If, there is any sector that is under maximum stress today it is banking. And, the sole reason for this is monumental loans given in the past that turned in to non-performing assets [NPAs]. For public sector banks [PSBs], these are Rs 476,000 crores on March, 2016 [up from Rs 267,000 crores on March, 2015]. In the past, their managements suffered from inertia of two types; first, they won’t recognize the existence of the problem and second, despite recognition they would do nothing to solve it. Raghuram Rajan – the tough governor, Reserve Bank of India [RBI] forced them to clean up their balance sheets. As a result, some 20 banks who would have otherwise made a profit of Rs...
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Category: PSU reforms & dis-investment
Grant full autonomy
REJUVENATING PSU banks Last year, a Reserve Bank of India (RBI) committee headed by P Nayak made sweeping recommendations aimed at bringing about structural reforms of public sector banks (PSBs) to enable them meet expanding requirements of an economy on accelerated growth trajectory and improve its competitiveness among the comity of world nations. The committee recommended (i) setting up of an autonomous Bank Boards Bureau (BBB) with a mandate to select the top management; (ii) setting up of a bank investment company (BIC) where all government shares in PSBs will be vested and (iii) divestment of its shareholding in all PSBs to below 50%. BBB was contemplated as an interim arrangement precursor to the BIC. The most crucial of these...
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Divestment of majority stake – key to PSB reforms
Last year, an RBI committee headed by P Nayak had made sweeping recommendations aimed at bringing about structural reforms of public sector banks [PSBs] to enable them meet expanding requirements of an economy on accelerated growth trajectory and improve its competitiveness among the comity of world nations. The committee had recommended (i) setting up of an autonomous Bank Boards Bureau [BBB] with a mandate to select the top management; (ii) setting up of a bank investment company [BIC] where all government shares in PSBs will be vested and (iii) divestment of its shareholding in all PSBs to below 50%. BBB was contemplated as an interim arrangement as a precursor to BIC. The most crucial of these is recommendation (iii) as...
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PSB woes – lasting solution miles away
India is the only bright spot with a high growth rate of around 7.5% in an otherwise turbulent world with major economies either decelerating or remaining flat. But, there is a dark spot on Indian economic landscape which if not removed urgently, could prove to be a major drag. This pertains to increase in non-performing assets [NPAs] of banks to unsustainable level. Currently, NPAs [loans which do not yield return] of Indian banks are about Rs 400,000 crores. Including restructured assets [bad loans made to look like normal assets by relaxing terms], the total stressed assets are Rs 800,000 crores or 11.25% of gross advances. For public sector banks [PSBs] alone, this is much higher at 14%. The problem has...
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2016-17 – budget that helps poor earn decent living
The Union Budget for 2016-17 presented the finance minister, Arun Jaitely on February 29, 2016 carries the imprint of prime minister Modi’s unflinching and genuine commitment to ameliorate the conditions of millions of poor – engaged in farming and other occupations – by creating all right conditions to enable them do productive work and earn good income. Driven by latter’s pledge to double farmers income by 2022 [75th year of Independence], the former has unveiled a plethora of initiatives/steps to bring about a structural transformation in the way farming is conducted and agricultural produce is marketed. Boost to farmers income & rural employment The measures that will enhance farmer’s capability to increase yield include a mammoth capital spend of Rs...
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Will PSBs survive Rajan’s surgery?
The carnage seen on the Indian bourses on February 11, 2016 leading to erosion in market capitalization by a whopping Rs 300,000 crores [around US$ 44 billion] was led primarily by plunge in the stocks of public sector banks [PSBs]. Even as the near recessionary trends globally precipitated by deceleration in Chinese growth rate has been the undercurrent contributing to decline in Sensex/Nifty, steep fall in PSBs stocks in particular, is due to poor results of the third quarter [October-December, 2015] of the current financial year. State Bank of India [SBI] – biggest of all PSBs in terms of size and market capitalization – reported a steep fall of around 60% in net profit for the quarter. Punjab National Bank...
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DEBUNK ‘FAMILY SILVER’ ARGUMENT
In a clear case of judicial overreach, the Supreme Court has stopped the Government from selling its residual shares in Hindustan Zinc Limited even though it had no problems when majority of the shares were sold years ago In recent times, the judiciary has made deep inroads into policy making that lies strictly within the executive domain. The latest manifestation is an order by the Supreme Court to the Government of India, to stop selling the latter’s residual stake in Hindustan Zinc Limited. This order came in response to a public interest litigation filed by the National Confederation of Officers Associations of Central Public Sector Undertakings in 2014, which challenged the proposed sale of the Government’s 29.5 per cent stake...
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PSU divestment – judiciary should keep away
Thanks to a decade of mis-governance and policy inaction under the erstwhile UPA dispensation, the judiciary has made deep inroads in to the executive domain. The most recent manifestation of this interference is the order of the Supreme Court [SC] to the Government of India [GOI] not to sell its residual stake in Hindustan Zinc Limited [HZL]. In 2002, GOI had sold 26% shares in HZL to a Vedanta Group company Sterlite Opportunities & Ventures. In the following year, it parted with another 18.92% under a ‘call option’ available to latter. A further 25.5% was offloaded [but not before a long-drawn arbitration battle between then UPA-regime and Vedanta over legality of ‘call and put’ options] taking total divestment to 70.5%....
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PSUs dividend – an order ingrained in archaic mindset
Faced with a massive shortfall in resource mobilization from disinvestment of shares in central public sector undertakings [PSUs] [Rs 40,000 crores] and proceeds from direct taxes [Rs 50,000 crores], Modi – government has issued a diktat to all PSUs to help it avoid slippage in fiscal deficit target of 3.9% of GDP set in the budget for the current year. It has directed them to give a minimum dividend of 30% of profit after tax [PAT] or 30% of government equity whichever is higher. PSUs having substantial free reserves and capability to make good profits on a sustained basis are required to give special dividend and issue bonus shares. As regards their capital expenditure needs, it goads them to increase...
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Have Indian banks plunged in risk zone?
An increasingly stressed financial system continues to haunt Modi – government. The more it endeavours to address the maladies afflicting the scheduled commercial banks [SCBs] [through a host of initiatives such as “Indradhanush” and recapitalization of public sector banks [PSBs]], the more grievous these become. A semi-annual Financial Stability Report [FSR] recently released by RBI governor, Raghram Rajan makes it official. The gross non-performing assets [NPAs] [bad loans which do not yield any return] of all SCBs increased from 4.6% of gross advances as in March, 2015 to 5.1% in September, 2015 and are projected to increase to 5.4% by September, 2016. The restructured standard advances as percentage of gross advances [these are potentially bad loans but salvaged by relaxing...
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