State Bank of India (SBI), the largest government bank underwent many financial reforms in the recent times. Also, the banking industry holds a special place in the Union Budget. In the Union Budget of 2013-14, the government asked all public sector banks to comply with BASEL III regulations and Rs.14, 000 crores to be provided as capital infusion plan.
The Capital Adequacy Ratio (CAR) of the bank has shown a declining trend. CAR has gone down from 13.54% in 2008 to 11.22% in 2013. This is due to the rising Non Performing Assets (NPAs) of the bank, which currently stands at Rs.21, 956.48 crores almost three times as compared to Rs.7, 424.33 crores in 2008. This is shown in the figures below: –
State-run lenders like SBI have lined up more than Rs.15, 000 crores worth of share-sales to institutional investors to shore-up their capital base. Qualified Institutional Placement (QIP) is a capital raising tool whereby a listed firm can issue equity shares, fully and partly convertible debentures, or other securities that are convertible to equity shares to institutional investors. SBI was planning to mop-up Rs.9, 576 crores through a QIP in this year and had already received government approval for it.
The issue was made in last of January 2014.Initially when the offer was made with a host of International Lead Managers to FIIs,the response was very lukewarm considering the deteorating Asset Quality and Earnings Quality.There after it received bids for over 75% of the shares on offer translating into Rs.7, 200- Rs.7, 300 crores from LIC of India. Rest of the shares were taken by Indian Insurance companies.
For the first time in its over two centuries of history, State Bank of India (SBI) is going all out to stem the rot by offloading around Rs.5,000 crores of its Rs.67, 799 crores dud assets to Asset Reconstruction Companies (ARCs) before the end of March 2014.
In the quarter ending December 2013 alone, it had added as much as Rs.11, 400 crores in fresh bad loans or 5.73 %, taking its overall NPAs mount to a whopping Rs.67, 799 crores. This pulled down its net profit by a whopping 34% to Rs.2, 234 crores, as the bank was forced to make Rs.3, 428.6 crores towards loan provisions up from Rs.2, 766 crores a year ago.
The Chairperson Ms.Arundhati Bhattacharya had said in Kolkata that the bank was considering a proposal to sell NPAs in the current quarter. This would be for the first time the bank would be selling NPAs to asset reconstruction companies or ARCs.”
The move comes ahead of tighter provisioning norms kicking in from next April, which the Reserve Bank of India had in May last year announced when it had more than doubled the provisioning for restructured loans to 5% from 2%. Banking sector may witness many unconventional moves.We need to watch further developments.
This article is written by Dr. K . T. Rangamani . He is a Senior Professor at VIT Business School