BANKING SYSTEM IN INDIA

investment-of-lic-in-private-banks-and-many-psbs-erodes

Investment of LIC in private banks and many PSBs erodes

Investment of LIC in IDBI Bank has erodes by more than half over the past year or so and also the value of its investments in other PSBs plunged. Plunge in price of PSB stocks and dilution of its stake owing to capital infusion by the government has eroded its wealth in these banks. Besides IDBI Bank, LIC has lost over ₹4,800 crore since June 2018.

 

Further the merger move would hurt insurance company more in future. Around 20-30 per cent dilution in the book value of the merged entities — PNB, Canara Bank, Union Bank and Indian Bank — over the next year or so will lead to LIC’s value of holdings in PSU Banks erode further.

 

The government infusing capital into PSBs eroded value for investors. This is because most of the PSBs trade at a steep discount to their book value and hence the government infusing capital at such low valuations immediately leads to dilution in equity base.

05 Sep 2019
two-psbs-out-of-rbi-pca-list

Two PSBs out of RBI PCA list

The RBI has lifted lending curbs on two more public sector banks (PSBs), Allahabad Bank and Corporation Bank, by removing them from its prompt corrective action list after the government infused capital in them. Private sector Dhanlaxmi Bank too has been taken out of the PCA Framework.

 

Earlier on January 31, Bank of India, Bank of Maharashtra and Oriental Bank of Commerce were taken out of the PCA Framework.

 

The PCA framework kicks in when banks breach any of the three key regulatory trigger points -- namely capital to risk weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA).

28 Feb 2019
investment-of-lic-in-private-banks-and-many-psbs-erodes

Investment of LIC in private banks and many PSBs erodes

By IndianMandarins 05 Sep 2019

Investment of LIC in IDBI Bank has erodes by more than half over the past year or so and also the value of its investments in other PSBs plunged. Plunge in price of PSB stocks and dilution of its stake owing to capital infusion by the government has eroded its wealth in these banks. Besides IDBI Bank, LIC has lost over ₹4,800 crore since June 2018.

 

Further the merger move would hurt insurance company more in future. Around 20-30 per cent dilution in the book value of the merged entities — PNB, Canara Bank, Union Bank and Indian Bank — over the next year or so will lead to LIC’s value of holdings in PSU Banks erode further.

 

The government infusing capital into PSBs eroded value for investors. This is because most of the PSBs trade at a steep discount to their book value and hence the government infusing capital at such low valuations immediately leads to dilution in equity base.

two-psbs-out-of-rbi-pca-list

Two PSBs out of RBI PCA list

By IndianMandarins 28 Feb 2019

The RBI has lifted lending curbs on two more public sector banks (PSBs), Allahabad Bank and Corporation Bank, by removing them from its prompt corrective action list after the government infused capital in them. Private sector Dhanlaxmi Bank too has been taken out of the PCA Framework.

 

Earlier on January 31, Bank of India, Bank of Maharashtra and Oriental Bank of Commerce were taken out of the PCA Framework.

 

The PCA framework kicks in when banks breach any of the three key regulatory trigger points -- namely capital to risk weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA).

psbs-bring-down-npas

PSBs bring down NPAs

By IndianMandarins 09 Feb 2019

Bad loans of PSBs slid Rs 31,000 crore to Rs 8.64 lakh crore in the first nine months of the current fiscal.

 

Minister of State for Finance Shiv Pratap Shukla said in a written reply in Lok Sabha that Non-Performing Assets (NPAs) or bad loans of the banks stood at Rs 8.95 lakh crore at the end of previous fiscal.

 

Bad loans fell to Rs 8.75 lakh crore as on June 2018 and further to Rs 8.64 lakh crore in December 2018 (as per provisional data), he said.

 

He asserted that NPAs declined as a result of the government's 4Rs strategy of recognition, resolution, recapitalization, and reforms.

psbs-authorized-to-request-locs-against-defaulters

PSBs authorized to request LOCs against defaulters

By IndianMandarins 29 Jan 2019

To take care of the new incarnations of economic offenders like Vijay Mallya and Nirav Modi who quickly disappeared after their offenses became cognizable, the government has empowered PSBs to request lookout circulars (LOCs) against wilful defaulters and fraudsters.

 

The Home Ministry has also authorized the Serious Fraud Investigation Office (SFIO), a statutory corporate fraud investigation agency, to request LOCs if it feels the suspect may escape from India.

The ministry issued two circulars recently, authorizing chairman-cum-managing directors or chief executive officers of public sector banks and the SFIO to request designated authorities to issue LOCs against any wilful defaulter or fraudster if they think the person may flee the country.

 

The CMDs and CEOs of PSU banks can now ask the Home Ministry, Ministry of External Affairs, Customs and Income Tax Departments, Directorate of Revenue Intelligence, CBI, regional passport officers and police to issue a LOC to alert immigration check posts to stop anyone leaving India.

psb-trade-unionists-oppose-sale-of-shares-to-employees

PSB trade unionists oppose sale of shares to employees

By IndianMandarins 26 Jan 2019

PSB trade unions are opposed to the sale of PSB shares to employees. Bankers believe the opposition seems to be inspired by the desire to keep employees unintegrated with the modern development processes. Since the purchase of shares by employees would integrate them with the processes to improve their respective banks' health as otherwise their share holdings would not improve in valuation, trade unionists see this as a big threat to their dominance.


“Recently some of the public sector nationalised banks have come out with the decision to augment their capital through sale of shares to employees. As part of our decision to oppose all methods of privatising the capital of nationalised banks, we have been opposing sale of banks’ shares to private hands, both corporate and individual,” said C.H. Venkatachalam, general secretary, All India Bank Employees’ Association.


“In the same breath as a trade union, we are opposed to sale of bank capital to employees,” he added.

bbb-recommends-critical-measures-for-improving-psbs

BBB recommends critical measures for improving PSBs

By IndianMandarins 22 Jan 2019

The government has reportedly initiated the measures to implement key recommendations of the Banks Board Bureau (BBB)

 

Professionalizing the boards of PSBs and bringing in experts in risk management, information technology, and human resource management are said to be the top points of the BBB's recommendations.  


It has also advised that PSBs be asked to adopt best practices from both private banks and global financial institutions and strengthen internal controls and risk-management practices.

 

In its recommendations, the BBB has also suggested that a nomination and remuneration committee (NRC) should be set up in banks, along the lines suggested by the Companies Act, 2013. Another recommendation is to reconstitute the management committee of the board which takes decisions on large value loans.

 

In the light of the BBB's recommendations, the government is reportedly looking at how to strengthen the risk-management committee, which should be given the mandate to set a definite matrix for various credit underwriting activities. It is also considering how to firewall the audit committee of the board so that full-time directors are not a part of it. 

npas-of-psbs-burning-out-fast

NPAs of PSBs burning out fast

By IndianMandarins 30 Dec 2018

Financial service Secretary Rajiv Kumar has said that the initiatives of the government have brought down the bad loans of public sector banks by over Rs 23,000 crore from a peak of Rs 9.62 lakh crore in March 2018.

 

At the same time, he pointed out, public sector banks (PSBs) have also made a record in the recovery of Rs 60,726 crore in the first half of the current financial year, which is more than double the amount recovered in the corresponding period last year. "Gross non-performing assets (NPAs) of PSBs have started declining after peaking in March 2018, registering a decline of Rs 23,860 crore in the first half of the current financial year," he added.

 

According to the latest finance ministry data, non-NPA accounts overdue by 31 to 90 days (Special Mention Accounts 1 & 2) of PSBs have declined by 61 per cent over five successive quarters - from Rs. 2.25 lakh crore as of June 2017 to Rs 0.87 lakh crore in September 2018. "This has substantially pared down credit at risk," he said.

govt-to-pump-in-rs-83,000-cr-in-psbs

Govt to pump in Rs 83,000 cr in PSBs

By IndianMandarins 21 Dec 2018

Finance Minister Arun Jaitley on Thursday said the government may infuse Rs 83,000 crore in public sector banks in the next few months of the current fiscal.

 

Earlier in the day, the government sought Parliament's approval for infusion of an additional Rs 41,000 crore in the PSBs through the second batch of Supplementary Demands for Grants.

 

This would raise the total recapitalization in the current fiscal from Rs 65,000 crore to Rs 1.06 lakh crore. The recapitalization, Jaitley told reporters, will enhance the lending capacity of state-owned banks and help them come out of the RBI's Prompt Corrective Action (PCA) framework.

 

Jaitley further said recognition of non-performing assets in the public-sector banks is complete, and the decline in bad loans has begun.

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