My Opinion on news related to Equity dilution
In connection with cabinet decision to bring down stake of government in Public sector banks to 52%, I would like to say as under.
Every now and then, management of banks and ministers of previous government used to say and they have spoken in public even in last few month that Health of public sector banks is not bad, is improving and is under control. Still quarter after quarter , position of banks is moving from bad towards worst. Volume of bad assets has been continuously rising. Clever bank management always try to hide bad assets for few quarters and ultimately surrender and accept reality of assets though after much delay and after the assets has been sold off or removed by bad borrowers.
No power on earth can stop PS banks moving from bad to worst in coming days and years until they (government ) strike at the root of all sickness and overhaul the entire banking system including Human Resource related policies and actions. Until they focus on wrong causes of sickness they cannot diagnose the sickness in proper and successful manner. They plead wrongly, they furnish wrong reasons for sickness , they diagnose wrongly and hence they fail to curb growing sickness in PS banks .
UPA Government for last ten years allowed open loot of banks in the name of reformation either in Loan Melas or Loan waivers. They distributed bank funds in loans as if it was their paternal property , they exploited banks for political gain and they allowed banks to keep mum on bad assets. Now there is no doubt that banks are sitting on NPA bomb and slowly banks are accepting risk involved in rising of bad debts . They are therefore asking or say begging Government for capital infusion to comply International Basel Norms of Capital adequacy. And since government is also suffering from financial crisis, they have no alternative than to advice banks to sell the bad assets or good equity. They can deny wage hike to staff to compensate the damage caused by previous corrupt bankers and politicians in nexus with bad borrowers.
Banks are now selling bad assets at heavy discounts to ARCs (assets reconstruction companies ) and now they will sell their equity to survive. Many banks have already sold their equity and hence share of government stake in some banks is already near or below 60% , just close to 52% .God knows , what they will sell now to survive. In Some of banks , government have still shares more than 70%. Such banks may fetch some amount to survive for some time and ultimately help in some other weak banks.
But how long these banks will survive just by selling bad assets or good equity is a million dollar question which current government has to answer. After all it is public money and top bankers ( Top officials of Bank Management of last ten years ) are responsible for such pathetic position of banks along with their mentor ministers of last government and hence both of them must be held accountable and punished for their negligence. Politicians who dictated loot of banks , who allowed write off of bad loans under UPA regime and who kept mum on deteriorating banks health for political gain must be punished .
Future of banks cannot improve just by selling existing assets. They are selling assets and equity in the same way as a poor person sells gold , land and all other valuable goods of house when the position of family management goes beyond control , when incomes vanishes and when expenses on drinks and other avoidable wastages goes beyond control. Government banks was also not in senses for last ten years and hence now constrained to sell off assets and equity.
Top Officials of banks and top ministers of UPA government who in nexus with each other damaged fundamentals of public sector banks and who concealed sickness by fabricating data and who continue to do so must be brought to task to send a clear message to current class of bankers. Banks cannot afford to allow to retire corrupt bank officials at the cost of public money and current government cannot exonerate ministers of previous government if they really want to improve health of PS banks. Bank staff who are innocent followers of dictates of their bosses cannot be punished in wage hike.
It will be interesting to say here that Mr. Chidambram, Mr. Manmohan Singh, Mr. Ahulwalia ,Mr. Mukherjee and others economists of Congress Regime used to plead for merger and consolidation of banks only to conceal growing sickness of banks. They thought that if strong banks are merged with weak banks , the real health of banks will not be exposed at least during their period of rule. Now sickness of banks has turned cancerous the current government led by Mr. Narendra Modi has to bear the brunt of past mistakes and take all possible remedial measures to restore bank's health.
Unfortunately ,again the remedy suggested is same and that is to dilute stake of the government . But how long they will save the image just by selling equity . Now it is 52% and after two years they will reduce it to 26% and much below. Lastly it has to blast and people of India who invested in banks in some way or the other will suffer and have to bear the brunt of corrrupt rule of UPA government and that of corrupt management of top officials of banks..
Lastly it is staff of banks who are denied wage hike and it is they who are fighting against injustice for last two years.
Cabinet clears paring of govt’s bank stakes to 52%-Hindustan Times-11.12.14 ( read my opinion given below )
In a major initiative, the Cabinet on Wednesday gave its approval for public sector banks to raise capital by diluting government holdings up to 52%, to meet their additional capital requirements.
Banks need capital to meet stringent international standards, also known as Basel III norms, which will become applicable by March 31, 2019.
Seal on PSU bank stake cut-The Telegraph |
 Banks can raise up to Rs 1,60,825 crore through the dilution, but it is unlikely that they will do so at one go. Eventually, the government stake will be brought down to 52 per cent but in a phased manner over several years. "The quantum of capital support needed by banks is huge, which cannot be funded by budgetary support alone," an official statement said, explaining the decision taken by the cabinet, headed by Prime Minister Narendra Modi. Finance minister Arun Jaitley had earlier said that state-run banks would require recapitalisation to the extent of Rs 2.4 lakh crore by 2018 to meet Basel III norms. The cabinet has asked the state-run banks to broadbase retail shareholding while going in for the fund raising. Out of 27 public sector banks (PSBs), the government controls 22 through a majority holding. In the remaining five banks, state-run State Bank of India holds a majority stake. "If the PSBs are permitted to bring down the government's holding to 52 per cent in a phased manner, they can raise up to Rs 1,60,825 crore from the market," the statement said. The Basel III norms, which will come into effect from March 31, 2019, were put in place following the 2007-08 financial crisis triggered by the fall of the Lehman Brothers. The norms are aimed at improving risk management and governance while raising the banking sector's ability to absorb financial and economic stress. The total support provided to PSBs towards capitalisation during the past four years was Rs 58,634 crore, the statement said, adding the provision for the current year is at Rs 11,200 crore. The total market cap of the government's shareholding as in May 2014 stood at over Rs 4.19 lakh crore. There are over two dozen PSBs and the government holds between 56.26 per cent and 88.63 per cent in them. The government's budgetary support needed for 2015-19 would be Rs 78,895 crore, which will maintain its holding at 52 per cent, the statement said. However, as the government is likely to receive an amount of Rs 34,500 crore from PSBs as dividend, the net outgo will only be Rs 44,395 crore, it added. "Going by past trends if we take average GDP growth rate for the next five years as 6.5 per cent and dividend pay-out ratio as 20 per cent, as percentage of net profit, or 0.80 of risk weighted assets (RWAs), and credit growth rate at 18 per cent and further RWAs growth at 16 per cent, the total capital would be over Rs 4.60 lakh crore," the statement said. Link The Telegraph  http://importantbankingnews2.blogspot.in/2014/12/banks-can-raise-capital-through-public.html |
-By Sri Ajay Shah
In the 1990s, we had large-scale defaults on corporate loans, which felled IDBI and IFCI. For some time, we thought that we had learned our lessons, that micro-prudential regulation had improved, so that such failures would not recur. Has this happened? There is cause for concern.
1) After these bailouts of slightly over a decade ago, we haven't had a big banking crisis with a collapse of banks such as IDBI or IFCI. But there is a worrisome scale of regular injections of capital into public sector banks by the Ministry of Finance. If the government puts Rs 100,000 crore into an episode of bailing out banks, we say there is a banking crisis. This is not too different from putting Rs 10,000 crore every year for 10 years.
Click HERE ToRead Full Article on Health Of Public Sector Banks And How frequent inclusion of Capital by Government indicates Hololowness and sickness of PS Banks
If You are not bored, you may read following blogs too.
My Views On bad Debts
http://importantbankingnews.blogspot.in/2014/03/banks-selling-npa-to-reduce-npa-at.html
My Opinion Expressed Three years ago are Reproduced Here
Asset quality in public sector banks have been going from bad to worse for last several years, and it is not a new phenomenon. Unfortunately or fortunately management of all banks have been manipulating the figures year after year in close nexus with team of auditors and officials of Reserve Bank of India and that of Banking Division in Ministry of Finance to conceal bad assets. They have put pressure on field official in branches and taught not to improve the quality and take strong initiative to recover the money from bad borrowers but taught only various tactics to conceal bad assets to reduce provisioning towards bad assets as per RBI guidelines.
At corporate level top officials of banks including CMD and ED have used various false and fake pleas such as global recession, interest rate hikes, bad monsoons, natural calamities etc to give various reliefs to bad borrowers instead of tightening the screws to trap bad officials and bad borrowers. Top management of bank management have never diagnosed the real causes of bad assets whenever it is found to increase due to some reason or the other. Clever bank management do not want to take action against erring official, corrupt sanctioning official because they themselves are part of dirty game of bad lending. This is why bank management have wrongly but willfully and invariably pleaded that if action is taking against credit officers and top executives , credit growth will immensely suffer and they will not be in a position to achieve the target set by Finance Minister.
After complete introduction of Core Banking Solution (CBS) in banks, Reserve bank of India advised banks to calculate bad assets called as Non Performing assets (NPA) on common terminology using advanced technology and not manually . Banks are slowing getting pressure to assess their quality of assets through automated system taking advantage of CBS technology. Since management of banks find now difficult to conceal bad assets under CBS oriented NPA assessment system, total of bad assets is now being exposed in Balance sheet and it has reached a level of 3% of total advances.
It is to be noted here that NPA percentage is still more than what it has been revealed during last few quarters. Still banks have not declared their entire NPA and after taking RBI hidden consent. Of course they are gradually exposing their bad assets and this is why quantum of bad assets has not jumped to highest position in one time but it is rising quarter after quarter. Officials of RBI, top management of each PSB and official of Ministry of Finance all know very well that actual quantum of bad assets in government banks is far more than 5% of total advances. In more than 25% of three year old branches gross NPA is more than 25% of total advances. There are many such branches where gross NPA is even more than 50% of total advances.
Clever bank management are trying their best to show minimum percentage of gross NPA by either manipulating the system secretly or by resorting to fresh lending by opening new branches and resorting to fresh bulk lending to big corporate, to real estate sector and to mutual funds so that total advances in banks increases which in turn reduces percentage of Gross NPA compared to Total Advances. But this story will not help for longer period until there is adequate improvement in quality and moral integrity of credit sanctioning authority , honesty in promotion processes in banks ,improvement in legal machineries which may help in recovery from willful defaulters , tightening of screws on Chartered Accountants , Valuers and official of rating agencies and change in attitude of politicians. Bank management has to increase number of staff in branches, reduce staff at administrative offices and award honest officers by stopping and punishing corrupt officers who were rising in their career through unfair ways and means. Till now bank management has not tried to cure the real disease and at the same time government of India have also not improved the quality of legal system and not tried to inculcate good culture in politicians who are using bank loan to enhance their personal wealth and to increase their vote banks.
It is very sad that all the time when proportion of bad assets increases in banks , management of banks accuse global recession, interest rate hike, bad monsoon, natural calamities etc but not punish the real culprit. It is remarkable here that when most of top official have occupied the top post and come through bad routes and when they have themselves created and accumulated bad assets in their banks they are not in a position to punish the real culprit and hence they are searching always some weak scapegoat , some lame excuses and pleading some irrelevant reasons before MOF for deteriorating quality of bad assets in banks.
Million dollar questions is “Who will bell the cat when even officials in RBI and MOF are equally weak and guilty”. System is not corrupt but corruption has become the system in banks. Not only banks but all other government departments including judiciary are also victim of same disease. It is therefore not surprising that public demand led by Anna for strong Lokpal Bill is gaining momentum month after month, day after day and none can stop this.Government can torture Anna, Ramdeo and their followers but cannot stop public revolt without punishing corrupt officials and corrupt politicians.
http://blogs.siliconindia.com/danendra/Bad_Assets_in_Public_Sector_Banks-bid-ftw84JYC90585614.html
No comments:
Post a Comment