Measures to Achieve Higher Economic Growth
Progress since Announcements on 23.8.2019
Quick Follow-up on Measures Announced on 23.8.19 Announcements Actions initiated Banks to launch Repo rate 8 PSBs have launched repo-linked 1 home/vehicle/mortgage/cash-credit loans linked loan products Customer Ease: Time-bound Instructions issued. To be enforced through 2 return of loan documents CBS. Regional Managers responsible. Customer Ease: Online Implementation initiated with Retail/MSME on 3 tracking of loan applications Loan Management Systems Transparent One Time 4 Instructions issued Settlement (OTS) Policy Sanction begun with ~₹ 3,300 crore and Support to NBFCs/HFCs: 5 ~₹ 30,000 crore more in pipeline Partial Credit Guarantee Co-origination of loans by Bank-NBFCs tie-ups with 4 NBFCs already 6 PSBs jointly with NBFCs in place. More in pipeline.
Rapid Growth needs Robust Credit Capacity Indian Economy (GDP) $ 5 trillion $ 2.6 trillion Strong banks 2017 2024 imperative for Credit to the Economy $5 trillion economy $ 1.9 trillion Commensurate ~72% growth of GDP 2017 2024 Source: World Bank
Strong Foundation Laid through Financial Sector Reforms An Ongoing Endeavour
प्ऱक्ऱियाओं मेः मूलभूत परिवततन BANKING NOW BANKING THEN No interference in commercial 1. Phone Banking decisions 3.38 lakh “shell” companies 2. Layered entry operations struck off 3. Auditors not independently NFRA set up as independent regulated regulator of auditors 4. Restructuring of stressed assets Resolution through IBC: often without actual resolution Connected party debarred 5. Stress restructured and not Restructuring schemes withdrawn recognized as NPA
प्ऱक्ऱियाओं मेः मूलभूत परिवततन BANKING NOW BANKING THEN 6. Releases often without ensuring Releases only after ensuring loan loan conditions/ project clearances conditions and clearances 7. Consortiums with 30-31 members Consortiums limited to 7 to 9 Techno-economic valuation 8. Inadequate techno-economic cells created in banks valuation capacity 9. Technology / analytics not fully Technology / analytics used for leveraged for appraisal robust due diligence 10. Inadequate Early Warning Signal EWS in place; Specialised agencies monitor loans > ₹ 250 crore system & no specialised monitoring
प्ऱक्ऱियाओं मेः मूलभूत परिवततन BANKING NOW BANKING THEN 11. Cash flows not ring-fenced Cash flows ring-fenced 12. Banks overexposed to Business plans implemented for corporate loans balanced asset mix Sanctioning and monitoring of big 13. Sanction and monitoring not loans strictly separated strictly separated 14. Banks often on verge of default Quality of Tier-I capital enhanced due to poorer quality capital 15. Inadequate slippage Stressed asset verticals created prevention mechanism
प्ऱक्ऱियाओं मेः मूलभूत परिवततन BANKING NOW BANKING THEN 16. Fleeing defaulters retained Fugitive Economic Offenders Act control of assets to confiscate assets PSBloansin59minutes.com 17. Inadequate digital lending launched interface 18. Foreign branches retained Foreign branches rationalised despite losses Adherence to risk-based pricing 19. Ad hoc loan-pricing 20. Loan Management System (LMS) Retail & MSME LMS implemented in only a few PSBs
प्ऱक्ऱियाओं मेः मूलभूत परिवततन BANKING NOW BANKING THEN 21. SWIFT messages not SWIFT messages linked to CBS always linked to CBS 22. Slow, multi-level decision-making IT-based centralised processing for loan sanction centres and verticals started 23. No online bill discounting MSME bills discounted on TReDS platform Selection at arm’s length 24. Selection of top management not done independently through Banks Board Bureau MD selection from market for large 25. MD selection from within PSBs and wider pool for other PSBs banks of same category Non-executive Chairman 26. MD also being Chairman weakened Board oversight introduced
Gains Visible from PSB Reforms
Gains visible from PSB Reforms In lakh crore ₹ Record recovery Gross NPAs In crore ₹ 8.96 1,21,076 Asset quality better 8.76 8.69 8.65 NPAs 1.06 lakh cr. 7.90 ↓ 77,563 61,930 FY19 FY17 FY18 Mar-18 June-18 Sept-18 Dec-18 Mar-19 Provision Coverage Ratio Enhanced profitability 14 PSBs in profit Highest in 75.3 (as against two in 7 years 62.7 57.9 % 6 PSBs FY18) % % Q4FY19 Q1FY20 4 PSBs Mar-17 Mar-18 Mar-19 12 PSBs
Gains Visible from Amalgamation of BoB + Vijaya + Dena Bank
BoB + Vijaya Bank + Dena Bank Wide-ranging benefits Potential unlocked ✔ Wider offerings, enhanced Robust CASA growth 2,87,00 customisation Poised for rapid growth 0 2,69,000 ✔ Operations rationalised ✔ Verticalisation initiated Amounts Set for market raising in crore Rs. A ✔ No retrenchments: • Best of employee benefits High profit trajectory Jun'18 Jun'19 • Admin staff redeployed for business BoB + Vijaya + Dena Strong valuation gain projected Strong retail loan growth Profitability enhanced d 1,12,00 A 0 51,000 BoB + Vijaya + Dena 93,000 710 37,000 Based on 35,000 Q4FY1 analysts ’ (38) 9 Q1FY2 recommendations Market Cap 0 — Bloomberg Amounts (In crore Rs.) in crore Rs. # 16.6% for SCBs Apr Aug Aug (-) 7,113 Jun'18 Jun'19 ’ 19 ’19 ’20 BoB + Vijaya + Dena
Building NextGen Banks
Unlocking potential through Consolidation Big banks with enhanced capacity to increase credit Banks with strong national presence and global reach Operational efficiency gains to reduce cost of lending Enhanced risk appetite Banks with scale Thrust on NextGen technology for banking for building a $ 5 trillion Wider offerings with enhanced customisation economy Better ability to raise resources from markets
Snapshot of Consolidations
PNB + Oriental Bank of Commerce + United Bank 2 nd largest PSB with business of ₹ 17.95 lakh crore (~1.5 times PNB) 2 nd largest branch network in India, with 11,437 branches Scale and synergy High CASA and lending capacity combined in consolidated bank benefits through: Large cost reduction potential due to network overlaps Cost saving and income opportunities for JVs and subsidiaries Same CBS platform (Finacle) in all three banks to enable quick realisation of gains
PNB + Oriental Bank of Commerce + United Bank PNB OBC United Bank of India Amalgamated bank 17,94,526 Total business (in crore ₹) 11,82,224 4,04,194 2,08,106 Gross advances (in crore ₹) 5,06,194 1,71,549 73,123 7,50,867 Deposits (in crore ₹) 6,76,030 2,32,645 1,34,983 10,43,659 51.45% 40.52% CASA ratio 42.16% 29.40% 11,437 Domestic branches 6,992 2,390 2,055 61.72% 56.53% 51.17% 59.59% PCR 7.46% CET-I ratio 6.21% 9.86% 10.14% CRAR ratio 9.73% 12.73% 13.00% 10.77% Net NPA ratio 6.55% 5.93% 8.67% 6.61% Employees 65,116 21,729 13,804 1,00,649 March 2019 financials
Canara Bank + Syndicate Bank 4 th largest PSB with business of ₹ 15.20 lakh crore (~1.5 times Canara Bank) 3rd largest branch network in India, with 10,342 branches Scale and synergy Large cost reduction potential due to network overlaps benefits through: Similar culture to enable smooth consolidation Cost saving and income opportunities for JVs and subsidiaries Same CBS platform (iFlex) in both banks to enable quick realisation of gains
Canara Bank + Syndicate Bank Canara Bank Syndicate Bank Amalgamated bank 15,20,295 Total business (in crore ₹) 10,43,249 4,77,046 Gross advances (in crore ₹) 4,44,216 2,17,149 6,61,365 Deposits (in crore ₹) 5,99,033 2,59,897 8,58,930 CASA ratio 29.18% 32.58% 30.21% 10,342 Domestic branches 6,310 4,032 PCR 41.48% 48.83% 44.32% 8.62% CET-I ratio 8.31% 9.31% 12.63% CRAR ratio 11.90% 14.23% Net NPA ratio 5.37% 6.16% 5.62% Employees 58,350 31,535 89,885 March 2019 financials
Union Bank + Andhra Bank + Corporation Bank 5th largest PSB with business of ₹ 14.59 lakh crore (~2 times Union Bank of India) 4th largest branch network in India, with 9,609 branches Scale and synergy Business to become twice to 4½ times existing bank business benefits through: Large cost reduction potential due to network overlaps Cost saving and income opportunities for JVs and subsidiaries Same CBS platform (Finacle) in all three banks to enable quick realisation of gains
Union Bank + Andhra Bank + Corporation Bank Union Bank Andhra Bank Corporation Bank Amalgamated bank 14,59,434 Total business (in crore ₹) 7,41,307 3,98,511 3,19,616 Gross advances (in crore ₹) 3,25,392 1,78,690 1,35,048 6,39,130 Deposits (in crore ₹) 4,15,915 2,19,821 1,84,568 8,20,304 CASA ratio 36.10% 31.39% 31.59% 33.82% 9,609 Domestic branches 4,292 2,885 2,432 58.27% 68.62% 66.60% 63.07% PCR 8.63% CET-I ratio 8.02% 8.43% 10.39% 12.39% CRAR ratio 11.78% 13.69% 12.30% Net NPA ratio 6.85% 5.73% 5.71% 6.30% Employees 37,262 20,346 17,776 75,384 March 2019 financials
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