The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
Abhishek Jain, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur
The state of Indian banks especially the public sector banks have been a matter of serious concern for a few years now. Growing debts and stressed loans turning into non-performing assets have been noticed quite regularly in recent years. However it has reached alarming levels as these non-performing assets are now being written off as bad debts by the government, according to a report in Indian Express 29 public sector banks wrote off a total of 1.14 lakhs crores of bad debts between 2013 and 2015, this is half the amount of 2.11 lakhs crore rupees written off between 2004 and 2015. The alarming rise in the bad debt between 2013 and 2015 at 60 percent as compared to just 4 percent in 2004 nad 2012 is a cause for serious concern.
In the last quarter itself, the leading PSUs reported their highest ever quarterly losses aggregating to over Rs 12,000 crore
While expressing a serious concern over the issue The honorable supreme court asked the Reserve of bank India with the list of companies where the default was more than 500 crore along with this Supreme court has also directed the RBI to preview them the list of companies where the loans have been restructured under corporate debt restructuring schemes within six weeks.
The rise in the bad debt is considered the prime reason for the erosion of the consolidated net profits if the country’s largest lender State Bank of India at Rs 1,259.49 crore in the quarter to December after it classified loans worth Rs 20,692 crore as bad loans.RBI Mr. RaghuRam Rajan also governor admits that the rising Bad loans are an immense problem for the whole system but at the same time also believes that these banks will come to the fore in a full-fledged manner and that they will be strong and healthy soon.
The reasons for this dismal performance by the public sector banks is attributed to various reasons including social consideration and the poor performance of sectors like infrastructure, iron, and steel, mining. Here Arundhati Bhattacharya’s, (chairman of the largest public sector bank, State Bank of India) suggestion of announcing a bold plan to reduce the government’s shareholding in these lenders to below 51%, can be very instrumental. Though politically it seems a hard sell. But without such a roadmap, an onerous chunk of the $150 billion or so of capital that Indian banks require will have to come primarily from taxpayers. Which seems practically impossible, as the entire annual tax revenue of the central government is about 9 lakhs crore.