Indian Banks

1. Banking Sector
By: Harveer Singh
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2. The Challenges
• NPAs and Sarfaesi act
• Capital Requirements and
Efficiency Criteria
• Governance and
Professionalization of Banks
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3. Financial Stability Report 2015 (FSR)
• The risks to growth arising from the weakness
in the financial sector despite favourable
macroeconomic factors.
• The stress test under the severe scenario
shows that 10 banks will have CRAR less than
7%.
• This is a wake-up call for all concerned—
industry, government, investors and the
financial system.
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4. • India is in the midst of the third episode of bank distress in the past 25
years.
• The first was after the surge in directed lending as well as political stunts
such as the infamous loan melas eroded the net worth of lenders.
• The second was when the splendid post-1991 private sector investment
ended with the Asian economic crisis of 1997. High domestic interest rates
also left many projects unviable. Indian banks once again saw a sharp
increase in bad loans.
• The third episode of banking sector troubles has several causes:
– The growth collapse after 2012
– A credit bubble as bank loan growth exceeded nominal economic growth
– poor governance
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5. Challenges
• How should the government deal with the pile
of bad loans in the balance sheets of the
banks it owns?
• How should public sector banks be
encouraged to think strategically rather than
tactically?
• Thus Governance, Capital, Overall Economic
Reforms and NPAs are bigger challenges.
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6. ## Securitization and Reconstruction of
Financial Assets and Enforcement of Security
Interest (SARFAESI) Act 2002
• Upon loan default, banks can seize the
securities without intervention of the court
except agricultural land.
• SARFAESI is effective only for secured loans
• However, if the asset in question is an
unsecured asset, the bank would have to
move the court to file civil case against the
defaulters.
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7. • A Bank can do under this act
1. Take possession of the security for the loan
2. Sale or lease or assign the right over the security
3. Manage the same or appoint any person to
manage the same
• Notice to clear dues in 60 days.
• Provide for Asset Reconstruction Companies
(ARCs).
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8. • The bad loans of public sector banks were at 4.4
per cent in March 2014 compared with 2.09 per
cent in 2008-09.
• The gross NPA increased by almost four times
from in last 5 years.
• Infrastructure, textiles, iron and steel, mining and
aviation were the five sectors that accounted for
almost 23-24 per cent of bank advances.
• Public sector banks alone have a share of 85-90
per cent total loans. The stress accounts are 55
per cent in these five sectors.
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9. New Development
• The working group of RBI, headed by Usha
Thorat, had recommended that the Act be
extended to cover the NBFCs also.
• Upon loan default, banks can seize the
securities (except agricultural land) without
intervention of the court.
• SARFAESI is effective only for secured loans
where bank can enforce the underlying
security.
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10. ## Governance of the Boards of Banks
in India Committee- PJ Nayak
• Scrapping of Bank Nationalisation Acts, SBI Act
and SBI (Subsidiary Banks) Act.
• Converting all PSBs into Companies under the
Companies Act.
• Formation of a “Bank Investment Company”
(BIC) under the Companies Act and transfer of
all Shares held by the Central Government in
PSBs to the newly formed BIC.
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11. • BIC would transfer controlling authority to
Bank Boards.
• BIC Objective: Return on Investment
• BBB- Bank Board Bureau: 3 Serving o retired
Chairpersons of Bank.
• Reduction of Government’s share-holding to
40%.
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12. • Cases of vigilance enforcement only if the
director or employee personally made a
wrongful gain. (Evidence of Self Benefit)
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13. One more thing…
• More focus on Issues such as risk
management, strategic planning and business
performance
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14. Thank You.
•For any
feedback/query/word of
thanks, the Tutor can be
contacted at
harveersinh@gmail.com
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