.

According to a senior SBI official, the last one year saw the complete ‘impact’ of the pandemic on some key investment decisions of the industry.

“In fact, banks, including SBI, have been proactively supporting the industry wherever possible. Assuming that there will be no third wave, we can see greenshoots, going forward,” he added.

As per RBI data, up to May, the gross loans to large industries declined by 1.7 per cent on a year-on-year basis.

Demand low

There has also been lower demand from corporates in general as many adopt a wait-and-watch approach on investments, say bankers. Obviously, there has been a more rigorous due diligence on the part of the banks.

However, banks are optimistic about the future as far as corporate lending is concerned. Even though the corporate lending growth was muted in the first quarter, PNB is bullish. “We are looking at a good amount of growth, whereas corporate growth was almost muted or negative. But we are looking at a good amount of growth that will to be disbursed over a period of time,” said Mallikarjuna Rao in a recent earnings call.

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All PSBs, REC to buy stakes in bad bank; Indian Banks’ Association files application for incorporation of NARCL

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A top banker had last week said the cost to the exchequer won’t exceed Rs 30,600 crore, as estimated by the IBA, as the prospects of recovery from some of the bad loans looked promising.

The Indian Banks’ Association (IBA) has filed an application with the corporate affairs ministry for the incorporation of the National Asset Reconstruction Company (NARCL), which will pave the way for its swift operationalisation, banking sources told FE.

Not just large lenders but all public-sector banks (PSBs), barring Punjab & Sind Bank, have evinced interest in picking up stakes in the so-called bad bank, one of the sources said.

The IBA – which is spearheading the initiative to set up the NARCL – has also held talks with REC, seeking its contribution to equity, he added. “The discussions with REC (which finances rural electrification projects) have been moving towards a positive outcome,” the source said. No private bank has yet agreed to put in capital but talks are still on.

While Canara Bank has announced it would be the sponsor of the NARCL and hold a 12% equity, other large banks are expected to pick up just about 10% each. Punjab National Bank (PNB) managing director and chief executive SS Mallikarjun Rao has said his bank would hold under 10% in the bad bank, while Union Bank of India MD & CEO and IBA chairman Rajkiran Rao G has said the lender would buy 9%. PNB and Union Bank have identified bad loans worth about Rs 8,000 crore and Rs 7,800 crore, respectively, for transfer to the NARCL.

Meanwhile, the IBA has finalised the article of association as well as memorandum of association for the NARCL so that the asset reconstruction company takes off quickly.

Sources had earlier told FE that the finance ministry could soon seek Cabinet approval for a plan to offer sovereign guarantee on the security receipts (SRs) issued by the NARCL while acquiring bad loans from lenders. This would cost the government Rs 30,600 crore over five years.

A top banker had last week said the cost to the exchequer won’t exceed Rs 30,600 crore, as estimated by the IBA, as the prospects of recovery from some of the bad loans looked promising.

Though the government has backed the setting up of the NARCL, announced in the Budget for FY22, it wouldn’t infuse capital into it; instead, participating banks would put in the equity. Nevertheless, it is set to give guarantee on the SRs to make the bad loan resolution process more viable and attractive.

An asset management company, comprising professionals, will also be set up within the broader NARCL structure, which will work out the toxic assets and take appropriate decisions, including on selling them off to investors.

Financial services secretary Debasish Panda had earlier said banks would have the option to transfer several large stressed assets (of at least Rs 500 crore each) worth Rs 2.25 lakh crore to NARCL initially. The IBA is also working out an “exit strategy” for those accounts that remain unresolved even after five years.

Of the 101 non-performing assets (NPAs) initially reviewed, banks have zeroed in on 22 accounts amounting to roughly Rs 89,000 crore for transfer to NARCL in the first phase.

NARCL is expected to acquire stressed assets at net book value by offering 15% of it upfront (in cash), and the rest (85%) in SRs. Once the bad loan is resolved, realisation for the relevant bank would be in sync with its SR interest in that asset.

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After five years of losses, PSBs reported net profits in FY21: ICRA

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Public sector banks (PSBs) reported net profits in FY21 after five consecutive years of losses, supported by windfall treasury gains, according to ICRA. However, gains are likely to be much lower in FY22, given limited headroom for further decline in bond yields.

The credit rating agency estimated that the 12 PSBs booked profits of ₹31,600 crore from this source, compared to the overall Profit Before Tax (PBT) of ₹45,900 crore in FY21.

Trading gains

Notably, the trading gains for PSBs in FY21 exceeded the capital infusion of ₹200 billion received from the Government of India (GoI).

Notwithstanding the profits reported by the public banks in FY21, the agency said the PBT of other PSBs (excluding State Bank of India/SBI) at ₹18,400 crore were lower than their trading gains (₹25,500 crore), reflecting the challenges posed by Covid-19 on the asset quality and profitability of the banks.

ICRA observed that higher gains were recorded by PSBs on the back of relatively higher statutory liquidity ration (SLR) holdings compared to private sector banks (PvSBs).

Public sector banks losing market share in loans to private sector rivals

“The onset of Covid-19 resulted in windfall gains for public (sector) banks with trading profits on their bond portfolios rising sharply after the steep cut in policy rates by the Reserve Bank of India (RBI) in March 2020,” said ICRA in a note. Bond yields declined sharply in FY21 amid policy rate cuts following the onset of Covid-19.

Repo rate

The repo rate and the reverse repo rate were cumulatively cut by 115 basis points (bps) and 155 bps, respectively, during March 2020 and May 2020 to 4.00 per cent and 3.35 per cent, respectively, by May 2020.

Anil Gupta, Vice President – Financial Sector Ratings, ICRA, said: “As the banks booked gains on their bond holdings, their fresh investments are closer to the market rates, thereby aligning the yield on their bond portfolios closer to the market rates.

“The yield on the investment book for the public banks declined to 6.18 per cent in Q4 (January-March) FY21 from 6.79 per cent in Q4 FY20.”

Public sector banks support for Covid-19 health infra gathers pace

While banks make windfall profits amid the declining yield scenario, they could face challenges in their bond portfolios in a rising interest rate regime, opined Gupta.

“While the RBI is unlikely to be in a rush to hike interest rates in the near term, banks would need to be mindful as treasury profits would be relatively muted in FY22,” he said.

Like PSBs, PvSBs saw an improvement in their trading profits to ₹18,400 crore in FY21 (₹14,700 crore in FY20), which was 21 per cent of their PBT in FY21 (28 per cent in FY20), the note said.

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Reshuffle at Public Sector Banks; 14 GM and CGM Becomes Executive Directors, BFSI News, ET BFSI

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The new changes will come into effect on an immediate basis. A few of the Chief General Managers (CGM) and General Managers (GM) will take charge as an Executive Director at the same bank, whereas a few will join the other Public Sector Banks (PSB). Following are the new appointments by the cabinet committee.

1. Swarup Kumar Saha who is currently working as a Chief General Manager at Punjab National Bank, has been appointed as an Executive Director for a period of three years at the same bank.

2. Debadatta Chand who is currently working as a Chief General Manager at Punjab National Bank has been appointed as an Executive Director in Bank of Baroda.

3. K. Satyanarayana Raju who is currently working as a Chief General Manager at Bank of Baroda has been appointed as an Executive Director in Canara Bank.

4. Shri Nitesh Ranjan who is currently working as a Chief General Manager at Union Bank of India has been appointed as an Executive Director in the same bank.

5. Monika Kalia who is currently working as a Chief General Manager at Union Bank of India has been appointed as an Executive Director in Bank of India.

6. Shri Swarup Dasgupta the General Manager of Bank of India has been elevated as an Executive Director in the same bank. .

7. Shri M. Karthikeyan, currently working as a General Manager at Indian Bank has been appointed as an Executive Director in Bank of India.

8. lshraq All Khan who is currently working as a Chief General Manager at Union Bank of India has been appointed as an Executive Director in UCO Bank

9. Vivek Wahi who is currently working as a General Manager at Bank of India has been appointed as an Executive Director in Central Bank of India

10. S. Srimathy who is currently working as a Chief General Manager at Canara Bank has been appointed as an Executive Director in Indian Overseas Bank.

11. B. Vijaykumar A who is currently working as a General Manager at Bank of India has been appointed as an Executive Director in Bank of Maharashtra

12. Raghavendra Venkatasheshan Kollegal who is currently working as a General Manager at Bank of India has been appointed as an Executive Director in Punjab and Sind Bank

13. Rajeev Purl who is currently working as a Chief General Manager at Punjab National Bank has been appointed as an Executive Director at Central Bank of India.

14. lmrari Amin Siddiqul who is currently working as a General Manager at Indian Bank has been elevated as an Executive Director with the same bank.

All of these appointments are for the period of period of three years or till attaining the age of superannuation whichever is the earliest.



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Reshuffle at Public Sector Banks; 14 GM and CGM Becomes Executive Directors, BFSI News, ET BFSI

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The new changes will come into effect on an immediate basis. A few of the Chief General Managers (CGM) and General Managers (GM) will take charge as an Executive Director at the same bank, whereas a few will join the other Public Sector Banks (PSB). Following are the new appointments by the cabinet committee.

1. Swarup Kumar Saha who is currently working as a Chief General Manager at Punjab National Bank, has been appointed as an Executive Director for a period of three years at the same bank.

2. Debadatta Chand who is currently working as a Chief General Manager at Punjab National Bank has been appointed as an Executive Director in Bank of Baroda.

3. K. Satyanarayana Raju who is currently working as a Chief General Manager at Bank of Baroda has been appointed as an Executive Director in Canara Bank.

4. Shri Nitesh Ranjan who is currently working as a Chief General Manager at Union Bank of India has been appointed as an Executive Director in the same bank.

5. Monika Kalia who is currently working as a Chief General Manager at Union Bank of India has been appointed as an Executive Director in Bank of India.

6. Shri Swarup Dasgupta the General Manager of Bank of India has been elevated as an Executive Director in the same bank. .

7. Shri M. Karthikeyan, currently working as a General Manager at Indian Bank has been appointed as an Executive Director in Bank of India.

8. lshraq All Khan who is currently working as a Chief General Manager at Union Bank of India has been appointed as an Executive Director in UCO Bank

9. Vivek Wahi who is currently working as a General Manager at Bank of India has been appointed as an Executive Director in Central Bank of India

10. S. Srimathy who is currently working as a Chief General Manager at Canara Bank has been appointed as an Executive Director in Indian Overseas Bank.

11. B. Vijaykumar A who is currently working as a General Manager at Bank of India has been appointed as an Executive Director in Bank of Maharashtra

12. Raghavendra Venkatasheshan Kollegal who is currently working as a General Manager at Bank of India has been appointed as an Executive Director in Punjab and Sind Bank

13. Rajeev Purl who is currently working as a Chief General Manager at Punjab National Bank has been appointed as an Executive Director at Central Bank of India.

14. lmrari Amin Siddiqul who is currently working as a General Manager at Indian Bank has been elevated as an Executive Director with the same bank.

All of these appointments are for the period of period of three years or till attaining the age of superannuation whichever is the earliest.



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Reshuffle at Public Sector Banks; 14 GM and CGM Becomes Executive Directors, BFSI News, ET BFSI

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The new changes will come into effect on an immediate basis. A few of the Chief General Managers (CGM) and General Managers (GM) will take charge as an Executive Director at the same bank, whereas a few will join the other Public Sector Banks (PSB). Following are the new appointments by the cabinet committee.

1. Swarup Kumar Saha who is currently working as a Chief General Manager at Punjab National Bank, has been appointed as an Executive Director for a period of three years at the same bank.

2. Debadatta Chand who is currently working as a Chief General Manager at Punjab National Bank has been appointed as an Executive Director in Bank of Baroda.

3. K. Satyanarayana Raju who is currently working as a Chief General Manager at Bank of Baroda has been appointed as an Executive Director in Canara Bank.

4. Shri Nitesh Ranjan who is currently working as a Chief General Manager at Union Bank of India has been appointed as an Executive Director in the same bank.

5. Monika Kalia who is currently working as a Chief General Manager at Union Bank of India has been appointed as an Executive Director in Bank of India.

6. Shri Swarup Dasgupta the General Manager of Bank of India has been elevated as an Executive Director in the same bank. .

7. Shri M. Karthikeyan, currently working as a General Manager at Indian Bank has been appointed as an Executive Director in Bank of India.

8. lshraq All Khan who is currently working as a Chief General Manager at Union Bank of India has been appointed as an Executive Director in UCO Bank

9. Vivek Wahi who is currently working as a General Manager at Bank of India has been appointed as an Executive Director in Central Bank of India

10. S. Srimathy who is currently working as a Chief General Manager at Canara Bank has been appointed as an Executive Director in Indian Overseas Bank.

11. B. Vijaykumar A who is currently working as a General Manager at Bank of India has been appointed as an Executive Director in Bank of Maharashtra

12. Raghavendra Venkatasheshan Kollegal who is currently working as a General Manager at Bank of India has been appointed as an Executive Director in Punjab and Sind Bank

13. Rajeev Purl who is currently working as a Chief General Manager at Punjab National Bank has been appointed as an Executive Director at Central Bank of India.

14. lmrari Amin Siddiqul who is currently working as a General Manager at Indian Bank has been elevated as an Executive Director with the same bank.

All of these appointments are for the period of period of three years or till attaining the age of superannuation whichever is the earliest.

In 2020-21, the government infused Rs 5,500 crore as fresh capital in PSBs through non-interest bearing special securities.



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Is the worst yet to over for Indian Banks?, BFSI News, ET BFSI

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Fitch Ratings expects a moderately worse sector outlook for Indian banks for the next fiscal based on muted expectations for new business and revenue generation, and deteriorating asset quality.

The disproportionate shock to India’s informal economy and small businesses, coupled with high unemployment and declining private consumption, have yet to fully manifest on bank balance sheets, it said.

The impact of the Covid-19 pandemic is likely to pose challenges to Indian banks‘ improving financial performance once asset-quality risks manifest in the financial year ending March 2022.

Forbearance help

Indian banks reported lower impaired loans and improved profitability for the nine months ended December 2020 due to various forbearance measures and continued large write-offs. Indian banks – particularly state banks – remained more risk-averse than in prior years, which was reflected in their weak credit growth.

The state’s less-than-adequate recapitalisation plans for its banks further underscores the risk, which will likely keep risk aversion high among banks amid continuing uncertainty about asset quality and an uneven economic recovery.

As the forbearance measures unwind, Fitch expects Indian banks to reverse the improvements in asset quality and profitability, with state banks more vulnerable to higher stress than private banks, which have better profitability and higher contingent reserves and capitalisation.

PSB hit

Public sector banks also have limited core capital buffers in the event of further asset stress, which is unlikely to be remediated solely via the state’s planned capital injections of USD 5.5 billion.

The plan is well below Fitch’s estimated capital requirement of USD 15 billion to USD 58 billion under varying stress scenarios.

“The strategy to either not lend or lend only to capital-efficient sectors is likely to continue as low market valuations leave state banks with limited scope to access fresh equity on their own,” Fitch added.

Shallow growth

It projects India’s GDP growth at 11 per cent in the next fiscal. The faster-than-expected GDP rebound in the December quarter is positive, but many sectors continue to operate well below capacity.

Besides, the decline in private consumption, and reports of rising urban utility-bill defaults and social security withdrawals point towards stress among retail customers.

“Fitch believes that the SME sector faces a litmus test in FY22 as short-term credit support extended in FY21, which, in our view, deferred the recognition of stress, comes up for refinancing,” Fitch added.



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Three in the race to become PNB’s second shareholder director

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Three persons are in the race to being elected as a shareholder director in Punjab National Bank (PNB), the country’s second largest public sector bank, at the upcoming extraordinary general meeting (EGM) of shareholders on March 17.

The Board of Directors of PNB had, at its meeting held on Friday, found three candidates — out of total nominations of four persons received by the bank as of March 2 — as “fit and proper” for being elected as a shareholder director of the bank, sources said.

PNB convenes EGM to elect a 2nd shareholder director to its Board

The three persons, all aged 66 years, who are in the fray are Gautam Guha (from New Delhi), Padmanabhan A A (from Chennai) and Ramesh Chandra Agrawal (from Prayagraj), they added. All the three have experience in the area of banking.

PNB is now looking to rope in its second shareholder director on the strength of a recent Finance Ministry decision empowering Public Sector Bank (PSB) boards to act on the decisions that remained held up at various board-level committees due to lack of quorum arising from vacancies or recusal by existing directors.

PNB to raise ₹2,500 cr via AT-1 bonds by March 15: CEO

A shareholder director is one who is elected from among shareholders other than the Central government. A public sector bank has two main categories of shareholders — Central government and ‘other shareholders’ (public shareholders). In India, all the public sector banks are listed entities although none of them are registered as companies under the Companies Act. There is separate legislation to govern the Board composition of such PSBs.

The elected shareholder director is finally appointed by the Nomination and Remuneration Committee (NRC) of the bank Board concerned. PNB currently does not have the requisite NRC strength and is therefore looking to get another shareholder director through Board approval route after election of such a director by the shareholders of the bank at an EGM.

Recent QIP

PNB has moved to get another shareholder director after its recent nearly ₹3,788-crore qualified institutional placement (QIP), which saw the Centre’s shareholding in the bank drop from 85.59 per cent to 76.87 per cent. With the Centre’s shareholding coming down, PNB became technically eligible to have two shareholder directors.

Having an additional shareholder director on a Board is useful for banks like PNB as all shareholder directors are counted as independent directors for the purpose of compliance with SEBI regulations for listed entities.

In public sector banks, there are executive directors appointed by Central government, there is government nominee director (official of Central government), there is an RBI nominee director, two employee directors (representing workmen and officers) and other directors (shareholder directors).

This will be the second shareholder director for PNB besides Asha Bhandarker, who was elected on September 12, 2018, for a period of three years.

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