Tuesday, May 26, 2015

How SBI Booked Higher Profit And Lower NPA

Public-sector banks make the most of loan recast window-LiveMint

Top five public-sector banks restructured over 90% of the total loans recast by large banks in the March quarter
 
India’s top eight banks restructured Rs.32,586 crore of loans in the quarter ended 31 March, the highest in the last one year, as they made the best use of the restructuring window which closed that month.
 
Total loans restructured by these large banks more than doubled from Rs.12,498 crore that they restructured in the preceding three months, according to data compiled by Angel Broking Ltd.
Public-sector banks did most of the restructuring, according to Vaibhav Agrawal, vice-president of research at Angel Broking.
 
“Public-sector banks have seen a significant jump in the amount of loans restructured in the January-March period, as compared with those restructured in the October-December as most banks tried to take advantage of the regulatory forbearance, which ended on 31 March 2015,” said Agrawal.
 
The top-five public-sector banks restructured more than 90% (Rs.29,655 crore) of the total loans restructured by large Indian banks.
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The Indian banks have been restructuring stressed corporate loans as projects stalled due to delays in securing government approvals, sluggish consumer demand and high borrowing costs made it difficult for many borrowers to repay debt. However, the Reserve Bank of India’s (RBI) deadline for restructuring without the loan being classified as bad asset ended on 31 March.
 
Restructuring involves giving companies more time to repay a loan or lowering interest rates to help them tide over tough times. 
  
Purvesh Shelatkar, the head of research at Bank of Baroda Capital Markets Ltd, said that public sector banks have dumped loans into restructuring to make best use of the RBI forbearance.
 
“Even for loans on which there was a little doubt of repayment, these banks have chosen to restructure. In a way, they have taken into account the worse; so, things could only get better from here,” said Shelatkar, adding that public-sector banks have generally restructured more loans than their guidance for the quarter.
 
“State Bank of India (SBI), for example, restructured more than Rs.10,000 crore of loans during the quarter, more than double of the Rs.5,000 crore they had guided for,” said Shelatkar.
 
Data from Angel Broking show SBI restructured loans worth Rs.11,885 crore in the March quarter, by far the highest among banks and up from Rs.4,092 crore it restructured in the December quarter.
Punjab National Bank (PNB) restructured the second highest loans at Rs.7,880 crore, three times the Rs.2,558 crore it restructured in the December quarter.
 
Among private-sector banks, Axis Bank Ltd restructured the largest amount of loans during March quarter at Rs.1,540 crore up from Rs.132 crore in the December quarter, and highest since Rs.1,116 crore restructured in the March 2014 quarter.
 
The restructuring is in line with expectations and comes especially from infrastructure loans, said Ananda Bhoumik, senior director and head (financial institutions) of India Ratings & Research.
 
“In March 2014, we had noted that about 20% of the infrastructure piece on public-sector bank loan book had been restructured. We had predicted that this number would go up to 40% of their infrastructure loans in the next two to three years. The large restructuring we saw in January-March was largely from infrastructure loans and this will continue during this year as well,” said Bhoumik.
 
Bankers too blame the higher restructuring on infrastructure loans. C.V. Rajendran, chairman and managing director, Andhra Bank, said that out of the Rs.3,313 crore it restructured in the quarter, Rs.2,038 crore was from the infrastructure sector.
 
“We expect this to be the end of restructuring as far as Andhra Bank is concerned. There seems to be nothing left in the pipeline for the rest of the year for us. Any stressed account left would largely be something that is likely to become a non-performing asset,” he said.
 
In the financial year ending March 2016, the process through which banks restructure loans will also change as banks use joint lenders forum (JLF) to decide on restructuring.
As soon an account stops paying interest for over 60 days, the bank with the highest exposure to a particular borrower constitutes a forum of all the lenders to the asset. This forum then takes a call on whether the borrower requires any financial assistance or restructuring to regularize payments or if recovery efforts need to be deployed.
 
The main difference between the JLF mechanism and the CDR cell is that unlike the cell, the lenders’ forum is mandatory. Additionally, any delay in decision-making and implementation of the corrective action plan, will lead to monetary penalties on banks in the form of accelerated provisioning.
 
However, the heavy restructuring has clearly had an impact on the profitability of public sector banks. Data analysed by Mint shows that the net profit of public-sector banks dropped 18% in the quarter ended March 2015, the sharpest such drop since December 2013.
An executive director at a large public-sector bank said that when the large amounts of loans are restructured, provisioning for these assets hits profitability.
“Apart from the 5% standard asset provisioning for restructured assets, banks are also expected to provide for any diminution in fair value of the asset and any moratorium that the banks may give to the borrower. This meant that profitability was under significant pressure,” he said, requesting anonymity because he is not authorized to speak to reporters.

PSU Bank Bad Loans Would Come Down Gradually: Jaitley--NDTV

Finance Minister Arun Jaitley on Tuesday said non-performing assets (NPAs) of public sector banks would come down gradually over the next 2-3 quarters.

Asked about what steps were being taken to reduce NPAs, Mr Jaitley, who was here to brief media about achievements of the NDA government in the last one year, said he is working on it.

"When we came to power, the ratio of NPAs of public sector banks was 6 per cent. Ideally, it should be 2 to 2.5 per cent. Banks are still struggling to come out of this situation. Now, in the quarter ended March 31, it came down to 5.2 per cent, which was 5.84 per cent at the beginning of quarter."

"So we are not claiming that situation has completely reversed. We believe that the situation will gradually improve after two-three subsequent quarters. We are also bringing professionals into the banking system and appointing them as directors," he said.

Commenting on media claims that a majority of Jan Dhan accounts do not have any deposits, Mr Jaitley said media was not aware of the actual purpose of these accounts.

"The primary objective of Jan Dhan Yojana is to open bank accounts for those who don't have even one rupee. I think media doesn't know this."

"Government will deposit money into these accounts in the form of subsidy, pensions, wages under MNREGA scheme and all such government payments. And this has already started," he added.


My Observation On SBI Profit

SBI has restructured loan aggregating to Rs11885 crore in fourth quarter and thus saved provision by Rs.1188 crore roughly. In addition to it,  SBI has sold bad debts valued Rs.4510 crore to ARC in the last quarter and shortfall of Rs.2800 crore approx has been amortised for two years. Roughly Rs.600 crore has been accounted for in Profit account of the year 2014-15 and rest Rs.2200 crore approx has been postponed for next financial year 2015-16. Volume of write off of bad loans and sacrificing of principal and interest on big amount compromise settlements is still unknown.

For this purpose RBI changed the rule of provisions at the fag end of financial year to help so called strong banks like SBI to come out of crisis. SBI took advantage of this amendment and shortfall in sale proceeds has not been fully accounted for in the financial year 14-15.
This is obviously a case of legal manipulation of financials and postponing the crisis for next year so that current CMD may get safe and respectful exit and retirement from Bank and hopefully may elevated as RBI Dy Governor. It is not SBI but all so called strong banks have manipulated the financials in the same way.

I therefore make an appeal to financial experts to make a through analysis of financials of SBI to find out whether there is actually cash recovery and upgradation of bad account or simply fraud with investors, taxpayers, depositors and borrowers of the bank. I do not trust and do not accept the claim of SBI that they have arrested slippages by concerted recovery from bad borrowers. Rather It will be appropriate to say that volume of hidden NPA is many times more than what has been declared by banks.

It is desirable to point out here that ,for last three consecutive years 2010-11 to 2013-14 gross NPA of SBI continued to rise . All of a sudden this year SBI reduced Gross and Net NPA perhaps without proportionate actual cash recovery. I hope RBI and SEBI will make deep scrutiny of the financials of all PSBs so that investors are made aware of truth of banks they bank with. Here  It is to be noted that return on advances has gone up slightly from 8.47% in 13-14 to 8.64% in 14-15 whereas return on investment has come down from 8.00% in 13-14 to 7.49% in FY 14-15.

CMD of public sector banks may retire by inflating profit and sharing dividend with investors and may get award from Ministry of Finance in form of incentives. But sooner or the later when bomb of bad debts will explode , it is customers of bank, staff of bank, investors of banks who will have to bear the impact of loss to bank. RBI and GOI should stop unhealthy practice and try to make bankers bold enough to say spade a spade. Bad debts are hidden for some time . But during this period bad borrowers dispose off the assets and banks suffer loss. so that bad debts are recovered in time . It is necessary to recover the money from bad borrowers in tie and without loss of time. Otherwise banks will loss heavy money as they are going to loss from defaulting customers like King fishers, Zoom Developers, GTL etc.

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