When bank staff demand 30% hike in their wages, Indian Bank’s Association of Ministry of Finance talk of profitability. But when the economy of the country is in critical position and when the fiscal deficit is beyond control, the same government and the same Ministry of Finance suggest public sector banks to declare dividend even before the end of the current financial year. It means when the economy of the country is sick, it is only banks which come to rescue of the government.
There are many public sector undertakings such as BSNL, MTNL, Air India, Hindustan Copper etc which are continuously running in losses. Steel Authority of India booked 38% fall in first quarter profit but the government has agreed to give a wage hike of 16%. When PSUs are incurs loss, government says it is due to global recession. They do not hesitate to extend central pay to all loss making units at par with profit making units like NTPC or ONGC.BSNL or MTNL have huge accumulated loss , still they are paid central pay and much higher than bank staff.
If banks are not earning adequate profit, why does the government put pressure on banks to pay dividend to government?
Why do they advise banks to open more and more branches and more and more ATMs which adversely affect bank’s profit?
If due to bad debts banks are incurring loss or there is erosion in profit, why the government does not make the legal system effective and help banks in recovery of bad debts?
Government says that stressed assets are to the tune of ten lac crore of rupees but fails to stop its rise and recover the dues from defaulters. Why?
Why does the government put pressure on lending and lending only and not think for recovery of bad loans?
Why do they suggest for write off or waiver of loan or compromise with defaulters?
Why do they stop banks in increasing rate of interest and why do they force banks to lend at cheaper rate even if they have to suffer loss?
Manmohan Singh raids public sector banks to curb fiscal deficit--LiveMint-
By Anto Antony And Anoop Agarwal
India’s state-run banks are paying dividends to help Manmohan Singh meet his budget deficit goal
Mumbai: India’s state-run banks are paying dividends to help Prime Minister Manmohan Singh meet his budget deficit goal even as they struggle with narrowing risk buffers and bad loans amid decade-low economic growth.
At least seven lenders have announced mid-year payouts this month with three more considering disbursements, according to filings. The banks, in which the government holds at least 55%, are forking out the money three months after Singh announced a Rs.14,000 crore infusion to boost capital as soured debt as a percentage of total loans surged to a six-year high in September.
Singh is leaning on state-owned companies for extra funds to cut the budget deficit to a six-year low of 4.8% of gross domestic product (GDP) as a slowdown in the $1.8 trillion economy dented tax revenue before national elections due by May.
“The government may be getting part of the money as dividends with one hand, but will have to give back a higher amount as equity infusion with the other hand,” said Vibha Batra, a New Delhi-based co-head of financial sector ratings at Icra Ltd, a local unit of Moody’s Investors Service. “This is simply deferring the problem of capital requirements at state-owned banks.”
“The dividends may weaken the core capital of certain banks and hurt their credit profile when they are struggling to revive profit growth,” Batra said.
Default risks
Singh’s administration may garner about Rs.9,000 crore from the dividends paid by the banks, according to estimates by Vishal Narnolia, Mumbai-based banking analyst at SMC Global Securities Ltd.
The CNX PSU Bank Index representing 12 stocks of Indian state-controlled lenders has declined 36% in the past year, fueled by concerns default risks are rising after gross domestic product (GDP) expanded 5% in the year ended March, the worst since 2003. The benchmark S&P BSE Sensex has gained 6.5% in the past 12 months. HSBC Holdings Plc predicts growth in Asia’s third-biggest economy may slow further to 4.6% in the fiscal year ending March.
The ability of most Indian companies to generate cash and service debt is at the lowest level since 2008, Deep Narayan Mukherjee, a Mumbai-based director at Fitch Ratings’ Indian unit, said by phone on Wednesday.
‘Intense pressure’
State-run lenders have historically been under-capitalized relative to their privately owned peers as a regulation requiring state ownership be maintained at 51% curtails the banks’ ability to raise capital by selling shares. The government has injected cash into the lenders in each of the past four years, according to data compiled by Bloomberg.
“Banks will face persistent pressure on capital adequacy on profitability and margins,” Arun Kaul, chairman and managing director of state-owned UCO Bank said in a telephone interview on 14 January. “Since capital is hard to come by, banks will face intense pressure on creating buffers.”
The Kolkata-based lender’s shares have lost 8% in the past year and traded at Rs.78.30 on Wednesday in Mumbai. Kaul declined to comment on the payout.
Bad loans at Indian lenders climbed to 4.2% of total lending as of 30 September, the highest level in at least six years, from 2.4% in March 2011, according to a 30 December report from the Reserve Bank of India (RBI). State-run banks have distinctly higher stressed advances, according to the report.
Basel rules
Capital-adequacy ratios at the state-run banks, based on so-called Basel III rules, were at an average 11.2% as of 30 September, lower than the 12.7% mean for all banks in the country, data compiled by the central bank show. The South Asian nation has a minimum regulatory requirement of 9%.
“Raising capital to maintain comfortable adequacy levels is going to be the biggest challenge for banks,” M. Narendra, chairman and managing director of state-owned Indian Overseas Bank said in a telephone interview on 15 January. There’s no reason to be optimistic in the short term. He didn’t comment on the payout.
Shares of the Chennai-based lender have slumped 46% in the past 12 months to Rs.49.10 in Mumbai.
State banks are among the companies that are offering dividends benefiting the majority shareholder. Coal India Ltd, the world’s largest producer of the fuel and owned 90% by the government, said on 14 January it will pay a record Rs.18,300 crore, or Rs.29 a share.
Missed goal
Singh is seeking revenue from dividends after failing to meet his goal of raising Rs.40,000 crore from the sale of stakes in state companies to fund a budget deficit that reached 94% of the full-year estimate in just eight months. Total revenue from taxes fell 52% short of target in that same eight-month period, April-November.
“The government is doing all it can to meet the fiscal deficit target,” Nandkumar Surti, Mumbai-based chief executive officer at the local unit of JPMorgan Asset Management, said in an interview on 13 January. “It would prevent any impact on its credit outlook at this point.”
India risks a junk credit rating on failure to pare the budget gap and reverse the policy drift as the nation heads for elections. Standard abd Poor’s, which maintains the lowest investment grade for India, said in November that unless the polls due by May produce a government capable of reviving the economy, it may cut the rating.
State infusions
State Bank of India (SBI), Indian Overseas Bank and UCO Bank are among 20 government-run banks that will receive the cash infusion to help them cope with soured and restructured loans that Fitch predicts may increase to 15% of advances by 2015, a 17-year high.
SBI, the nation’s biggest, will get Rs.2,000 crore, while Indian Overseas Bank will get Rs.1,200 crore, according to the finance ministry.
Stressed assets, which include bad and restructured loans, rose to 10.02%, the highest in a decade, as of 30 September, central bank data show. Banks’ profits and capital buffers are eroding as they need to set aside higher provisions for stressed assets. Profitability at Indian lenders, as measured by return on equity, fell to a six-year low of 10.2% in the year to 30 September, data compiled by the central bank show.
“The government will need to put as much as Rs.91,000 crore into banks it controls by 2018 to help them meet Basel III standards, and to maintain its holdings,” D. Subbarao, the then governor of the Reserve Bank of India (RBI), which is also the nation’s banking regulator, said in October 2012.
“The government is left with no choice but to raid the coffers of state-run institutions,” said SMC Global’s Narnolia. “Their attempt to narrow the fiscal gap is like putting band aid on a mortal wound.” Bloomberg
No comments:
Post a Comment