Tag: public sector banks

Report, BFSI News, ET BFSI

Banking & Finance

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-By Ishwari Chavan

The Indian banking sector is likely to witness a fresh phase of consolidation over the medium term, between FY22 and FY24, primarily driven by large private sector banks, according to a report by Acuite Ratings and Research.

Given the current buoyancy in equity markets, there is now a significant opportunity for large Indian private banks for inorganic growth through acquisition of smaller private banks that continue to face headwinds or even public sector banks where the government is considering a disinvestment, the report said.

The banking sector saw its first phase of consolidation involving public sector banks over the period 2017-20, with an intent to enhance their competitiveness, capital position and operational efficiency. Post this, there are twelve PSBs, including seven large ones and five smaller ones against 27 in 2017.

Market share

While PSBs have been enjoying a dominant market share since nationalisation of banks in 1969, they have witnessed a steady drop in both credit and deposit market share over the last one decade, the report said.

This was further accelerated over the last five years, with the impact of the Asset Quality Review (AQR) and the subsequent spike in NPAs in the banking sector.


Share of Public Vs Private Sector Banks in Outstanding Credit
Source: Acuite Ratings and Research

Over the last five years, the market share of state-owned banks has dropped by around 10% in both deposits and advances due to asset quality, resultant profitability and capital challenges.

This market share has been largely taken over by private banks, who have cemented their market position through easier access to capital, along with technological initiatives.


Share of Public Vs Private Sector Banks in Outstanding Deposits
Source: Acuite Ratings and Research

Domination of large private banks

Given investors’ confidence, large as well as some select mid-sized private banks have been able to raise funds through capital markets.

Despite repercussions from COVID, larger and few mid-sized private banks have been able to raise capital through equity (QIP) snd Tier I/II bonds in FY21 and H1FY22.

Large banks have been reporting double-digit growth rates on an average over the last five years due to a comfortable capital cushion, which can shield them from any asset quality stress.

Despite some improvement in profitability during FY21, small-size private banks continue to have low return on assets, reflecting their vulnerability in a challenging environment. These banks have also been facing difficulties in raising capital.

Furthermore, their ability to bring about a structural improvement in their lending and deposit profile is uncertain due to limitations in their geographical franchise, the report said.


Size Wise ROAA Trend of PVBs
Source: Acuite Ratings and Research



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To ease lending, FinMin moves to boost bankers’ morale, growth

Banking & Finance

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In a move aimed at lifting the morale of public sector banks, the Finance Ministry has issued broad guidelines on staff accountability for NPA accounts up to ₹50 crore.

Banks have been advised to revise their staff accountability policies based on the new guidelines and get their respective boards to approve the new procedures.

The move, which comes at a time when there is a need to push credit growth in the banking system, is expected to tackle the fear among bankers to take lending decisions, given that the bank NPAs are a politically volatile issue.

 

Track record of officials

Under the new guidelines, PSBs have been tasked to complete the staff accountability exercise within six months from the date of classification of the account as NPA.

Further, depending on the business size of the banks, threshold limits have been advised for scrutiny of the accountability by the Chief Vigilance Officer (CVO). Past track record of the officials in appraisal/sanction/monitoring will also be given due weightage.

Previously, the staff accountability exercise was carried out in respect of all accounts that turn into NPAs. Now banks have been allowed to, with the approval of their board, decide on a threshold of ₹10 lakh or ₹20 lakh depending on their business size for the need to examine the staff accountability aspect.

The latest move could help restart credit growth and encourage bankers to start taking decisions now that there is an assurance that all bonafide business decisions will be protected, said a banking industry official. Credit growth in the banking system has averaged 6-8 per cent in the last few years and has been affected even more due to the pandemic in the last 18 months.

Policy makers need to introspect as to why credit growth is lower than the nominal GDP growth of 8-9 per cent clocked in recent years (before impact of pandemic), say economy watchers.

Restructuring window

Credit growth in the economy and banking system almost came to a grinding halt after the RBI removed the window of restructuring (which allegedly enabled evergreening of loans and hid the true picture of the asset quality) and the quantum of NPAs in the system ballooned to ₹8-9-lakh crore.

Allegations of “phone banking” too brought down the morale and confidence of bankers.

A chunk of the NPAs figured in the accounts up to ₹50 crore and it is here that bankers have, in the last few years, stopped taking decisions, lest they be questioned in the future, sources in the banking industry said. Also, different PSBs are following different procedures for conducting staff accountability exercises.

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IBA welcomes proposed staff accountability norms

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Our Bureau The Finance ministry’s decision to ask Public Sector Banks (PSBs) to complete staff accountability exercise within six months from the date of classification of an account as a non-performing asset (NPA), will boost the morale of employees, according to the Indian Banks’ Association (IBA).

PSBs have been asked to implement the directives with effect from April 1, 2022 for accounts turning NPA on or after this date. Banks have been advised to revise their Staff Accountability Policies based on these broad guidelines and frame the procedures with approval of the respective boards. At present, different Banks are following different procedures for conducting staff accountability exercise. Also, staff accountability exercise is being carried out in respect of all accounts which turn NPA.

‘Strain on resources’

“This approach not only adversely affects staff morale but also puts a huge strain on the bank’s resources. While punitive action need to be taken against the officers having malafide intent/involvement, it is essential to ensure that bonafide mistakes are dealt with compassion,” per the IBA statement. The Association noted that at a time when the country is in need of an economic boost, slow credit delivery to industries due to the fear of implication, is a matter of concern and needs urgent address.

It emphasised that there is a need to protect people taking bonafide business decisions in this competitive environment.

‘Protect bonafide action’

Banks with the approval of their Board may decide on threshold of ₹10 lakh or ₹20 lakh depending on their business size for the need of examining the aspect of staff accountability, IBA said.

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Gold loans shine the brightest in banks’ loan portfolio, BFSI News, ET BFSI

Banking & Finance

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Gold loans have emerged as the fastest-growing major loan segment as people have pawned their jewellery and lenders look at avenues of low-risk growth. Outstanding loans against gold jewellery stood at Rs 62,926 crore as on August 27, up 66% on a year-on-year basis, according to the Reserve Bank of India (RBI) data.

Gold loans are often used to finance consumption spending, such as children’s education, weddings, illnesses or to meet household expenses during distress.

Public sector banks have also entered the segment to further grow their retail business. Despite regulatory arbitrage of higher loan-to-value lending in March 2021, banks have continued aggressively disburse gold loans.

Gold loans were up 1% on month in August 2021 as restrictions during COVID-19 eased and economic activities grew.

Loan demand picked up from the beginning of July as COVID-19 cases started declining. Gold loans via non-banking finance companies (NBFCs) had reported higher customer walk-ins.

LTV impact

However, gold loans have grown a mere 3.6% YTD, which is in contrast with the 54% CAGR seen in gold loan growth over the past two years.

RBI had raised the LTV of 90% on gold loans, which allowed banks to lend up to 90% of the value of the collateral.

However, it withdrew special allowance for banks from April 2021, impacting loan growth.

The average ticket size of loans that customers are opting for is Rs 55,000-60,000, which are rising for many lenders, showed growing signs of distress.

Gold loan NBFCs saw higher competition in the gold loan business last fiscal as banks grew their portfolio taking advantage of the special LIV allowance given to them by the RBI.

The expansion

With growth returning, gold financiers are now gearing up to tap the expected surge in gold loans.

Muthoot FinCorp has expanded its physical network by more than 100 new branches, mainly in the north, east and west regions of India, most of which were in rural and semi-urban areas. The NBFC had opened 70 branches in FY20.

Muthoot’s gold asset under management (AUM) grew at a compound annual growth rate of 12% between FY15 and FY20. In FY21, the portfolio grew 27%.

Pune-based Bajaj Finance has increased its gold loan branches from 480 to 700 in the last financial year and plans to add 100 plus branches this fiscal.

Its loan book grew 52% last year to Rs 2,300 crore, while it saw an increase in ticket sizes from Rs 75,000 to Rs 85,000 last year.

Shriram City Union Finance is also looking to ramp up its gold financing business this financial year, changing its strategy of focusing on other loan portfolios.



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Will profitable PSUs need capital support from govt this year?, BFSI News, ET BFSI

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The government is likely to pump capital in public sector banks during the last quarter of the current financial year to meet regulatory requirements.

The government in Budget 2021-22 made an allocation of Rs 20,000 crore for capital infusion in the state-owned banks.The capital position of banks would be reviewed in the next quarter, and depending on the requirement, infusion will be made to meet the regulatory needs.

In the current fiscal so far, all 12 public sector banks have posted a profit, which is being ploughed back to bolster the balance sheet of the banks.

Going forward, the rise in stressed assets would determine capital requirement. If numbers are anything to go by, the financial health of public sector banks are showing gradual signs of improvement across the spectrum.

What Icra says

As per Icra’s estimates, public sector banks (PSBs) may not need the capital budgeted by the government for FY22, even with enhanced capital requirements.

However, banks are advised to keep provisions for any unforeseen events as it would provide confidence to banks, investors and credit growth. Icra said that large private sector banks (PVBs) also remain well-capitalised though few mid-sized ones could need to raise capital.

“We continue to maintain our credit growth estimate of 7.3-8.3 per cent for banks for FY2022 compared to 5.5 per cent for FY2021,” Icra said.

Despite expectations of moderation in gains on bond portfolios because of expectations of rising bond yields in FY22, the return on equity for banks is likely to remain steady at 4.4-7.6 per cent for PSBs (5.1 per cent in FY21) and 9.5-9.9 per cent for PVBs (10.5 per cent in FY2021), the report said.

PCA framework

Will profitable PSUs need capital support from govt this year?

Last month, the Reserve Bank of India removed UCO Bank and Indian Overseas Bank from its prompt corrective action framework, following improvement in various parameters and written commitment from them that would comply with the minimum capital norms.

The only public sector lender left under the PCA framework is Central Bank of India.

PCA is triggered when banks breach certain regulatory requirements such as return on asset, minimum capital, and quantum of the non-performing asset. These restrictions disable the bank in several ways to lend freely and force it to operate under a restrictive environment that turns out to be a hurdle to growth.

Last financial year, the government infused Rs 20,000 crore in the five public sector banks. Out of this, Rs 11,500 crore had gone to three banks under PCA — UCO Bank, Indian Overseas Bank, and Central Bank of India.

The government infused Rs 4,800 crore in Central Bank of India, Rs 4,100 crore in Indian Overseas Bank and Kolkata-based UCO Bank got Rs 2,600 crore. The government has infused over Rs 3.15 lakh crore into public sector banks (PSBs) in the 11 years through 2018-19.

In 2019-20, the government infused a capital of Rs 70,000 crore into PSBs to boost credit for a strong impetus to the economy.



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Staff asked to follow ‘Navratri’ dress code or pay fine!, BFSI News, ET BFSI

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Mumbai, In a bizarre development, public sector lender, Union Bank of India had mandated a section of its staffers compulsorily adhere to a special ‘Navratri‘ dress code or be ready to cough out fines.

The detailed order came vide a colourful circular issued on October 1 by the Digitisation Department, at the Central Office in Mumbai, signed by General Manager, A. R. Raghavendra.

Following an uproar on social media, the UBI management has reportedly yanked off the circular, it emerged late on Sunday night.

In the multi-coloured order, Raghavendra had asked all staff and on-site vendor partners to follow a daily colour dress code for the festival – from October 7, yellow, green, grey, orange, white, red, royal blue, pink, and purple for the last day – October 15.

To ensure compliance, he warned of a Rs 200 fine each for not adhering to the colour code plus a daily group photos of all staffers!

On October 14, there will be a ‘Chaat Party’ and staffers have been advised not to carry their lunch boxes, besides indoor games for staff and executives, post-lunch from 3 p.m. onwards.

“We request you all to make yourself available and not to keep any meeting,” Raghavendra said, signing off with a ‘request’ to all to follow the day-wise colour code scheme and make the celebration a grand success.

The All India Union Bank Employees Federation (AIUBEF) has not taken kindly to the diktat and shot off a letter to the UBI Managing Director and CEO Rajkiran Rai G., demanding stringent action against the GM.

Eminent litterateur and Madurai CPI-M MP, S. Venkatesan, has dashed off a letter to the UBI, terming Raghavendra’s circular as “highly atrocious”.

“It would damage not only image of the state-run bank and also is an infringement of human rights and secular values of this great country,” Venkatesan said, demanding withdrawal of the circular and action against the erring official.

Taking umbrage, AIUBEF General Secretary Jagannath Chakraborty has said that issuing official instructions for celebrating a religious festival in office, fixing a dress code, and imposition of penalty are not routine matters and would have required the permission from the top management.

“This has never happened in the 100 years’ history of the Bank. He should immediately withdraw the circular,” the AIUBEF leader said.

“We believe he did not obtain the permission… However, whether he was granted permission or not, we hereby lodge a strong protest against such wishful & dictatorial action of Raghavendra,” Chakraborty said.

He pointed out that a religious festival like Navratri should be observed and celebrated privately and “not officially in a PSB that maintains a high esteem towards the secular fabric of our society”.

“Celebration of any festival is a voluntary phenomenon that has no room for any instruction/coercion far to speak of imposition of penalty. The GM should know that for exercising a power, one should possess the power first,” added Chakraborty.

The AIUBEF asked the MD under what rule the GM derived the power to impose penalties for not adhering to the nine-colour dress code, even on holidays!

“We demand for fixing of accountability upon him and also for appropriate action for using Bank’s logo, platform, etc. to accomplish his personal desire by abusing official power,” said Chakraborty.

Bankers said they do not recall “such a thing ever” as dress codes, photo-sessions, parties and indoor games in the office, in the entire banking industry and said the UBI must immediately act against the officer concerned to convey the correct message to the national banks fraternity.

(Quaid Najmi can be contacted at q.najmi@ians.in)



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Here’s a recap of key managerial announcements in top public sector banks so far, BFSI News, ET BFSI

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Public sector banks have been witnessing many changes in their top management, be it extension of tenure or appointment of new key managerial personnel.

The finance ministry had in July asked the Department of Personnel and Training (DoPT) to extend the tenure of a number of managing directors and executive directors to ensure stability and continuity at state-owned lenders.

The Appointments Committee of the Cabinet (ACC), headed by Prime Minister Narendra Modi, has extended the tenure for three managing directors and chief executive officers, and 10 executive directors of public sector banks.

Only one bank, Indian Bank, has appointed its new MD and CEO so far..

Here’s a quick recap of all the noteworthy movements, recommendations and tenure extensions of top PSB officials:

Indian Bank

Shanti Lal Jain was appointed the Managing Director and Chief Executive Officer of Indian Bank for a period of three years. His tenure started from September 1, 2021, and is extendable for two years or until attaining the age of retirement, whichever is earlier.

He replaced Padmaja Chunduru, whose term with the bank ended on August 31. Jain was previously working as the Executive Director of Bank of Baroda.

Meanwhile, the ACC extended the term of Shenoy Vishwanath Vittal, executive director, till the age of superannuation.

PNB

BBB last month recommended Atul Kumar Goel as the MD & CEO of Punjab National Bank, after interviewing 11 candidates.

Apart from this, BBB has kept Ajay Kumar Shrivastava on the reserve list for the post.

Currently, Goel is serving as the MD & CEO of Kolkata-based UCO Bank. He is also on the boards of Star Union Dai-ichi Life Insurance and The New India Assurance.

The government in August extended the term of S S Mallikarjuna Rao, the existing MD & CEO of PNB chief till January 31, 2022. Rao’s term was supposed to end on September 18, 2021.

Further, terms of Sanjay Kumar and Vijay Dube, executive directors, have been extended until their age of superannuation.

UCO Bank

The government may appoint Soma Sankara Prasad, currently the deputy managing director of State Bank of India, as managing director of UCO Bank.

According to PTI, since Prasad was in the reserve list for the post of managing director at Indian Bank, he has been recommended to head UCO Bank. The final decision will be taken by the ACC.

The government had extended the tenure of Atul Kumar Goel for two years. His term was scheduled to end on November 1, 2021.

Bank of Maharashtra

The government extended the tenure of AS Rajeev, MD and CEO of Bank of Maharashtra, for a two years beyond the notified term, expiring on December 1, 2021.

Bank of Baroda

The tenure of Ajay Khurana as executive director has been extended by two years. He is also on the reserve list for PNB’s MD and CEO post. Meanwhile, the tenure of Vikramaditya Singh Khichi, another ED, has been extended until his age of superannuation.

Canara Bank

The tenure of A Manimekhalai, executive director, has been extended by two years.

Bank of India

The tenure of P R Rajagopal, executive director, has been extended by two years. .

Union Bank of India

The government has extended the terms of Gopal Singh Gusain and Manas Ranjan Biswal as executive directors until their age of retirement.

Central Bank of India

The tenure of Alok Srivastava has been extended until his age of superannuation.



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

Banking & Finance

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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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RBI adds ‘displeasure’ notes to regulatory action against banks, BFSI News, ET BFSI

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Along with taking penal action against banks, the Reserve Bank is making its displeasure over their functioning known to them.

The central bank has been issuing ‘displeasure’ letters to expressing dissatisfaction over their functioning, according to a report. These letters are issued by the Department of Supervision, which does not take any enforcement action.

The intent of these letters is not to interfere in the functioning of the banks, but to suggest changes that are deemed necessary for course correction. The letters have had the desired effect and prod the boards to make necessary changes.

Regulatory action

The Reserve Bank of India (RBI) took enforcement action against 41 regulated entities by imposing an aggregate penalty of Rs 61.15 crore between July 1, 2019, and June 30, 2020, the bank said in its annual report.

The actions were taken against regulated entities for non-compliance of various regulations, the RBI said in its annual report. Enforcement actions were also undertaken against contravention of the directions pertaining to third-party account payee cheques; non-compliance with directions contained in risk mitigation plan (RMP); and failure to comply with the provisions of Section 10B of the Banking Regulation Act, 1949, among others.

The RBI undertook enforcement action and imposed fine for non-submission of compliance to risk assessment reports’ (RAR) findings; non-compliance with/ contravention of directions on fraud classification and reporting; not adhering to discipline while opening current accounts, etc.

As many as 26 penal actions were taken against public sector banks with an aggregate fine of Rs 38.35 crore, while eight were initiated against private sector banks with an aggregate fine of Rs 8.55 crore. With regard to cooperative banks, it said 13 penal actions were taken with imposition of Rs 9.18 crore, it said. During the period, it said, a total fine of Rs 5 crore were imposed on two foreign banks.



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RBI allows banks to sell ‘fraud loans’ to ARCs

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The Reserve Bank of India on Friday allowed loan exposures classified as fraud to be transferred to Asset Reconstruction Companies (ARCs). This comes in the wake of banks reporting frauds aggregating ₹3.95-lakh crore between FY19 and FY21.

Stressed loans, which are in default for more than 60 days or classified as non-performing assets (NPA), can be transferred to ARCs. This shall include loan exposures classified as fraud as on the date of transfer.

Issuing the guidelines for transfer of loan exposure, including stressed loans, the central bank said the transfer of such loans to an ARC, however, does not absolve the transferor from fixing the staff accountability as required under the extant instructions on frauds.

Until now, when an account is declared fraud, banks had to set aside 100 per cent of the outstanding loan as provision. Under the new rules, banks can hope to recover a part of the loan. For ARCs, this will allow them to buy debt cheaper than regular loan accounts.

Swiss Challenge method

The RBI also said the transfer of stressed loans above ₹100 crore negotiated on a bilateral basis between lenders and permitted acquirers, including ARCs, must necessarily be followed by an auction through the Swiss Challenge method. Under the Swiss Challenge auction, the price bilaterally negotiated for the sale of a stressed asset becomes the floor price for inviting counter-proposals from other interested buyers.

Loan transfers are usually resorted to by lending institutions for multiple reasons ranging from liquidity management, rebalancing of exposure or strategic sales. “A robust secondary market in loans can be an important mechanism for management of credit exposures by lending institutions and also create additional avenues for raising liquidity,” the RBI said in a circular to lenders.

New guidelines

Under the new guidelines, loans can be transferred only after a minimum holding period (MHP) of three months in case of loans with tenor up to 2 years, and six months fior those with tenor of more than 2 years. In case of loans where the security does not exist or cannot be registered, the MHP shall be calculated from the date of first repayment of the loan.

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