Tag: psu

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

Banking & Finance

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Public sector banks in the country appear to be supporting the government’s efforts to boost Covid-19 related healthcare infrastructure in the country by actively lending to the healthcare and associated segments that are in need of liquidity.

Last month, the Reserve Bank of India (RBI) announced a term liquidity facility of ₹50,000 crore for Covid-related healthcare infrastructure and services in the country. This was done for fresh lending support to a wide range of entities in the healthcare space.

Fresh lending provided under this facility will be classified as ‘Priority Sector Lending’ till the repayment or maturity of these loans. The RBI has also allowed on-lending to other financial entities that are regulated by the Central bank. Further, banks are eligible to park surplus liquidity equivalent to the loan amount in the reverse repo window at a rate that is 40 bps higher than the prevailing reverse repo rate.

After the RBI announcement, public sector banks are reported to be enthusiastically extending credit to healthcare sector players and entities. A couple of banks have already extended more than ₹500 crore worth of loans each under the Covid loan book.

‘Identifying customers’

Padmaja Chunduru, Managing Director & CEO of Indian Bank, said the bank had already identified many of its own customers to lend. She said the bank had fixed a target of ₹4,000 crore for its Covid loan book, while it had sanctioned more than ₹600 crore till a couple of weeks ago under this portfolio. “There is good traction and a lot of enthusiasm to do this business,” she said.

State Bank of India has indicated that it could create a Covid loan book to the tune of about ₹10,000 crore. The bank is keen on supporting the hospitals and nursing homes in augmentation of their oxygen facilities and other requirements.

LV Prabhakar, Managing Director & CEO, Canara Bank, had indicated that the Bank had done a lot of homework as far as medical services financing is concerned, under this Covid loan book. It had sanctioned more than ₹1,200 crore worth of loans under this medical loan book till a few weeks ago and said it could comfortably sanction and disburse about ₹4,000 crore to ₹4,500 crore.

G Rajkiran Rai, Managing Director & CEO, Union Bank of India, said the bank is very positive about building a good Covid-19 loan book. It has products for this category and the branches are already canvassing and reaching out to potential borrowers.

While the pandemic has created a lot of challenges across sectors, it has also thrown up some new opportunities. Banking sector is also expected to be one of the beneficiaries.

With a greater focus by Central and State governments, the healthcare segment offers potential opportunities for the banks to build a good portfolio over the short and medium terms at a time many other segments are grappling with slowdown.

Several private sector lenders, both old and new, are also actively looking at lending opportunities in the healthcare infra space.

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Bank of Maharashtra tops PSU banks in terms of loan, deposit growth, BFSI News, ET BFSI

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State-owned Bank of Maharashtra (BoM) has emerged as the top performer among public sector lenders in terms of loan and deposit growth during financial year 2020-21. The lender recorded 13.45 per cent increase in gross advances at Rs 1.07 lakh crore in 2020-21, as per the published data of BoM.

It was followed by Punjab & Sind Bank which posted 8.39 per cent growth in advances with aggregate loans at Rs 67,811 crore at the end of March 2021.

When it came to deposit mobilisation, BoM with nearly 16 per cent growth was ahead of even the country’s largest lender State Bank of India, which recorded 13.56 per cent rise.

However, in absolute terms SBI’s deposit base was 21 times higher at Rs 36.81 lakh crore as against Rs 1.74 lakh crore of BoM.

Current Account Savings Account (CASA) for BoM saw 24.47 per cent rise, the highest among the public sector lenders, during the year.

As a result, CASA was 54 per cent or Rs 93,945 crore of the total liability of the bank.

According to the announced quarterly numbers, Central Bank of India achieved second spot by recording 11.46 per cent growth in CASA at Rs 1.61 lakh crore.

Total business of BoM increased 14.98 per cent to Rs 2.81 lakh crore.

For the full year 2020-21, BoM’s standalone net profit jumped nearly 42 per cent to Rs 550.25 crore. In the previous year, the profit was Rs 388.58 crore.

The bank’s asset quality improved significantly as the gross bad loans or gross Non-Performing Assets (NPAs) dipped to 7.23 per cent of gross advances by the end of March 2021 as against 12.81 per cent by the same period of 2020.

In absolute terms, gross bad loans stood at Rs 7,779.68 crore at the end of March 2021, lower than Rs 12,152.15 crore recorded in the year-ago period.

Net NPAs came down to 2.48 per cent (Rs 2,544.32 crore) from 4.77 per cent (Rs 4,145.38 crore).



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PSU banks headed for privatisation may get a major makeover, BFSI News, ET BFSI

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The government plans to spruce up public sector banks’ balance sheets through capital support and sale of non-core assets and trim their workforce before putting them on block.

It may also look at transferring bad loans of these lenders to the upcoming bad bank.

On the radar

The NITI Aayog, which has been entrusted with the job of identifyng suitable candidates for the privatisation, has recommended names to a high-level panel headed by Cabinet Secretary Rajiv Gauba.

Central Bank of India, Indian Overseas Bank, Bank of Maharashtra and Bank of India are some of the names that may be considered for privatisation by the Core Group of Secretaries on Disinvestment.

The other members of the high-level panel are Economic Affairs Secretary, Revenue Secretary, Expenditure Secretary, Corporate Affairs Secretary, Secretary Legal Affairs, Secretary Department of Public Enterprises, Secretary Department of Investment and Public Asset Management (DIPAM) and the Secretary of administrative department.

Following clearance from the Core Group of Secretaries, the finalised names will go to the Alternative Mechanism (AM) for its approval and eventually to the Cabinet headed by Prime Minister Narendra Modi for the final nod.

VRS scheme

Two state-owned banks being picked up for privatisation by the government are likely to come out with an attractive voluntary retirement scheme (VRS) to get rid of the extra flab.

An attractive VRS will make them lean and fit for takeover by the private sector entities that are keen to enter the banking space, the sources said.

VRS is not forced exit but an option for those who would like to take early retirement with a good financial package, the sources said adding that it has been done in the past before the consolidation of some of the PSBs.

Out of PCA?

State-owned UCO Bank is hopeful of coming out of the Prompt Corrective Action (PCA) framework very soon.

PCA is triggered when banks breach certain regulatory requirements such as return on asset, minimum capital, and quantum of the non-performing asset.

The bank had also met the other major criteria including net NPA norm, Goel said. Net NPA was at 3.4 per cent in March quarter against requirement of below six per cent. Return on Asset is also positive at Rs 167 crore and latest leverage ratio stood at 4.53 against a requirement of four per cent.

The government in the last round had infused Rs 14,500 crore of equity in Central Bank of India, Indian Overseas Bank, Bank of India, and UCO Bank by issuing non-interest-bearing, non-transferable bonds to these state-owned lenders.

Central Bank had narrowed its loss to Rs 888 crore in FY21, from Rs 1,121 crore in FY20. IOB, which is yet to declare its results for Q4 of FY21, posted a profit of Rs 482 crore for the nine months to December 2020, as against a loss of Rs 8,527 crore for FY20. gross non-performing asset (NPA) for Central Bank are 16.55 percent while for IOB they are 12.19 percent.



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Niti Aayog submits names of PSU banks to be privatised, BFSI News, ET BFSI

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The names of two state-run banks and one general insurance company that can be privatised have been submitted by NITI Aayog to the Core Group of Secretaries on Disinvestment as was announced in the Union Budget for 2021-22.

Finance minister Nirmala Sitharaman has assured that the “interests of workers of banks which are likely to be privatised will absolutely be protected whether their salaries or scale or pension all will be taken care of”.

Along with these two state-run banks and one general insurer, the government wants to conclude the privatisation process for Air India, BPCL and Shipping Corporation in this fiscal.

The government has budgeted Rs 1.75 lakh crore from disinvestment during the current financial year.

As the second wave of the coronavirus threatens to disrupt the projected economic growth in the current fiscal, the government is banking on meeting its non-tax revenue targets.

The government is aiming at creation of bigger banks.

“We brought together banks with completely different capacities and we wanted to have the synergies of both so that the bank which has extensive network in a particular area comes in also, but that bank which is sitting over mounds of deposits but doesn’t have that many branches (is) also able to benefit,” the FM had said in an interview to this paper.

Niti Aayog has been entrusted with the task of selection of names of two public sector banks and one general insurance company for the privatisation as announced in the Budget 2021-22.



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PSBs are on an upswing, but have they really buried the past?, BFSI News, ET BFSI

Banking & Finance

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The stock market has turned bullish on public sector banks amid growing expectations that their asset quality woes have hit the trough.

The State Bank of India results announcing a reduction in bad loan pile has fuelled the euphoria. But experts say public sector banks are still wobbly despite the outlook as Covid stress has brought renewed challenges for them.

What’s up?

Traders have mounted derivative bets on state-owned banks encouraged by the recent run-up in share prices. The outstanding positions in futures contracts of public sector lenders such as SBI,

Punjab National Bank and Bank of Baroda have shot up, especially after strong March quarter results from SBI last week.

The open interest in Bank of Baroda futures by number of shares is at a lifetime high and in SBI it is at the highest since September 2020. SBI shares touched a lifetime high of Rs 427.70 on February 18 this year are near that mark.

Nifty PSU Bank index gained 2% to close at 2,398.15 on Monday, with Punjab National Bank, Central Bank and Union Bank and SBI gaining 2-5%.

In the ongoing May series, SBI’s shares are up 14.6% while Bank of Baroda’s shares have risen nearly 22%. Punjab National Bank’s shares are up 13.5% during the same period.

The red flags

While the banks have cleaned up their books, mostly on the basis of write-offs, and posting robust numbers they may be staring at a renewed stress.

Banks are facing greater stress in smaller towns, more so the public sector banks as they have a bigger presence there.

The special mention accounts of public sector lenders are increasing, showing a rise in new stress as Covid buffets smaller businesses.

SBI’s SMA accounts where repayments are overdue more than a month totalled Rs 11,500 crore, while Bank of Baroda and Punjab National Bank had also reported build-up of these accounts for the December quarter during in QIP documents.

Credit growth has been falling for the last few years and totalled 5.58% for FY21 as against 6.02% for FY20. This credit growth is mostly cornered by the private banks, with PSBs seeing a sharper fall in credit growth

While PSU banks have reduced their bad loan pile mostly through write-offs, the recovery from such accounts is abysmal at less than 30%. In FY20, about 25% bad loans were written off. SBI wrote off Rs 32,000 crore in FY21, which is 23% of its total bad loans.

Comparison with private lenders

PSU bank shares have mostly been underperformers vis-à-vis their private-sector peers in the past decade because of high nonperforming loans (NPLs) and loss of market share. The superior performance by private sector banks pushed their valuations to record levels.

The Nifty PSU Bank index is down 11.6% in the past three years, while the Nifty Private Bank Index is up 23%. The Nifty index is up 43.1% in the same period.

PSU banks including Bank of India, Punjab National Bank, Bank of Baroda and UCO Bank among others are trading at a Price to Book (P/B) of around 0.55-0.7 times. SBI is trading at P/B ratio of 1.6 times.

In comparison, private lender HDFC Bank is trading at 4.1 times and Kotak Mahindra Bank at 5.5 times.



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Bank employees hard work during Covid rewarded as performance incentives roll out, BFSI News, ET BFSI

Banking & Finance

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The risk and hard work of bank employees during the Covid pandemic are being rewarded, though it is a small gain.

Employees of PSU banks which have posted profits are set to get a performance-linked component in the wage agreement signed with the Indian Banks’ Association (IBA) in November 2020.

Canara Bank this week paid out a performance-linked incentive to its employees, equivalent to 15 days’ pay. The bank has reported a net profit of Rs 2,557 crore for FY21 as compared to a Rs 5,838-crore loss in the preceding year.

Bank of Maharashtra has distributed a performance-linked incentive to its employees after posting a 187% increase in its fourth-quarter net profit to Rs 165 crore.

How much would SBI employees get

State Bank of India is also expected to announce an improvement in profits. In terms of the wage agreement, its 2.5 lakh employees would get an incentive of five days’ salary if the bank reported an increase in operating profit of between 5% and 10%, and 10 days’ if the increase is between 10% and 15%, and 15 days for any increase above 15%.

Performance-linked incentive plan

IBA had said that to inculcate a sense of competition and also to reward the performance, the concept of the performance-linked incentive (PLI) scheme has been introduced for the first time. The scheme will be effective from the current financial year.

The scheme in public sector banks is based on the operating profit or net profit of the individual bank. It is optional for private and foreign banks. As per the agreement, the PLI would be payable to all employees annually over and above the normal salary payable.

Unions opposition

The bank employees unions had opposed any move to introduce a performance-linked incentive for public sector banks proposed by Banks Board Bureau. They had said it would be a prelude to introducing differential pay as also the concept of Cost to Company at a later stage

Setting performance parameters at various levels of banking functions does not fit well into the banking environment as there are multiple functions for a few and specialist functions for another lot, they had said.

Such parameters may not work well with the functionaries in controlling offices who undertake jobs of evolving and implementing policies and guidelines at the back office. The introduction of such practices are aimed at bypassing the bipartite machinery and casting employees against their own colleagues, they had said.

Unions had also strongly opposed linking their salaries to the performance of the bank, arguing that the financial performance depends on the government policies over which they have no control. Also, most of the losses were on account of large corporate loans which are decided at the top level.

However, the IBA had insisted on the clause to reward better-performing banks and to inculcate a sense of competition among employees of public sector banks.

Improved performance

Despite the pandemic, most public sector banks are expected to improve their performance over the previous year. This is because by the time they finalised their results for FY20, the entire nation was in a lockdown and many banks made significant provisions for Covid impact. The four acquiring banks last year made significant fair value provisioning in the 10-bank mega-merger. As a result, most public sector banks are expected to report a profit during the current fiscal.



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Divestment hopefuls Bank of Maha, BoI, IOB shoot up on stock market charts, BFSI News, ET BFSI

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Public sector banks Bank of Maharashtra, Bank of India, Indian Overseas Bank and the Central Bank of India, which are reportedly on the privatisation shortlist have risen manifold during the year.

The rally in PSU banks has strengthened in the last few days despite the yo-yoing markets due to the coronavirus pandemic wave.

Bank of Maharashtra shares have nearly doubled from Rs 13.55 at the start of the year to Rs 25.40 per share. It was up 2.21% over the previous close on Wednesday.

From 10.80 at the start of the year, Indian Overseas Bank’s shares have risen over 52% to 16.45. The shares were up 3.13% over the previous close on Wednesday.

From Rs 50.35 a share in January start, the Bank of India share price has climbed to 72.70 on Wednesday. It was up 4.76% over the previous close.

From 14.10 in January, the share price of Central Bank of India has jumped to Rs 18.45 on Wednesday. It was up 7.89% over the previous close.

The top PSU banks including SBI, Bank of Baroda, Canara Bank and PNB are also outperforming over divestment hopes around PSU banks.

More upside seen

Traders see another 10-15% jump in PSB shares if the Nifty holds 14500 levels.

SBI is the top investment pick in case the Nifty holds 14,400, with others offering a good trading opportunity for greater upside on talks around divestment.

PNB, Canara Bank, Bank of Baroda and SBI, which hold 74.63 per cent weight in the Nifty PSU Bank, have rallied between 4 per cent and 17.5 per cent in April 20-May 11, driving the index up by 15.05 per cent to 2,239.7 over the same period. This beats the Bank Nifty’s 6 per cent rally through 32,953 over the comparative period.

On May 12, when the Nifty and Bank Nifty corrected by more than 1 per cent, the Nifty PSU Bank closed up 3.2 per cent, underscoring the buying in these counters.

Futures prices of these stocks along with aggregate open interest change signal the market interest in these counters.

Canara Bank active futures contract has risen 17.5 per cent through 151 between April 20 and May 11. Over this period, the aggregate open interest, which measures traders’ outstanding buy-sell positions, rose 11.25 per cent, implying bullish sentiment on the counter.

Bank of Baroda’s 17 per cent gain in futures was accompanied by an 11.3 per cent decline in aggregate OI, signalling that bears were covering their sell positions. Likewise, SBI active futures contract, which has risen 11 per cent in the relevant period, was accompanied by an 8 per cent decline in aggregate OI, implying short covering. PNB futures, which rose 4 per cent, saw aggregate OI jump 40 per cent, suggesting bullish build-up.

The status

Indian Overseas Bank and Central Bank are under the Reserve Bank of India‘s stringent prompt corrective action framework.

These banks have reported net non-performing assets (NPAs) below levels that trigger PCA. However, on the proforma net NPA front, Central Bank falls short as its NNPA is 6.58% against the 6% required to be out of PCA.

The Reserve Bank of India is likely to delay regularising struggling state-run lenders that are under the prompt corrective action (PCA) framework as it has reservations over their capital adequacy levels.

Two public sector banks and one general insurance company are expected to be disinvested this year in addition to the divestment of IDBI Bank, Finance Minister Nirmala Sitharaman had announced during Budget presentation in February.



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PSU banks keep vigil over Cairn Energy raid on its overseas accounts, BFSI News, ET BFSI

Banking & Finance

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With UK’s Cairn Energy Plc looking to seize Indian assets to recover USD 1.2 billion it was awarded by an international arbitration tribunal, the Indian government has dug in heels and put banks on vigil for any such action.

Cairn Energy has said it taking necessary actions to access the USD 1.7 billion it was awarded by an international arbitration tribunal after overturning a retroactive tax demand slapped by the Indian government.

The Department of Financial Services has asked public sector banks to appoint a nodal officer amid increasing concerns that overseas assets or deposits of these lenders could be attached.

The department wrote a letter to public sector bank chiefs suggesting they immediately inform Sanjay Kumar, director – banking operations, if they receive ‘any intimation/notice/letter’ from Cairn Energy Plc and its subsidiary Cairn UK Holdings.

“Banks are advised to appoint a nodal officer in the case for any future correspondence, and share the name, designation and contact details of the official with us,” Jnanatosh Roy, under secretary, department of nancial services, nance ministry, wrote in the letter.

Cairn Energy and the government are locked in a legal battle over an arbitration order that requires India to pay $1.2 billion.

Withdraw funds

Last week, the central government has asked public sector banks to withdraw funds from their foreign currency accounts abroad, as New Delhi fears Cairn Energy may try to seize the cash after an arbitration ruling in a tax dispute.

A guidance was sent to state-run banks to withdraw funds from their nostro accounts.

A nostro account refers to an account a bank holds overseas at another bank in the currency of that jurisdiction. Such accounts are used for international trade and to settle other foreign exchange transactions.

While the Indian government has filed an appeal, the London-listed firm has started identifying Indian assets overseas, including bank accounts, that could be seized in the absence of a settlement, which Cairn says it is still pursuing.

The company has registered its claim against India in courts in the United States, Britain, France, the Netherlands, Singapore and Quebec, moves that could make it easier to seize assets and enforce the arbitration award.

The government was concerned courts abroad could order funds in their jurisdiction be remitted to Cairn.

Cairn said in February it was discussing several proposals with the government to find a solution.

India’s stand

Finance Minister Nirmala Sitharaman has earlier said that an international arbitration ruling on India’s sovereign right to taxation sets the wrong precedent, but said the government is looking at how best it can sort out the issue arising out of New Delhi being ordered to return $1.2 billion plus interest and cost to UK’s Cairn Energy Plc.

The government, which participated in an international arbitration brought by the Scottish firm against being taxed retrospectively, has appealed against The Hague based tribunal’s ruling asking the government to return the value of shares expropriated and liquidated, tax refunds withheld and dividend seized to recover a wrongly levied retroactive tax demand.

“We don’t believe in retrospective taxation,” she had said. “However, when issues are taken at arbitration… which question India’s sovereign right to taxation, we are worried that it sets a wrong precedent.” The Indian government argues that tax levied by a sovereign power should not be subject to private arbitration. Cairn had previously said the award is binding and it can enforce it by seizing overseas Indian assets.

Sitharaman, however, added that the government is looking to sort out the issue.

“I want to see how we can best sort this out,” she said, without elaborating.

The award

Cairn was awarded damages of more than $1.2 billion-plus interest and costs in December in a long-drawn-out tussle with the Indian government over its retrospective tax claims.

The Scottish firm invested in the oil and gas sector in India in 1994 and a decade later it made a huge oil discovery in Rajasthan. In 2006, it listed its Indian assets on the BSE.

Five years after that, the government passed retroactive tax law and billed Cairn Rs 10,247 crore plus interest and penalty for the reorganisation tied to the flotation.

The state then expropriated and liquidated Cairn’s remaining shares in the Indian entity, seized dividends and withheld tax refunds to recover a part of the demand.

Cairn challenged the move before an arbitration tribunal in The Hague, which in December awarded it $1.2 billion (over Rs 8,800 crore) plus costs and interest, which totals USD 1.725 billion (Rs 12,600 crore) as of December 2020.

The company has since then been in talks with the finance ministry to get the government to pay the award.



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RTI reply, BFSI News, ET BFSI

Banking & Finance

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INDORE: As many as 2,118 branches of 10 public sector banks have either been closed or merged with other banks in the last fiscal, according to an RTI reply.

The highest number of 1,283 branches of Bank of Baroda were either closed or merged, according to information provided to an RTI query filed by Neemuch-based activist Chandrashekhar Gaud.

No branch of Bank of India and UCO bank was closed in the last fiscal. The government consolidated ten PSU banks into four in the last financial year, bringing the number of nationalised banks to 12.

All India Bank Employees Association general secretary CH Venkatachalam said a dip in the number of the public sector banks was not in the interest of the banking industry and domestic economy.

He said there was a need to expand the branches of the banks to cater to the vast population in the country.

Bringing down the number of bank branches has reduced employment opportunities in the banking sector following which the young people were frustrated, Venkatachalam added.



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