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Bad loans turn worse in 2015; Banks bet on ‘rainbow’ reforms


New Delhi : As the burden of bad loans turned worse for banks in 2015 especially the state-run players, they are betting big on the seven-point ‘Indradhanush’ reforms to bounce back in the New Year and expect more steps from the government and the RBI to clean up their books.

Besides, the commercial banking industry is also gearing up to face a new kind of competition in form of payments and small finance banks that would begin operations in 2016.

Also on anvil could be the government’s divestment in IDBI Bank and setting up of the long-awaited Bank Board Bureau (BBB).

Non-performing assets (NPAs) remained a matter of concern for both the government and RBI although the situation is expected to get better by March 2016 as some major decisions are anticipated soon to tackle the issue of bad debts.

To revive the fortunes of public sector banks (PSBs), the government in August unveiled a seven-point plan named ‘Indradhanush’ or ‘Rainbow’ encompassing Rs 20,000 crore immediate fund infusion and creation of a single holding company.

Moreover, the government has also resolved to set up a Bank Investment Committee, which will act as a holding company for shares on behalf of the government for facilitation of capital requirement through innovative manner.

The action plan has also been put in place for a new framework of Key Performance Indicators (KPIs) to be measured for performance of PSBs to bring them at par with the private sectors banks in terms of efficiency.

Gross NPAs of public sector banks rose to Rs 3.14 lakh crore at the end of September 2015. Wilful defaulters owe PSU banks a total of Rs 64,334.59 crore, which is about 21 per cent of the total NPA.

As of September 30, State Bank of India (SBI) had maximum number of wilful defaulters at 1,164 who owed Rs 11,705 crore to the state-run lender.

SBI was followed by Punjab National Bank with 764 wilful defaulters who have defaulted a total of Rs 9,203.84 crore.

‘Indradhanush’ plan also envisages strengthening of asset reconstruction companies to deal with bad loan situation.

As part of its financial inclusion agenda, RBI gave 21 in-principle approval for setting up Payments Banks and Small Finance Banks this year. The approval is valid for 18 months during which the applicants have to comply with all requirements stipulated by the RBI before getting to start their respective banking operations.

Two new full-fledged banks — IDFC Bank and Bandhan Bank have already started operation this year.
Financial inclusion and social security initiatives

remained focus area for the government this year with Prime Minister Narendra Modi launching MUDRA scheme to fund the unfunded in April and two low-premium insurance schemes — Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY) and a pension scheme Atal Pension Yojana (APY) in May.

PMSBY offers a renewable one-year accidental death-cum-disability cover of Rs 2 lakh for partial/permanent disability to all savings bank account holders in the age group of 18-70 years for a premium of Rs 12 per annum per subscriber. The scheme is managed by general insurance firms.

PMJJBY, on the other hand, offers a renewable one year life cover of Rs 2 lakh to all savings bank account holders in the age group of 18-50 years, covering death due to any reason, for a premium of Rs 330 per annum per subscriber.

The Pradhan Mantri Mudra Yojana (PMMY) provides for loans up to Rs 50,000 to small businesses in informal sector such as vegetable vendors, barbers, rickshaw pullers, service sector units like auto repairs, plumbing and electricians etc without any collateral.

To make life easier for such borrowers, an innovative credit product, MUDRA Card, is being issued wherein borrower can avail of credit in a hassle-free and flexible manner, Financial Services Secretary Anjuly Chib Duggal said.

So far, banks have issued 1,98,499 Mudra Card.

Public Sector Banks have been allocated a total target of Rs 70,000 crore, she said, while adding that the social sector initiatives and financial inclusion will continue to remain thrust areas.

On the flip side, the banking sector was also rocked by Bank of Baroda forex fraud case this year.

It is alleged that Rs 6,172 crore black money was remitted from Bank of Baroda to Hong Kong, camouflaged as payments for non-existent imports like cashew, pulses and rice.

A forensic probe has been ordered into the alleged irregularities. CBI and Enforcement Directorate have registered cases on the bases of complaint filed by the bank regarding irregularities in outward foreign remittances from its Ashok Vihar Branch, New Delhi, through newly opened accounts.

The branch opened 59 current accounts during May 2014 to June 2015 through which large foreign exchange remittances were done.

During this period, total of 5,853 outward foreign remittances aggregating USD 546.10 million (around Rs 3,500 crore) were made through 38 current accounts to various overseas parties numbering some 400, mainly based in Hong Kong and one in the UAE.

The bank has admitted that the branch did not adhere to FEMA (Foreign Exchange Management Act) guidelines.


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