Seldom has the Union budget been so critical for India’s state-controlled banks that account for a little over 70% of loan assets. Twelve of the banks posted net losses in the December quarter as they needed to set aside funds for rising bad assets even as their gross non-performing assets or NPAs rose by Rs.1.
The biggest negative for India’s state-owned banks in the Union budget is finance minister Arun Jaitley’s announcement that the government will infuse (only) Rs.25,000 crore in fresh capital in these banks—many of which are crumbling under the burden of bad loans. Expectations were running high ahead of the budget even as analysts talked about trillions of rupees in capital to take care of the pile of bad loans as well as meet the new Basel norms which will kick in from April 2019.
The asset reconstruction companies or ARCs in India, which are in the business of buying bad loans from banks and making money by recovering them, had around Rs.50,000 crore worth of bad assets under management in fiscal year 2015. In the first three quarters of the current fiscal year, banks wanted to sell around Rs.
All hell broke loose two decades ago when Chennai-based Indian Bank posted a Rs.1,336 crore loss for the fiscal year 1996, wiping out its entire net worth. On Saturday, another government-owned lender, Mumbai-based Bank of Baroda, reported a loss of Rs.
Bank stocks rose in the past two trading sessions. Is it the so-called dead cat bounce or a short-lived rally in a declining trend? Nobody seems to have the answer. The Reserve Bank of India (RBI), in its February monetary policy review, kept the policy rate unchanged.
The 2 February monetary policy review and Reserve Bank of India (RBI) governor Raghuram Rajan’s interaction with the media after the release of the policy didn’t have an iota of surprise. Rajan has taken every care to make the policy review a non-event ahead of the Union Budget which will be presented by the end of this month. The key policy rate remained unchanged and ditto about banks’ cash reserve ratio (CRR), or the portion of deposits that commercial banks need to keep with the central bank.
In the September 2015 review of monetary policy, the Reserve Bank of India (RBI) surprised the market by cutting its policy rate by half a percentage point to 6.75%. It had also said that its stance would “continue to be accommodative”.