New Delhi: First, loans went kaput and borrowers left the country after defaulting on payments or committing frauds, then high-profile bankers were forced to leave and even the governor of the Reserve Bank of India quit in the end — 2018 was indeed a ‘Year of Exits’ for the banking sector. Also, the sector continued to sit on mounting non-performing assets (NPAs) even as efforts continued in courts and tribunals and other forums for recovery of stressed assets, confounded by defaulting promoters of defaulting companies coming back to reclaim their assets when they were put on sale by lenders.

The eventful year began with the lid being taken off from the country’s biggest-ever banking fraud. Nirav Modi and his uncle Mehul Choksi, in connivance with certain bank officials, allegedly cheated Punjab National Bank (PNB) of about 14,000 crore through issuance of fraudulent letters of undertaking. A Mumbai branch of PNB had fraudulently issued LoUs for the group of companies belonging to Nirav Modi since March 2011 and there were hundreds of such LoUs. The magnitude of the scam shook the entire banking system and PNB is still trying to overcome this.

As intricacies of the Nirav Modi scam were still unfolding, a whistle-blower in March raised the issue of impropriety against Chanda Kochhar, the then managing director of the country’s largest private sector lender, ICICI Bank. For long, ICICI Bank had been a showcase institution where nothing could go wrong.

The 56-year-old Kochhar, who rose through ranks to occupy the corner office of ICICI Bank, was mired in allegations of conflicts of interest, lack of disclosures and quid-pro-quo while extending loans to the now-bankrupt Videocon Industries. Subsequently, another complaint was filed against her and Chanda Kochhar had to say goodbye in October to ICICI Bank, which she had joined as a management trainee in 1984.

As regulatory and internal probes continued, the bank and Kochhar denied any wrongdoing.

Another high-profile banker Shikha Sharma was denied extension by the RBI as managing director of Axis Bank, the third-largest private sector lender. The bank’s board had proposed another three-year term for her till May 2021, but she was allowed to serve only till 31 December 2018.

Another exit story continues to play out at Yes Bank, where Rana Kapoor’s tenure as CEO has been curtailed by the RBI and he has been allowed to occupy the position only till January 31, 2019. The lender also saw Ashok Chawla quitting as its chairman last month.

However, the biggest of the exits took place at the RBI itself with governor Urjit Patel announcing his sudden resignation with immediate effect on 10 December citing “personal reasons". The resignation, however, followed a run-in with the government over several issues, including autonomy of the central bank. The very next day, the government appointed former bureaucrat Shaktikanta Das as the new RBI chief.

In case of both Axis Bank and Yes Bank, the RBI had flagged problems with their assets.

Axis Bank’s NPAs jumped over five-fold in two years till March 2017, while the net profit halved in the same period. It saw its gross bad loans ratio rise to 5.04% by March 2017, from 0.96% in March 2009, when Sharma had taken charge. Several lenders, including Yes Bank, were asked by the RBI to disclose ‘divergences’ in their bad loan reporting. The central bank judged gross NPAs at 8,373.8 crore at Yes Bank in 2016-17, against the declared gross NPAs of 2,018 crore. As a promoter, Kapoor and his family own 10.66% stake in the bank, which is now actively searching for his replacement as CEO.

In the public sector banking space, the fight continued against NPAs and the situations remains far from normal. Gross NPAs peaked in March and have shown some moderation of nearly 23,860 crore in the first half of the current fiscal (April-September 2018) to 8,71,741 crore. It stood at 8,95,601 as on March 2018.

The loss of public sector banks widened further to 4,532 crore in the quarter ended October 2018, from 4,285 crore in the same quarter a year ago, indicating pressure from NPAs on their bottom-line.

Financial services secretary Rajiv Kumar, however, pointed out the record recovery of 67,026 crore in the first half of the current fiscal, which was more than double the amount recovered in the first half of the last fiscal and nearly same as 67,107 crore recovered during the whole of the preceding financial year. He asserted that significant recovery is expected going forward as a number of high-value accounts are at advanced stages of resolution process at the National Company Law Tribunal.

During the year, the government also approved the stake sale of IDBI Bank to LIC.

As part of the consolidation process, the government also announced the merger of Bank of Baroda, Vijaya Bank and Dena Bank to create a global-sized lender, which will be “stronger and sustainable". With combined business of 14.8 lakh crore, it will be the country’s third-largest bank after SBI and ICICI Bank. The new entity will have also better financial strength with net NPA ratio of 5.7%, which is significantly better than the overall public sector bank average of 12.1 %.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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