NPA Reduction Is A Big Challenge

Non-performing assets a big challenge: S Viswanathan -Financial Express

Admitting that non-performing assets (NPAs) in the banking sector is a big challenge, SBI Managing Director S Viswanathan said the NPAs would start looking up once the economic situation gets better.

"Though the NPA stress will continue, it would start looking up in six months after the economic scenario improves," the managing director (associates and subsidiaries)

at SBI said at an event organised by XLRI here today.

"It will go up for sometime before it comes down," he said stating that NPAs would not cripple the prevailing banking system.

It is unfortunate to know that education loan contributed 20 per cent to total non-performing assets, he added.

Viswanathan said the country's largest lender has taken adequate steps to recover loans.

In the rural and semi-urban areas, we have enough pportunities to grow, he added.

Viswanathan also shared plans to reach out to people in remote areas lacking connectivity and accessibility. He said there is a need to bring more and more poor people in rural pockets under banking system by adopting new technologies and electronic means.

The banking sector has opportunities as well as challenges to address, he said while emphasising the need for financial inclusive.

Appreciating PSU banks' performances, he claimed that banking and insurance sectors were the only sectors where public sector firms continue to perform better than private players.

Viswanathan also spoke on proposals such as single demat account for all investments and credit cards for school students (above class 8th) to make them aware with the banking system.

Highlighting the growth of banking business since independence, he said the sector is currently valued at Rs 115 lakh crore and expected to more than double at Rs 288 lakh crore by 2020.

Viswanathan further said that about 70 per cent of business is being done by PSU banks, which were being accused of not providing the king services provided by the private banks.

He said the SBI group (SBI and its associates) holds 22 per cent of the market share in the country

Capital crunch for smaller public sector banks to worsen-Business Standard

Capital infusion of $30 bn over two years needed amid high dividend payouts and impairment ratios

India’s public sector banks (PSBs) have a lot more to worry than accumulation of bad loans. Operating metrics of state-owned banks have steadily worsened over five years, affecting return ratios. While costs have risen and margins declined, dividend payouts remain elevated. Analysts believe this is uncalled for, as the bank’s core capital has gotten eroded over time, thanks to such payouts. In FY14, the government infused Rs 14,000 crore into public sector banks, a pittance when seen in proportion to their capital requirement. Over the past five years, Rs 75,000 crore has been infused by the government and the Life Insurance Corporation into PSBs, but that is not enough given the rise in bad loans and high payouts.

Under the Basel-III norms, PSBs will need to maintain Common Equity Tier-1 capital of nine per cent, if a loan growth of 15 per cent is assumed, which implies a capital infusion of $30 billion. This is because PSBs make hefty dividend payouts and their return on equity has steadily fallen over five years (8-14 per cent for large banks), which has depleted core capital to below 10 per cent. Deutsche Bank Markets Research says: "Post dividend payout, the retained capital is less than 10 per cent for the larger banks. Therefore, banks lose about 40-80 basis points of core capital every year (at the current price/book value multiple of 0.5-0.6x), this means that dilution will be about 15-16 per cent (every year) to maintain the current ratios.” Dividend payout by most public sector banks in FY13 was between 15 and 26 per cent.

PSBs having weaker capital ratios will need to dilute more. State Bank of India (SBI), India’s largest lender, is currently comfortable, as its Tier-1 is 10.2 per cent and it has also raised Rs 10,000 crore from the government through a preferential route. Espirito Santo Investment Bank Research expects SBI to dilute 11 per cent to raise Rs 25,100 of equity capital. Punjab National Bank has a Tier-1 of 9.1 per cent and is likely to dilute 25 per cent to raise Rs 14,400 crore.

The worst among the PSBs, in capital adequacy, are Union Bank of India and Bank of India (BoI). Espirito Santo says though Bank of India recently received Rs 1,000 crore of equity capital from the government of India through preferential allotment, leading to eight per cent dilution, “despite this dilution, BoI has Tier-1 ratio of 8.2 per cent and in our base case scenario, we expect dilution of 50 per cent”. Union Bank has a Tier-1 ratio of 7.6 per cent and will need to dilute 56 per cent to raise Rs 11,600 crore.