Government ownership of banks must not interfere with regulations
(From Economic times)
The finance ministry is reportedly all set to review public sector banks' (PSBs) handling of their loan portfolios. Why? Because PSBs are saddled with a disproportionally high share of bad loans compared to their counterparts in the private sector.
The ministry is concerned that while private sectorbanks have largely been able to insulate their loan books, PSBs have not been as successful. It wants to know why. Well, it's quite elementary and one does not need the services of Sherlock Holmes. All the government needs to do is look within, to spot two reasons.
One, political and bureaucratic meddling in the loan process, from sanction to restructuring (It is no secret, for instance, that PSBs were under tremendous pressure to come to the aid of the ailing Kingfisher AirlinesBSE 3.07 %.) And two, the public sector ethos of PSBs. There is no denying that, in common with public sector undertakings in general, accountability in PSBs is lower than in private sector banks.
There is also little incentive or reward for close post-sanction follow-up /recovery of loans, once disbursed. In the aftermath of the 2008 crisis when sound commercial sense called for shrinking bank balance sheets, manyprivate banks cut back on their lending. But PSBs, at the behest of the government , especially the finance ministry, continued to lend aggressively.
Many of the loans extended during that period of artificially low interest rates are now in trouble. The net result is that not only are non-performing assets (NPAs) of PSBs much higher than in private and foreign banks, but their share in restructured standard loan assets is also higher.
According to the RBI, restructured accounts grew at a compound annual growth rate of 47.86% in PSBs against a credit growth rate of 19.57% during the last year. That apart, it is far from clear why the finance ministry is interfering in what is the domain of the banking regulator , the RBI.
Unfortunately, this is not the first time the ministry is guilty of over-reaching itself and stepping on the RBI's turf. The result of such regulatory overlap cannot but be bad for the health of the financial sector.
Banks have turned risk averse after facing steady rise in bad loans: RBI
KOLKATA: Banks have turned risk averse after facing steady rise in bad loans, Reserve Bank of India said.
The RBI said that banks' gross and net non-performing assets ratios slipped further during April-June quarter after showing a worsening trend in the last fiscal across bank groups. "Deterioration in the assets quality and in the macroeconomic conditions resulted in added risk aversion in the banking sector," it said.
This led to a portfolio switch from credit creation toinvestments in government securities on the back of government's large market borrowing. Commercial banks were holding around 28% of their net deposits in government securities as on September 30, 2012.
Banks' collective gross NPA ratio slipped to 3.25% in the June quarter from 2.94% a quarter back. The slip in bad loan ratios were maximum for the public sector bank group, which account for nearly three-fourth of total banking sector advances.
The slippage ratio or ratio for fresh NPAs deteriorated too at 3.04% from 2.60%, indicating additional stress to the sector. Banks booked fresh NPAs across sectors like iron and steel, textile, airlines, power and retail.
RBI said all banks have seen a fall in year-on-year credit growth at end-September.
"Monetary and credit aggregates remain below their indicative trajectory," the central bank said in its monetary and macroeconomic review.
"The current credit slowdown largely indicates tepid demand conditions and distinctively lower credit expansion by public sector and foreign banks partly reflecting their risk aversion."
Banks have turned risk averse after facing steady rise in bad loans: RBI
KOLKATA: Banks have turned risk averse after facing steady rise in bad loans, Reserve Bank of India said.
The RBI said that banks' gross and net non-performing assets ratios slipped further during April-June quarter after showing a worsening trend in the last fiscal across bank groups. "Deterioration in the assets quality and in the macroeconomic conditions resulted in added risk aversion in the banking sector," it said.
This led to a portfolio switch from credit creation toinvestments in government securities on the back of government's large market borrowing. Commercial banks were holding around 28% of their net deposits in government securities as on September 30, 2012.
Banks' collective gross NPA ratio slipped to 3.25% in the June quarter from 2.94% a quarter back. The slip in bad loan ratios were maximum for the public sector bank group, which account for nearly three-fourth of total banking sector advances.
The slippage ratio or ratio for fresh NPAs deteriorated too at 3.04% from 2.60%, indicating additional stress to the sector. Banks booked fresh NPAs across sectors like iron and steel, textile, airlines, power and retail.
RBI said all banks have seen a fall in year-on-year credit growth at end-September.
"Monetary and credit aggregates remain below their indicative trajectory," the central bank said in its monetary and macroeconomic review.
"The current credit slowdown largely indicates tepid demand conditions and distinctively lower credit expansion by public sector and foreign banks partly reflecting their risk aversion."
The RBI said that banks' gross and net non-performing assets ratios slipped further during April-June quarter after showing a worsening trend in the last fiscal across bank groups. "Deterioration in the assets quality and in the macroeconomic conditions resulted in added risk aversion in the banking sector," it said.
This led to a portfolio switch from credit creation toinvestments in government securities on the back of government's large market borrowing. Commercial banks were holding around 28% of their net deposits in government securities as on September 30, 2012.
Banks' collective gross NPA ratio slipped to 3.25% in the June quarter from 2.94% a quarter back. The slip in bad loan ratios were maximum for the public sector bank group, which account for nearly three-fourth of total banking sector advances.
The slippage ratio or ratio for fresh NPAs deteriorated too at 3.04% from 2.60%, indicating additional stress to the sector. Banks booked fresh NPAs across sectors like iron and steel, textile, airlines, power and retail.
RBI said all banks have seen a fall in year-on-year credit growth at end-September.
"Monetary and credit aggregates remain below their indicative trajectory," the central bank said in its monetary and macroeconomic review.
SUNDAY, OCTOBER 28, 2012
Restructuring Of Bad Loan Accounts in Public Sector Banks IS Compulsion
This refers to statement made by learned Finance Minister Mr. Chidambaram saying that PSU banks take huge exposure without collateral whereas private banks ensure adequate safeguards. After all why large scale corporate defaults take place only in government banks, not so much in private banks.
Most unfortunate part of the story is that clever bank officers who occupy the top post in each bank still provide lame excuse to Finance Minister for abrupt and abnormal rise in bad assets in their banks. These clever banks say that if the economy would have been doing well, there would not have been defaults.
It is not only Kingfisher, or Deccan Chronicles or Zoom Developers whose loans are bad , there are many such bad loan accounts still concealed by these clever bank officials in collusion with none other than official of RBI and that of Ministry of Finance.
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