Mumbai, Oct 22: Amongst all Indian public sector banks, the State Bank of India (SBI), it seems, carries a better image overseas than in the home ground. Unlike the Verma panel report on weak banks which put SBI's strength at par with three of its subsidiaries and four other public sector banks (whose combined net income for 1998-99 is almost half of SBI's), the global rating agency Moody's rates SBI as the strongest public sector bank in the country."Till date, Moody's has rated eight leading public sector banks in the country for the `bank financial strength rating (BFSR). Of these top eight banks, the Union Bank of India and the Central bank of India fall in Moody's `very weak' category while the other six have `adequate' financial strength. Amongst these six better-off banks, SBI is rated a notch higher (D+) than all the rest, which have been assigned a `D' rating for their BFSR," a Moody's research report on Indian banking system outlook said.
According to the Verma panel, Oriental Bank of Commerce (OBC) and State Bank of Patiala (SBP) are the only PSBs which satisfy all the seven efficiency criteria laid down by the working group and are hence put in the category of strongest banks.
"OBC and SBP are the most competitive banks. However, of the balance 22 public sector banks, BoB, Canara Bank and Punjab National Bank (PNB) are fairly well placed to tackle the visible pointers to weakness through internal strategies. Banks like SBI and Syndicate Bank may not be deemed to be in distress, but their efficiency levels call attention to their potential weaknesses which could emerge over time," the report said.
"The poor operational results of weak banks shifted the responsibility of maintainence of CAR to the government. The achievement of CAR through capital infusion by the owner cannot be deemed as characteristic of a bank's ability to reach minimum competitive efficiency," Verma panel said.
However, the two reports, both of which have used the 1998-99 results for analysis, agree on the poor asset quality and the weakness of public sector banks (PSB). The international rating agency, Moody's continues to maintain a negative credit outlook for PSBs despite the recent raising of the outlook on India's foreign and domestic currency debt to `positive' from `stable'. "High level of non-performing assets (NPAs), low automation, low credit skills and weak legal system compound the problems. The incomplete reform process in turn has prevented PSBs from modernising their management practices," Moody's research report said, adding that decisive legislative reforms are required to stem the deteriorating situation.
The seven parameters considered by the working group are: 9 per cent capital adequacy ratio, 0.50 per cent coverage ratio, return on assets, net interest margins, ratio of operating profit to average working funds, ratio of cost to income and ratio of staff cost to net interest income plus all other income.
Moody's, on the other hand, categorises its bank ratio analysis into four main areas: capital, asset quality, earnings and liquidity, which are based on a whole gamut of around 38 ratios.
Some of the main ratios used by Moody's for its analysis are:
Core profits (pre-provision, pre tax and adjusted for preferred dividends etc.) as a percentage of risk weightedassets plus securitised loans Return on risk weighted assets plus managed recievables. NPAs as a percentage of tangible common equity plus reserves Core deposits as a percentage of loans.Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.