New Delhi: Finance minister Piyush Goyal will meet heads of public sectors banks (PSBs) based out of western and southern regions on Friday to resolve various issues concerning them.
According to people in the know, the meeting is being organised by State Bank of India (SBI) and will be chaired by Goyal in Mumbai. In all 15 CEO of PSBs from the two regions will participate in the meeting to discuss the way forward for the Indian banking system, they said.
This is the first meeting with the heads of the PSBs after their annual financial result for 2017-18. Most of the banks posted loss in the fourth quarter of the last fiscal.
The Nirav Modi fraud-hit Punjab National Bank alone posted a loss of Rs13,416.91 crore for the quarter ended 31 March, the largest ever quarterly loss by a bank. PNB provided for Rs7,178 crore, 50% of the total amount of Rs14,356 crore liability with regard to Nirav Modi fraud in the fourth quarter of 2017-18.
The remaining amount will be covered in the three quarters of the current fiscal year. It is followed by the country’s largest lender SBI posting Rs7,718 crore loss for the January-March period, more than twice the Rs3,442 crore loss reported for fourth quarter of the previous fiscal.
The jump in losses follows Rs24,080 crore kept for provision towards bad loans after the RBI scrapped all loan restructuring schemes. The banks also had to make a Rs4,761 crore provision towards depreciation in the value of its bond portfolio.
Besides, almost all banks reported increase in non-performing assets due to 12 February guidelines of the Reserve Bank of India (RBI). The new guidelines have specified framework for early identification and reporting of stressed assets.
As per the revised guidelines, the banks will be required to identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMA) depending upon the period of default.
All lenders will be required to put in place board-approved policies for resolution of stressed assets under this framework, including the timelines for resolution, it had said, adding, “As soon as there is a default in the borrower account with any lender, all lenders - singly or jointly - shall initiate steps to cure the default."
In addition, people in the know said, the issues concerning banks which are under prompt corrective action framework of RBI would also be discussed. Out of 11 PCA banks, 7 from these region are part of the framework.
The 11 banks on the RBI’s watchlist are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.
Together, these banks accounted for Rs52,311 crore of the Rs88,139 crore capital infusion plan (through bonds and budgetary support) announced by the government for 2017-18. As per the revised PCA guidelines released last year, if a bank enters Risk Threshold 3, it may be a candidate for amalgamation, reconstruction or even be wound up.
Among the many metrics that are used to gauge how weak a lender is are capital, net NPAs, RoA and Tier 1 leverage ratio etc. Under the PCA, banks face restrictions on distributing dividends and remitting profits. The owner may be asked to infuse capital into the lender. That apart, lenders would also be stopped from expanding their branch networks. It would need to maintain higher provisions and management compensation and directors’ fees would be capped.