Tumbling Top 10 PSU Banks ~ Govt & MOF & RBI & Banks all to Blame

Last Few Years I have consciously stayed away from PSU Banks,Oil  & Steel & Power Companies

Now you’ll know why !

There has been serious wealth destruction for those who had invested in them

So it was always with some degree of amusement I observed many analysts and fund managers and stock market experts recommend these over the years and justify their call even when it was obvious these companies were bleeding profusely

This Post is about  PSU Banks

Who is to Blame for this Wealth Destruction ?

I squarely lay the Collective Blame on the various Central & State Governments that ruled  & rule,Ministry of Finance Bureaucrats &  Finance Ministers,the Board of Directors of all these Banks led by the Chairman & MDs & even the RBI Boards led by the various Governors & their deputies in these last few years….they preach Corporate Governance but do not practice it….how else will vested interests be served

They have deliberately let this come to past throwing caution to the winds when Lending and then not providing adequately and in time for the NPAs many of which were not even identified as such ….and their delay in declaring many defaulters as wilful…Supreme Court has been seized of this danger and have directed RBI to provide to it within six weeks  in a sealed cover the list of all defaulters over Rs 500 crs.One Bank Chairman in the analyst meet for Q 3 FY 16 results recently  refused to identify the Big Defaulter for which the Provision was made !   

If it was not for the aggressive stand taken by the present Governor,Mr Raghuram Rajan and the Asset Quality Review in the second half of 2015,the Banks would have continued under providing for NPAs & even not identifying them in their entirety…the role of statutory auditors too comes under scrutiny here

The result has been a damaging Q 3 FY 16 for the PSU Banks as they have been forced by RBI to provide properly based on the AQR conducted

It is in this context I am astonished at the recent lament by none other than Mr Deepak Parekh who says that if the Banks have to undergo one more quarter of provisioning for NPAs like Q 3 it would tantamount to an Anesthesia  overdose & Banks would become comatose !…Come On Mr Parekh !

RBI has asked the Banks to clean up by March 2017

My worry is that NPA Levels may increase on better & proper identification & classification and there will be more pain for these Banks.This would mean higher Provisions for the next few quarters

Falling Interest Rates & continuing Low Credit Off take ,Growing Competition from Private Banks & the new Niche Services Payment Banks would mean pressure would remain on the Bottomline.Increasing NPA Provisions will only accentuate the stress levels in Operations

In 2011 RBI allowed Banks to provide less than the 70% threshold Coverage Ratio.This has turned out to be a disastrous move .Have a look below.All banks have a lower than 70 %  PCR & many don’t have cushion of adequate Reserves to support stronger Provision on existing NPAs and god forbid any further incremental provision on incremental NPAs.

For 9 of the 10 Banks(it’s a kinder scenario for Leader State Bank of India  )  the Gross NPA Levels have gone up by a staggering 100% to 400% inside three years ! Phew ! that’s  Deep ICU Territory !   ~ No wonder Bank of India which at Rs 250 a year ago at PBV of 0.5 has collapsed to just Rs 85 and PBV of just 0.2 !   ~ and UCO Bank’s Networth is under the severest threat 

Just have a look at the Top 10 PSU Banks Stats (Figures are rounded off) compiled below in three grids and your anger will express it self  

All are quoting at 52 Week  Low Levels with potential of  more  decline

Tumbling Top 10 PSU Banks

Share Price Valuations & Trends

PSU Bank Market Cap Equity31/12/15 FV Share Price23/2/2016 52 Week High 52 Week Low
Rs Crs Rs Crs Rs Rs Rs Rs
State Bank Of India 123001 776 1 158 316 148
Bank Of Baroda 30622 462 2 133 216 109
Canara Bank 8845 543 10 163 451 161
UCO Bank 3404 1076 10 32 77 28
Central Bank Of India 8731 1568 10 53 121 48
Syndicate Bank 3525 662 10 53 128 49
Andhra Bank 3066 652 10 47 91 42
IDBI Bank 10583 1604 10 56 96 47
Bank Of India 6885 793 10 85 250 80
Punjab National Bank 14256 393 2 73 181 69

Shareholding ,Dangerous Increase in Gross NPA Levels & PCR  

 

PSU Bank

Shareholding (%)

31/12/2015

GROSS NPAs 31/12/2015

Provision

Coverage Ratio

 

%

GROSS NPAs

31/3/2013

NPAs

 up by in 2 yrs 9ms

%

 

Govt

FPIs

DIIs

Others

Rs Crs

%  Advances

Rs Crs

% Advances

State Bank Of India

59.15

11.54

18.34

10.97

72791

5.1

65.23

51189

4.8

42

Bank Of Baroda

59.24

11.88

22

6.88

38934

9.68

52.7

7983

2.4

388

Canara Bank

66.3

14.49

17.14

2.07

19813

5.84

53.96

6260

2.6

217

UCO Bank

72.83

3.47

19.83

3.87

14931

10.98

55.4

7130

5.4

109

Central Bank Of India

81.46

0.08

12.91

5.55

17563

5.3

52.95

8456

4.8

108

Syndicate Bank

69.24

7.29

11.43

12.04

9602

4.61

58.67

2979

2

222

Andhra Bank

63.97

5.97

14.77

15.29

9520

7

57.88

3714

3.7

156

IDBI Bank

80.16

2.58

9.04

8.22

19615

8.94

62.92

6450

3.2

204

Bank Of India

70.13

1.46

19.26

9.15

36519

9.18

56.62

8765

3

317

Punjab National Bank

62.08

1.86

20.18

15.88

34338

8.47

53.85

13466

4.3

155

Relative Valuations

PSU Bank

Reserves 31/12/2015

 

Rs Crs

Book Value

 

Rs

P/BV 

PAT

Rs  Crs

*Proj

 PAT 

FY 16

 

Rs Crs

FY15

 

EPS

 

Rs

 

FY16

 

Proj EPS

Rs

FY15

 

 

P/E

Fwd

FY16

 

 

P/E

 

FY15

9M FY16

State Bank Of India

145781

187

0.8

13102

8687

12566

16.9

16.2

9.4

9.8

Bank Of Baroda

39533

171

0.8

3398

-2165

-1113

14.7

-4.8

9.0

Canara Bank

34989

644

0.3

2703

1093

1622

49.8

29.9

3.3

5.5

UCO Bank

10436

97

0.3

1138

-1084

-928

10.6

-8.6

3.0

Central Bank Of India

15266

97

0.5

606

-520

-407

3.9

-2.6

13.6

Syndicate Bank

12934

195

0.3

1523

515

847

23.0

12.8

2.3

4.2

Andhra Bank

10267

157

0.3

638

488

740

10

11.3

4.8

9.8

IDBI Bank

20760

129

0.4

873

-1929

-1810

5.4

-11.3

10.2

Bank Of India

30807

389

0.2

1709

-2502

-3629

21.6

-45.8

3.9

Punjab National Bank

41807

213

0.3

3062

1393

2014

15.6

10.3

5

7.1

* Projected FY 16 PAT or Loss is computed on the basis of adding or substracting (as the case may be) Q 3 FY 16 PAT or Loss to the 9m FY 16 recorded PAT or Loss  as it has been reported that all the above Banks,except Bank of Baroda, have followed RBI’s allowance to divide equally the incremental Provision for NPAs between Q3 & Q4 .Bank of Baroda has opted to provide full in Q 3 itself and hence Q 2 PAT has been reduced from 9m Loss to project full FY 16 Loss

Going Forward Government is reported to be considering a few  measures to strengthen PSU Banks like those below :

  1. Recapitalisation of the PSU Banks
  2. Mulling FDI/FPI to 49% from the existing 20% & even diluting Govt stake to 51% ~ Till a few years ago  State Bank of India FPI cap shareholding  was full at 20% & no further purchase was allowed.Today it’s fallen to under 12% (See relevant grid above).Most other Banks have insignificant FPI Stakes ~ so even if Govt mulls this rise to 49% will it make a difference ,especially as Govt will continue to retain Controlling Ownership of  at least 51% ~ there is a growing voice for Privatisation of PSU Banks ~ just to go back in history Nationalisation of Indian Banks took place in 1969 ~ are we to go back on this !? ~ Bank of India with Net Worth over US $ 4.5 Billion is available at under a Billion Dollars while UCO Bank  with Networth  of nearly US $ 1.7 billion can be yours for under half a Billion Dollars ! ~ Unions were against Computerisation decades ago ! & they’ll surely be against Privatisation ! 
  3. Bankruptcy Laws 
  4. Transparency in the Appointment of Board of Directors & Proper Authorisation & Accountability when Approving Loans  with no interference by the Government ~ Fingers Crossed here as on paper this has always been there but subversion was the norm !
  5. Consolidation   ~ Merging a Weaker Bank into a Stronger one

Sense any Opportunity Guys !?  on the conviction that PSU Banks are too Big to be allowed to fail ! (recall Post Lehman 2008 & Citibank below the price of a McDonalds Burger !) ~  or you think Bank of India which dropped from a seductive  PBV 0.5 a year ago to an even more seductive PBV 0.2 now will  drop into a PBV of 0.1 ! ?

One last thought ~ Any Connection between Reliance Industries & the PSU Banks Dangerous NPA Levels ! ?  

Cheers !

 

9 thoughts on “Tumbling Top 10 PSU Banks ~ Govt & MOF & RBI & Banks all to Blame

  1. Nice article , I think sir this is the reason for nifty underperforming and it will keep till clarity emerges no sorry till RIL not wake up .
    One more interesting part is a rally should always be lead by something this time may be Infosys but personally not enough to keep market at higher levels .
    So RIL jab Tak Sota rahega , nifty Tab Tak nahi jagega.

    1. Hey Ankit did you know that the rally from Sensex 8000 to 21000 post Lehman from 2008/9 to 2010 happened without Reliance Ind Participation ! In fact Reliance went down in this period ! This broke the Myth that unless the weighted Reliance Moves up the Sensex will not! Reliance,for all the daily noise it makes has been sleeping for over 6 years now on the bourses !

  2. Dear sir, I read somewhere that Reliance ADAG group loans at 1.25 Lak crores . PSU’s must have major chunk in this 1.25 Lak Crores. But what Govt RBI and all others are doing to take back this money . There are other corporate as well like Jindal ,Jp Group , GMR ..who have huge loans.

    1. Yes Naman,

      Rs 120951 crs was the Aggregate Consolidated Long & Short Term Debt of Anil Ambani’s Reliance Five Listed Group Companies as on September 30,2015

      Reliance Power ~ Rs 31428 crs
      Reliance Infrastructure ~ Rs 24645 crs
      Reliance Capital ~ Rs 22730 crs
      Reliance Communication ~ Rs 35254 crs
      Pipavav Defence (Standalone) ~ Rs 6884 crs

      Pipavav has come into his fold now and a turnaround is expected after CDR was approved ~ RCom is planning to reduce Debt substantially by selling Assets like it’s Tower Business.It also is being supported by Big Brother Mukesh Ambani’s tie ups for Jio Roll outs etc ~ RPower has just declared and paid it’s maiden interim dividend of 10% in December 2015 but continues to struggle to commission Samalkot Power Plant on non availability of Gas ~ Rinfra & RCap are the relatively stabler companies

      As long as his companies keeps servicing debt the Banks who have lend will not have to classify the Loans as NPAs….In fact with Anil Ambani planning huge Defence Sector Investments and Growth in his other Companies the aggregate Debt may increase even after Asset Sell offs

      Problem is that Anil Ambani has not been enjoying good Investor Credibility after wealth destruction in RCom & RPower & involvement of top management in the 2G Telecom Scam…time for Resurrection?

  3. I feel even Courts are partly responsible for mess in banking ,as it takes generations to get verdict in banks favour even if they got favourable verdict, actual recovery is hardly covering lawyers expenses.Supreme court should ask it self about these, instead of asking banks to give them list of defaulters .It become fashionable for courts to project them self as hero here.Root problem lies in 1969 when nationalisation of banks was done .There is no accountability anywhere.

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