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Banking News 20.02.16



Banking News: February 20, 2016


Here is an endeavour to bring you in one folder all banking related unedited news/columns/articles/opinions/analysis etc appearing in major business dailies The compiler assumes no responsibility for the authenticity and reliability of the news. Readers are requested to go through the official instructions before acting upon any news articles and views appearing herein.


Compiled by: Anup Sen

 Salt Lake City, Kolkata 700 064



“Cut govt stake in Public Sector Banks to below 51% to fight NPAs”: Arundhati Bhattacharya


Sangita Mehta & Pratik Bhakta

The Economic Times

Published on February 20, 2016



Mumbai, February 19: The government should lay down a road map for lowering its ownership in banks below 51% as provision for bad loans raises the need for capital when the state is facing fiscal pressure, and wilful default should be treated as criminal offence, said the chairman of State Bank of India.


It is a misconception that there are no funds available for projects as there is no dearth of funding for ‘viable’ projects and it is the entrepreneurs who have become ‘risk averse.’


Fears about the future of state-run banks are overblown and that almost every one of the bank would survive since the government is the owners of all the institutions, she said.


"For banking sector, we should look for a clear road map for recapitalisation, with provision for ownership reduction below 51%,'' Arundhati Bhattacharya, chairman of SBI told ET Markets Pre-Budget Meet.


On treating the defaulters, she said, “Defaults can happen because of various reasons. However, one of them also could be wilful. In such cases we need to recognise those as offences under IPC (Indian Penal Code) and with clear guidelines as to what actually constitutes a wilful default.”


Bhattacharya's demand comes amid record classification of bad loans by banks due to a diktat from the Reserve Bank of India, which wants to clean up the system by March 2017.


But the fact that government owns a majority of the institutions where it can't lower its stake below 51% is raising doubts about the state's ability to provide capital to these banks. If the government amends an act to enable its stake to fall below 51%, many of the banks may be able to raise funds from the market.


The capital needed by state-run banks may climb because of the push to clean up. India Ratings estimates that banks would require Rs. 3.7 lakh crores between fiscal 2017 and fiscal 2019. The deterioration of credit profiles may also raise their costs of borrowing.


But Bhattacharya said the banks can manage the situation with the government backing.


“I don't think any of them will fail after all the government is the majority owner there,” Bhattacharya said.


“But I personally believe that in a country like India, there is a need for bigger banks. It needs four to five solid big banks and the smaller banks which will play in niche areas.”


A lot of the problems were not the creation of banks, but many of the assumptions that were made did not come true, and the promises made by many authorities were not fulfilled, dealing a blow to both the banks as well as entrepreneurs.


“I do not agree that the problem is because of the public sector banks,'' she said. `


“When anything goes wrong with the economy it ultimately boils down to numbers and since the numbers reside with the banks hence it comes down to the banks. There were permissions given then taken back, mines allocated and then totally cancelled, rupee as a currency depreciated.”



From E-Group, Banking-News



State-run banks face RBI clamp down

 as key ratios deteriorate


Manojit Saha, The Hindu

Published on February 20, 2016



As many as 13 banks’ RoA falls below the minimum threshold


Mumbai, February 19: The Reserve Bank of India may impose restrictions on state-owned banks which have reported lower than 0.25 per cent return on assets (RoA) due to a mountain of bad debts that has put pressure on profitability.


These include accessing or renewing costly deposits like certificate of deposits, entering into new lines of business, borrowings from inter-bank market, making dividend payments and expanding its staff.


As many as 13 listed public sector banks, out of 21, reported lower than 0.25 per cent RoA for the nine month period ended December 31. The 0.25 per cent mark is crucial, since breach of that level invites a clamp down by the banking regulator as a part of its ‘Prompt Corrective Action’ norms.


Prompt corrective action is invoked if either, net NPAs goes above 10 per cent, capital adequacy ratio (CAR) falls below 9 per cent or RoA falls below 0.25 per cent.


Non-performing assets of public sector banks have taken a toll on their key financial ratios which has deteriorated sharply in the Oct-December quarter. The situation may become worse in the Jan-March quarter which may force the banking regulator to impose restrictions.


The banking regulator would further direct the lenders to initiate steps to increase fee-based income, contain administrative expenses, special drive to reduce non-performing assets (NPA) and contain generation of fresh NPAs.


RBI can also put restrictions on incurring any capital expenditure other than for technological upgradation and for some emergency situations. Many public sector banks have reported loss in Oct-Dec quarter after the central bank, in its asset quality review, identified accounts that banks need to classify as NPA in third and fourth quarter. As a result, as provisioning for bad loans mounted, several public sector banks like Bank of Baroda, Bank of India, IDBI Bank, Oriental Bank of Commerce, Syndicate Bank, reported losses.


Since most of the banks have taken 50 per cent of the RBI mandated bad loan classification in Q3, the remaining 50 per cent will be classified in Q4. Hence, the NPA and return ratios would deteriorate further. Out of the 11 banks that reported lower than 0.25 per cent RoA, RBI had already imposed prompt correction action on the Overseas Bank of India in October 2015.


While the government has promised public sector banks that it will ensure these banks are adequately capitalised, the CAR is not likely to fall below 9 per cent, as some amount of capital infusion will happen before 31 March but net NPA position of many banks, those RoA has already fallen below the threshold, will deteriorate.


Net NPA of Dena Bank, for example, which reported negative RoA for the first nine months of the current financial year, is at 6.68 per cent. Kolkata-based lender UCO Bank, which also reported negative RoA, has its net NPA at 6.51 per cent. United Bank of India (UBI), reported 0.14 per cent of RoA with 5.91 per cent net NPA.


“Yes, it is true that some banks could end the financial year with RoA less than 0.25 per cent. RBI may take a view on the issue, that this was a one time hit in profit due to recognizing bad loans of the past," said Vibha Batra of ICRA.



From E-Group, Banking-News



Banking sector stress to continue

 during the next few years: ICRA


The Business Standard

Published on February 20, 2016



ICRA said that in the next few days it will

downgrade even more public sector banks


Mumbai, February 19: Ratings agency ICRA Ltd on Friday said high level of stress in banks would likely impact earnings and solvency over the next two-three years, while downgrading long-term rating of United Bank of India (UBI) to ‘negative’ from ‘stable’ and also lowering ratings of Oriental Bank of Commerce’s (OBC’s) outstanding long-term bonds, including the Tier-I capital bonds.


While maintaining that stress in the banking sector will continue for the next few years, ICRA said even to maintain a credit growth of 10-12% per annum during fiscal 2016 and fiscal 2019, public sector banks would need to raise core Tier-I capital of Rs 1.6-2.4 lakh crore and additional Tier-I capital of 1.0-1.1 lakh crore in the period.


“If GoI restricts its capital infusion plan to Rs 0.7 trillion for FY16-FY19, several PSBs could have restricted growth leading to further pressure on their credit profile,” ICRA said in its banking sector outlook, adding in the next few days, it will continue to downgrade even more public sector banks.


While continuation of timely support from government of India would be a key driver for the ratings, it would be a challenge for banks to reduce the pace of fresh non-performing assets (NPAs) generation as well as recover from a large stock of gross NPAs and standard restructured advances, estimated at around 13.3% as on December 31, 2015.


Furthermore, the rating agency expected gross NPAs ratio to worsen further in the fourth quarter on account of the Reserve Bank of India’s asset quality review exercise.


While downgrading OBC’s additional Tier-I bonds, used for capital raising, the rater said the bank has full discretion to cancel distribution or payments of bonds as the “minimum capital conservation ratio applicable to the banks may restrict the bank from servicing these Tier-I bonds in case the common equity Tier-I falls below limit as prescribed by RBI”.


The rating of the bond, outstanding at Rs 1,000, was revised from AA- negative to A+ stable. The agency also downgraded other bonds of the bank by a notch.


The prospect of non-payment of coupon comes when bank stocks fall below a certain level or a bank reports losses or its core capital gets eroded. 


In the case of OBC, the revision in rating was on account of “higher than anticipated stress, slower than expected pace of recovery and weak outlook for several credit intensive sectors which led to sharp deterioration in asset quality indicators of the bank and has impacted the earnings profile of the bank”.


ICRA said earnings profile of the bank over the medium term was likely to remain weak given the relatively high share of stressed assets and relatively high un-provided net NPA.  Even after excluding state electricity boards and Air India exposure, OBC’s restructured advances were at 7.4% of the total loans, and net NPA of 4.99% as on December 2015.


“Limited visibility on capital availability to fully support credit growth while meeting the regulatory minimum requirement also constrains the rating,” ICRA noted.


In case of UBI, the revision reflected “significant continued pressure on earnings and solvency” of the bank “due to deterioration in asset quality as well as limited visibility on capital availability to fully support credit growth while meeting regulatory minimum requirement”.



 From E-Group, Banking-News



NPAs will rise again if the legal structure

 remains the same: Mythili Bhusnurmath


The Economic Times

Published on February 20, 2016



Mumbai, February 19: In a chat with ET Now, Mythili Bhusnurmath, Consulting Editor ET NOW, said that government should address the underlying cause for NPAs instead of symptoms. She said that unless there is change in governance, ownership and legal structure NPAs will rise again.


ET Now: How you see the debate going forward on the NPA issue from here, because it is really about the government and RBI finding common ground to resolve the problem?


Mythili Bhusnurmath: At the moment there does not seem to be much common ground which is unfortunate because the government seems to be of the view that we do need to have something like a bad bank or a special situations banks to take these bad loans off the bank balance sheets. We are addressing only the symptom, the basic underlying cause for such a high ratio in the public sector banks is government ownership and political interference and that remains unaddressed. This is a symptomatic treatment and there does not seem to be an agreement between the Reserve Bank of India and the Government of India. The Government thinks that if we move these bad assets of the bank's balance sheets then we can move forward and banks will start lending again. The Reserve Bank is fairly correct here, unless you address the underlying issues and change the entire ecosystem, even if you were to clear up the NPAs, they would recur all over again. The problem with legal recovery is it takes decades if not more to recover loans as far as bank's assets are concerned.


Once it becomes an NPA and goes into the court, you have Sarfaesi and you might even have the bankruptcy code now, but nothing really changes unless you change the legal structure. At the same time, the government ownership does result in a great interference. In some cases the interference might be "good" as in the case of public sector banks lending for infrastructure. In other cases that might be terrible as in case of the Vijay Mallya led kingfisher airlines, where there was clearly some kind of unstated pressure on the banks to continue to lend and not show it as NPA. There are many cases where government interference does handicap the public sector banks. So, unless the government address the basic issue of governance, ownership and allows the public sector banks to function at arm's length distance, whatever you do to the NPAs today, it will rise all over again. My concern at the moment is whatever you do, you need to address the underlying problem not just a symptom.



 From E-Group, Banking-News



Bankers call for digitisation, financial inclusion


The Business Line

Published on February 20, 2016



Urge RBI to relax KYC norms, encourage

use of digital signature for authentication


Mumbai, February 19: To promote digitisation and a ‘less cash economy’, the banking sector has suggested to the Reserve Bank of India to consider paperless account opening, without a specimen signature (physically signed).


In a presentation made to RBI Governor Raghuram Rajan recently under the aegis of the CII Banking Summit, it was mentioned that methods such as one-time password, biometric authentication and digital signature could be used to open such accounts.


The industry observed that online verification of the customer and consent capture were possible using Aadhar by UIDAI, through KYC details registered with NSDL, and the likes.


Bankers said that accounts without signature could be allowed only for digital transactions or at biometric ATMs, as a tiered offering, adding that such facilities were available in various countries like the US, the UK and Poland.


Further, it was suggested that KYC requirements for merchants with volumes below Rs. 50,000 a month be re-evaluated. It was urged that these merchants be acquired through limited KYC.


Another measure mooted was the strengthening of the inter-bank payments system (IMPS), so that non-financial information could also be carried along with amount details, thereby enabling banks to offer value-added services to merchants and customers.


Tax incentives


Tax incentives to both the payer and receiver of money for using electronic means were discussed.


On the issue of fostering financial inclusion, bankers felt that policy needed to be amended, so as to provide data of individuals and small businesses with their permission to potential lenders, besides inclusion of bill payment, tax payment, and provident fund payment behaviour into credit information bureaus.


Another aspect pointed out was the re-evaluation of the use of branches in semi-urban and rural areas, based on the number of active customers, as it was possible to reach people using technology. A uniform KYC between banks and telecom service providers was recommended to harmonise documentation requirements and reduce customer acquisition costs.


Use of ATMs


On the ATM front, the use of ATMs as a property to display advertisements in accordance with the Advertising Standards Council of India was proposed, with a view to generate an additional stream of income and reduction in cost of setting up and operating ATMs.


A level-playing field with e-market places was urged, stating that all e-market places should accept every payment instrument, besides making two-factor authentication compulsory for all (there is no two-factor authentication for wallet users). Additionally, the industry pressed for suppression of two-factor authentication for low-ticket transactions.


Also mooted were ‘zero per cent EMI’ programmes by banks, akin to those offered by original equipment manufacturers associated with NBFCs (banks are prohibited as of now), thus allowing banks to offer schemes at rates above the base rate and where interest was borne by the OEM.


Finally, aligning capital requirements of Indian and foreign banks was sought, besides allowing Indian banks to participate in the non-deliverable forwards market with the rise of masala bonds– for investors to hedge currency volatility (foreign banks can access the NDF market while Indian banks cannot).



 From E-Group, Banking-News



Keynes and national necessity


T C A Srinivasa-Raghavan

The Business Standard

Published on February 20, 2016



This column perks up its ears when it encounters economic illiteracy caused by what I call the "Lemming Effect" amongst commentators. You can also find it in Joseph Heller's classic novel, Catch-22. (However, what I have written below from the book is not Heller's Catch, which is different).


The hero in the book spells out his dilemma as follows: If everyone is saying the same thing, never mind how idiotic, I would be a fool, isn't it, to say the opposite?


Thus, today, the accepted wisdom by economists, economic commentators and editorial writers is this: Reduce interest rates and reduce the fiscal deficit if you want the economy to bounce back.


The "reduce interest rates" argument is based on the belief that investment in India is sensitive to the price of money. It forgets that when the first post-1991 investment boom happened during 1993-95, the prime rate was 18 per cent. During the second boom 10 years later, it was over 14 per cent. Today, it is around 10 per cent. So let's not fool ourselves.


The truth is private investment happens in India when banks are made to lend to big entrepreneurs with small stakes, who take large loans which they then siphon off. Then they go belly up and get the loan written off with some help from politicians.


The price of money has little to do with investment when there is no intention to repay. How can it, when 75 per cent of the banks are owned by the government and are run for the benefit politicians and political parties?


For the big borrowers, therefore, effectively the interest rate is zero - or thereabouts.


Holy Grail


Then there is the Holy Grail of the fiscal deficit. That it should be as low as possible is not the same thing as saying it should be only as low as is necessary.


I subscribe to the latter view. You can argue about this level but national necessity must be a factor in determining it. The International Monetary Fund can't be the arbiter, nor can foreigners who lend money to India.


I have argued so often that there is no sanctity to the three per cent level - except the "Lemming Effect" - that it is embarrassing to bring it up again. So I won't.


Nevertheless, it is worth saying two things. One, when bank lending is going to be low for lots of other reasons, the "crowding out" argument applies only at the margins. So even if the deficit falls to zero, the public sector banks are in no position to lend. Most of them are nearly broke.


That said, if the only reason for keeping the deficit low is that you fear international investors will avoid you if it is high, one must ask: How badly do we need foreign money since our other earnings - like from exports - are badly down?


Also, when the current account deficit is so low, way less than two per cent, one must also ask: Do we really need a lot of foreign money so badly? If yes, why, what's wrong? If not, why this obsession with the fiscal deficit target?


Can someone in the government explain, please?


National necessity


The other reason for increasing the fiscal deficit this year is a perfectly textbook Keynesian reason. John Keynes said that if there is excess capacity in the system, the government must spend more to raise the level of aggregate demand in order to increase capacity utilisation. Is anyone saying there is no excess industrial capacity in India today?


It is worth reiterating: The honest consumer is unable to spend because the government takes away nearly half his income through taxes and cesses. World demand is down, too, so exports are down. With two major components of aggregate demand down, investment demand is down too.


This is exactly the problem Keynes was tackling: flat-on-their-backs banks, and deficient consumer, investment and export demand. So who but the government is going to spend?


This is what I mean by a national necessity. In politics you have emergencies; in economics you have necessities.


The only caveat I would add is spend on just two things: half on recapitalising the banks and half on roads so that the demand for steel and cement, which are major growth drivers, increases.


Don't waste the money on politically motivated social programmes, a la Sonia Gandhi. If you can't do that, stick to the three per cent target. It is the lesser of the two evils.



From E-Group, Banking-News



Freedom 251 costs Rs 2,300, finds telecom ministry


The Business Standard

Published on February 20, 2016



Indian Cellular Association says price of the handset

could not be below Rs 3,500 even after a subsidised sale


New Delhi, February 19 (PTI): With questions being raised over the promised price of Rs 251 for a 3G smartphone by new entrant Ringing Bells, the telecom ministry has found that a device with such specifications would cost about Rs 2,300.


“The ministry has analysed the issue and it feels that such a device can be manufactured for about Rs 2,300,” a source said. However, they refused to say if any action will be taken against the company in the matter. Earlier this week, Noida-based firm Ringing Bells launched the world's cheapest phone— Freedom 251— priced at Rs 251, hogging limelight globally.


Indian Cellular Association, which represents the handset makers industry in India and has members like Apple, Samsung, Microsoft, Lava and Micromax, had also written to Telecom Minister Ravi Shankar Prasad. The body said the bill of material value for a product like this when sourced from the cheapest supply chain cost approximately $40 (Rs  2,700). When translated into retail price after addition of applicable duties, taxes and distribution and retail margins, the cost of the product would be at least Rs 4,100, it added.


ICA requested the Minister to get into the depth of the issue, saying the price could not be below Rs 3,500 even after a subsidised sale. Ringing Bells, on its part, said the manufacturing cost of the phone is about Rs 2,500, which will be recovered through a series of measures like economies of scale, innovative marketing, reduction in duties and creating an e-commerce marketplace.


Apart from the jaw-dropping price, the company that was set up five months ago by Amity University graduate Mohit Kumar Goel, is also in the midst of controversy with analysts alleging that its maker has merely rebranded a device by its rival, Adcom.


Analysts allege that the design of Ringing Bells' Freedom 251 handset resembles that of Adcom's Ikon 4, which is already available in the Indian market at Rs 3,999. Interestingly, most built-in app icons on the Freedom 251 seem to be a direct copy of icons on Apple's iPhone, they added.


Despite the controversies, the device has continued to grab attention from consumers. Following a heavy demand, Ringing Bells suspended bookings for 24 hours yesterday. It resumed bookings today.



From E-Group, Banking-News



Workers Welfare:

Labour in the twenty-first century


G Sampath, The Hindu

Published on February 20, 2016



As the NDA government leans towards industrialists by scripting reforms that would legalise and expand contract labour, the big question is: do India’s trade unions have it in them to resist this imminent legislative blitz?


On February 24, the RSS-affiliated central trade union Bharatiya Mazdoor Sangh (BMS) will hold a nationwide prote

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