Skip to main content

PSBs choke on bad loan mess

Image
By
PSBs choke on bad loan mess
Public sector banks (PSBs) saw their loan book shrink for the first time in at least two decades as advances fell by Rs 1.35 lakh crore in FY17.
In comparison, PSBs had made fresh loans (onanet basis) of Rs 1.34 lakh crore in FY16.
Also, PSBs´ average capital adequacy is 40 per cent lower than that of private sector banks and half that of listed retail nonbanking finance companies (NBFCs).
Every Rs 100 worth of advances by PSBs were backed by Rs 10.4 worth of core capital or net worth during FY17. The corresponding numbers for private sector banks and listed NBFCs were Rs 17 and Rs 21.4, respectively.
The low capital adequacy constrained their ability to make fresh loans.
At the peak, PSBs had made fresh loans of over Rs 6 lakh crore during the fiscal year ended March 2014 (see adjoining chart).
The decline in advances of PSBs gathered speed during the current fiscal year, according to the Reserve Bank of India´s (RBI´s) 201617 annual report.
In value terms, fresh nonfood credit by commercial banks, which include both public and private banks, declined by around Rs 1.92 lakh crore during April June 2017 period.
In comparison, nonfood credit by banks had grown by Rs 26,300 crore during the first quarter of FY16.
The contraction has been led private sector banks and NBFCs continue grow their loan books, taking advantage of the growth opportunity opened up by the absence of PSBs in the lending market.
For example, private sector banks made fresh loans worth Rs 2.6 lakh crore in FY17, up from Rs 1.86 lakh crore in FY14.
During the same period, incremental annual lending by retail NBFCs nearly doubled to Rs 1.3 lakh crore last fiscal year, against Rs 66,000 crore in FY14.
Experts attribute the decline in PSBs´ dominance to their poor capitalisation, coupled withageneral risk aversion in view of their large pile of bad loans and the RBI diktat on cleaning up their balance sheet ratings are shifting their debt from banks to the bond market, leading in repayments to banks.
The corporate debt data, especially of the highly indebted companies for FY17, are not available yet. Companies in theBusiness Standard sample sawarise of about 5 per cent in their debt.
However, PSBs saw more repayment by their corporate and commercial borrowers than fresh borrowings, leading toadecline in their loan book.
Not surprisingly, market analysts are not sanguine about the future prospects of PSBs.
“After accounting for losses on account of bad loans, most PSBs don´t have any capital left to make fresh loans, especially large loans to the corporate sector.
I don´t foresee any immediate turnaround in their fortunes, given the government reluctance to recapitalise them adequately,” says Dhananjay Sinha, head of research, Emkay Global Financial Services.
This has resulted in business moving away from PSBs to private sector banks and retail NBFCs.
“As low down in credit growth by PSBs has opened a new growth avenue for private sector banks and NBFCs.
Their task has been made easier by an easy access to debt and equity capital for them,” says Karthik Srinivasan, senior vicepresident, Icra
The trend has only accelerated in FY18.
The net credit of housing finance companies shot up to Rs 22,500 crore during the first two months of FY18, from Rs 10,000 crore during the AprilJune 2016 quarter, according to the RBI annual report.
During the same period, net credit by large NBFCs jumped eight times to Rs 28,500 crore, from Rs 3,500 crore during Q1 FY17.
Separate data for private sector banks is not available.
In all, 12 out of 21 PSBs in the Business Standard sample reported negative credit growth last fiscal year, against seven in FY16; two in FY15 and none in FY14.
The country´s largest lender State Bank of India also sawadecline in its credit growth at the group level for the first time in many years.
Advances were down 5.1 per cent onayearonyear basis last fiscal as many of its erstwhile associates (which merged with the parent) shrunk their loan book.
Some of the major government owned banks reportingadecline in their loan book include Central Bank of India, IDBI Bank, Indian Overseas Bank, Dena Bank, Allahabad Bank and Indian Bank, among others.
The Business standard, New delhi, 09th September 2017

Comments

Post a Comment

Popular posts from this blog

Shrinking footprints of foreign banks in India

By
Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…
Post a Comment
Read more

RBI rushes in to prop up falling rupee

By
RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…
Post a Comment
Read more

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

By
GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…
1 comment
Read more