PSU banks: No one seems to care about the stunning loss in value

By: | Updated: December 26, 2018 7:36 AM

Looked at another way, that’s a notional loss in market value of PSU banks of Rs 3.3 lakh crore since the NDA came to power, and this is after Rs 1.7 lakh crore of fresh cash has been pumped into these banks, and another Rs 83,000 crore is to be pumped in by March 31.

PSU banks, indradhanush plan, NPA, PSU market capitalisationGiven how a host of banks—even by the standards of PSU banks—had very few in-house checks against poor lending, the central bank put PCA restrictions that virtually ensured they couldn’t lend till their financials were in better shape.

It has to be quite worrying that while the Opposition has, rightly, criticized the government for the resignation of RBI Governor Urjit Patel, it has remained focused on just the headline issue of the government appropriating part of RBI’s ‘excess’ capital so that this can be used for a pre-election surge in government spending. A good example of what the Opposition has missed is the government plan to get RBI to relax its Prompt and Corrective Action (PCA) norms for weak banks.

Given how a host of banks—even by the standards of PSU banks—had very few in-house checks against poor lending, the central bank put PCA restrictions that virtually ensured they couldn’t lend till their financials were in better shape. By way of example, the gross NPAs of PCA banks were 21% of their total lending in the second quarter of FY19—within this, that for IDBI Bank was a whopping 31.8%—as compared to 11.5% for the non-PCA PSU banks. In terms of net NPAs, the ratio was 11% for PCA banks—17.3% for IDBI Bank—versus 5.8% for non-PCA PSU banks. Since banks with such poor lending practices would just run up more losses if they were allowed to lend, the government’s insistence that RBI relax its PCA norms—as well as the planned capitalisation of weaker banks—just means a potentially bigger hole is being created for the taxpayer to fill; yet, there is not enough appreciation of this by the Opposition.

Even worse, the problem of running PSU banks into the ground is not restricted to PCA banks alone. At the time the NDA came to power, PSU banks had a market capitalisation of Rs 453,443 crore, or around 43% of the total market capitalisation of all banks. While the PSU bank market-cap has risen a bit, to Rs 484,380 crore today, that of private banks has shot up dramatically; as a result, the share of PSU banks in total industry market-cap has fallen from 42.9% to 25.6% in four-and-a-half-years.

Looked at another way, that’s a notional loss in market value of PSU banks of Rs 3.3 lakh crore since the NDA came to power, and this is after Rs 1.7 lakh crore of fresh cash has been pumped into these banks, and another Rs 83,000 crore is to be pumped in by March 31. This loss has been due to the fact that, under the NDA, PSU banks were still not freed up—or equipped—to meet the challenge of private sector banks; as a result, they continue to lose both market-share and value. Put another way, even if the government wasn’t going to privatise the banks, just selling a minority stake in them would have fetched the government several tens of thousand crore rupees over the past four-and-a-half-years. The lack of public outrage, however, makes it clear that no one really cares.

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