Banks - Public Sector

 

Overview

Much is being talked about the metamorphosis of the banking sector in India in the next 10 years with transition of India from a Government inclined mixed economy to a capitalism inclined mixed economy. After the nationalization of banks taking place at a large scale in the 1960s and further in 1980, the public sector of the banking industry in India saw a turn of events in the early 2000s when their balance sheets showed profits after a prolonged period of consistent trend of losses. Today, the Indian banking industry, with its total assets to the tune of INR 81 Trillions (USD 1.34 Trillions), is growing incessantly but a certain caution needs to be exercised especially in public sector of this industry. Infiltrated with bad loans and continuous pressure to lower their NPAs, not only have the lenders preferred to hold back credit but some banks have also resorted to disguising weak financials by funding extra and unnecessary money to doubtful debtors thus erasing them from NPA categories. To quote one major public sector bank, PNB, watched its NPA escalate to 4.06% of assets from 2.85%. Although private sector banks have practiced asceticism in this matter, public sector banks cannot afford to do so due to strict regulations by Central Bank. 2014 fiscals portrayed various events that amplified interest rates with deteriorating investor confidence, which shrunk investments and contribution of PSBs to growth in GDP.
With a total of 27 PSBs in India, SBI tops the chart of the most sought after bank followed by Bank of Baroda and PNB. With the introduction of Jan Dhan Yojna, Public Sector banks opened over 13 crores of accounts largely coming in from the rural sector, but 51% of these accounts were zero balance accounts.

 

Buy Industry Analysis

 

Outlook
Unfortunately, in the past year, public sector banks have been toiling to control rise in GNPAs as their GNPAs clocked 5.17% with a stressed asset ratio at 13.2% as at March 2015. Here, asset quality cannot be compromised and despite several measures to raise capital in the country, public sector banks are straining to raise capital. CARs (Capital Adequacy Ratio), this year, have dipped to 11.24% as against 11.40% from last year and this has set off many alarms among stakeholders of the banking community. Bank stock valuations have worsened, especially those of PSBs and this has added to their galling woes.
With a public bank to private bank ratio biased towards private sector and this trend, foreign participants have reinstated their presence in domestic markets adding to the stiff rivalry.


Future Potential
According to past trends in India, credit has normally grown at a two and a half times multiplied to the economy growth. This trend may continue thus rolling a 15% growth in bank credit based on expected rate of 7.5% economic growth rate. But this is subject to many questions.
Since public sector banks have seen dismal profit figures in the fourth quarter 2014-2015 which was pushed mainly by funds blocked in infrastructure investments, dire agricultural loans and issues of higher wages as per recent banking norms, treasury stock cushions had to be compromised. RBI has to intervene and banks themselves have to adopt stricter policies of lending funds to not jeopardize their financial strengths in the future. Credit growth and trust in public sector banks needs to be stimulated with recovering higher cash of stressed assets and reducing their benevolent giveaways of loans that may turn bad. Since the sectors that need credit the most are the ones unable to execute repayments, the Central Bank needs to rejuvenate this vicious cycle through an indirect approach of infusing capital in to the Indian economy.

 

What this report contains:

  • A detailed overview of the industry

  • Structure of the industry from both, domestic and international perspectives

  • Related industries that this industry has inter-dependencies with and their understanding

  • Detailed analysis of industry segments in terms of the value and depth of corresponding market

  • Analysis & insights about the elements and critical success factors of this industry using strategic models

  • A forecast on the state of this industry in 2020, predicting the growth and movement patterns for 2016 - 2020

  • Our professional analysis on the future of the industry based on strategic actions adopted by major industry participants

  • Quantitative estimates and forecasts of the growth prospects of the industry using revenue and financial forecasting models

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