Finance ministry queries Bank of Maharashtra over 34% increase in lending--Economic times 22nd July 2013
NEW DELHI: The finance ministry has sought an explanation from Bank of MaharashtraBSE -1.99 % on the 34% rise in the state-run lender's credit growth over the last fiscal, a move that seems at odds with the ministry's earlier directives to banks to increase lending.
The ministry also asked the bank for details of all the lending by it in 2012-13. A senior executive with the bank said they have provided the details to the ministry. The executive, however, said the ministry has sought the clarification as it is firming up its capitalisation plans.
"The government is the majority owner (in Bank of Maharashtra) and before infusing more capital it wants to know our future plans and track record," the executive said. "We have also sought permission from the government to let us go ahead with a qualified institutional placement (QIP), so these steps are aimed towards that."
The government has 81.24% stake in the bank.
Last year, Bank of Maharashtra had come under scrutiny following reports that its management had changed rules to facilitate loans to Vijay Mallya-controlled UB Group. These reports suggested that the loans were raised for the group's now defunct Kingfisher Airlines.
"No rules were changed or loans sanctioned. Our results speak for themselves and we are sure the ministry will be convinced," the bank executive said. Bank of Maharashtra reported a whopping 255% growth in its net profit for the fourth quarter of 2012-13 at 258.99 crore, against 72.83 crore in the year-ago period.
The net profit has shown a 76.29% year-on-year growth.
A finance ministry official, however, said the government has sought data to analyse whether the bank has followed all due diligence. The official said the bank had been cautioned by the Reserve Bank of India around the second quarter of last fiscal, as it had breached some sectoral norms.
"There is a genuine concern as all other banks have shown a credit growth increase of 14-15%. But Bank of Maharashtra reported a surprising increase in credit growth, mostly in the second and third quarter of last fiscal," the ministry official said.
The finance ministry may scan the books of other state-run lenders for similar spikes in growth and seek explanations as it firms up its plan to infuse around 14,000 crore in state-run banks by the end of this month. All banks with capital adequacy ratio (CAR) of less than 8% will be given preference.
Bank of Maharashtra's CAR stands at 7.57%, second lowest among all public sector banks after Dena Bank's 7.26%, which is well below the government's target of 8%. The other two banks with CAR below 8% are IDBIBSE -0.64 % (7.68%) and Indian Overseas BankBSE -3.36 % (7.80%).
"We have to ensure that banks do not go on reckless lending to increase their balance sheet. Already there is a lot of pressure due to non-performing loans," the finance ministry official said.
Bank of Maharashtra is among the best performing banks when it comes to NPA management. The bank's gross NPA ratio was among the lowest at 1.49% in March 2013.
Tackling crisis of confidence in economy--Business Line --22nd July 2013
uly 21, 2013:
The economy is facing a crisis situation. Major parameters such as the index of industrial production, inflation and consumer price index are not favourable to instil confidence that some improvement can be expected in the near future.
The Government seems to be aware of the problems and some measures have been taken to improve the investment climate, but how far these measures can produce result in the absence of follow-up actions is the concern of investors, particularly foreign investors, because of the political uncertainties.
Even if the situation favours in all respects nothing can be done against the time lag involved in yielding results. Monsoon appears to have favoured agricultural production giving some hope to improve food supplies and related inflation but here again the problem of procurement, storage and supply chain management remains.
The GDP growth, to which the other parameters, that is fiscal deficit, current account deficit and employment generation, are closely linked cannot be expected to be comfortable in the absence of strong supporting financial system.
What is the way forward and how to put back the economy on the trajectory of growth are the questions that linger in the minds of every one concerned with the economy.
INFLATION
The foremost thing is to bring down the inflation and any cost incurred by the Government and the economy.
The RBI has been doing its best for the past few years but it was not given the attention it deserved by the Government. The RBI’s efforts have kept inflation under check and below the double digit.
Raising resources from both domestic and external sectors are the major hurdle and herein lies the solution to give strength to the economy.
Domestic resources are in fact plenty but channelising these to productive investment is what matters. Confidence building, followed by result-oriented actions to convert non-productive assets into productive ones, is paramount to bring back investors into main stream of production.
Heavy food stocks lying and going waste if channelled to reach the masses at reasonable prices will, to a great extent, bring relief to food-related inflation. Availability of vegetables and fruits needs to be stepped up and their wastage due to non-availability of cold storage facilities, timely transportation, marketing and distribution need special attention.
GOLD BANK
Gold stock is aplenty in the economy and cash resources are also in abundance. How to tap them to aid the economy is what the Government should think about.
The setting up of a gold bank is a practical solution which will wipe out some of the ills of the economy.
This will help improve the savings in the system in money form and the craze for gold and its imports, as a speculative commodity and a hedge against inflation, will diminish if not vanish.
The cash-rich companies and high net worth individuals should be attracted to go in for investments by offering tax incentives and special treatment to do business with ease by removing major hurdles in the acquisition of land, availability of raw materials like power, raw materials and transport.
CHECK VOLATILITY
The financial system without the support of which the real economy cannot perform and which is undergoing a tough time due to volatility in different markets needs to be stabilised.
The influence of the major markets that is capital, bond and forex by the external capital flows has to be minimised and for that the local institutions that deal in these markets need to be strengthened with resources, products, close integration, regulatory and supervisory measures.
To reduce volatility in the forex market, the RBI and the Government can consider the possibility of setting up an Exchange Rate Stabilisation Fund with the active involvement of exporters, importers, non-resident Indians and other forex earners. SEBI and IRDA can do a lot to bring in resources through improved capital market operations and insurance market.
The recent steps of the Government to attract FDI funds can be encashed by these two regulators by appropriate initiatives to retain and properly utilise the funds. NRI resources need to be tapped to the optimum level.
FINANCIAL SUPPORT
The banking system, one of the major sources of financial support both to the economy and the Government, is dependent more on borrowed and purchased funds and this needs to be changed by massive deposit mobilisation and other means. Their non-productive assets lying as advances towards food procurement and other industrial, agricultural, housing education etc are a major handicap and need some workable and self-sustaining solution.
The banks with more of long-term assets and short-term liabilities cannot be expected to lock in their funds for a longer period and face liquidity crunch every now and then.
Such long-term nature of advances with increasing percentage of non-recoveries affects banks’ profitability and consequent losses to all stakeholders.
Banks should go in more for long duration deposits even if the cost is a bit high.
The Asset Liability Management of banks has neither helped to reduce the cost of funds nor the mismatches in interest rate and maturity.
The government can relax the tax on savings and make up the loss through improved use of bank deposits in productive ventures.
(The author is a consultant based in Bangalore. Views are personal)
SBI says needs Rs 2.3 lakh crore to meet Basel III norms--ET
MUMBAI: The nation's largest lender State Bank of IndiaBSE -0.57 % needs Rs 2,30,000 crore in additional capital to meet the stringent Basel III requirements till 2018, a top official has said.
"We need about Rs 2,30,000 crore of additional capital for Basel III up to 2018. Out of this, Rs 1,50,000 crore is of tier I and the rest Rs 80,000 in tier II capital," SBI managing director and chief financial officer Diwakar Gupta told PTI here in an interaction.
Gupta, who is retiring after nearly four decades at SBI towards the end of the month, further said the requirement is for a five-year period. The bank is comfortable on the capital front at present and also expressed confidence that the lender will be able to manage this huge amount, he added.
According to the Reserve Bank, the banking system will collectively require Rs 5,00,000 crore to implement the Basel-III capital needs. Basel-III is the newer international standard of capital allocation devised and adopted following the 2008 financial crisis.
The Basel III measures lay a lot of emphasis on increasing the buffers, which can help in times of difficulty and avoid the stress spilling over to other markets in the highly interconnected financial system.
The Reserve Bank introduced the Basel III capital regulations for banks effective this fiscal year. The capital requirements will be phased over a period, up to March 2018, nine months ahead of the Basel Committee phase-in.
According to experts, some of the required money will come through internal accruals and some part will have to be raised from the market.
Gupta said for SBI, it is important to time the capital raising appropriately, as other banks will also be looking to raise capital.
"When the whole banking industry will need money, we need to time our capital raising accordingly. Therefore, the sooner we go to the market, the better it is," he said.
Gupta, however, expressed reservations if this is the right time to do so, citing highly volatile capital markets.
For this fiscal, the bank can collect upwards of Rs 20,000 crore, which will include infusion from the government, from the market as well as from internal accruals.
The government is likely to infuse Rs 4,000 crore into the bank this fiscal out of the Rs 14,000 crore planned towards recapitalising the nationalised banks this fiscal.
Gupta said the government owns a little over 62 per cent in the bank and that there is a scope for getting it down to up to 58 per cent levels for the additional capital raising.
SBI, whose capital adequacy stood at 12.92 per cent as of March 2013, had received an infusion of Rs 7,900 crore from the government last fiscal.
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