DIVERGENCE IN BAD LOANS – HUGE DEFICIT OF TRUST

about 2 years ago
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By Ruma Dubey

There was a time when we walked into a private sector bank, we felt like royalty, as though the bank was grateful we had opted to open an account with them. Customer service was taken seriously and customers were actually respected. This was a far cry from what was meted out to us at PSU banks.

Today, there is a complete turnaround in the scenario. You walk into a private sector bank, there is an atmosphere of chaos first. The customer is treated shabbily and the overall attitude is that of “greater than thou.”  A new cheque books takes anywhere between a week to ten days to get delivered but in PSU banks, it is given then and there. The private sector banks can be very good when it comes to online banking but a visit to the bank most certainly leaves a very bitter taste in the mouth.

Just as these thoughts of how PSU banks are a better bet today come to mind, the same gets reiterated when we saw the earnings of Yes Bank today and prior to that, of Axis Bank. ICICI Bank is to declare its numbers today and an air of caution surrounds expectations.

But more than the earnings, for the first time ever, there is deep breach of faith and trust. And that is more serious of a problem. Yes Bank especially is literally on the edge of a precipice, more so after its performance declared yesterday.

Yes Bank showed an improvement in net profit but the most crucial aspect – asset quality, deteriorated. The Bank reported a sharp jump in bad loans or NPAs mainly on account of its adjustment – there was a sharp divergence in FY17 between what the RBI had classified as NPAs and what the Bank had tagged as bad loans. It had closed FY17 with a Gross NPA at Rs.2018 crore which the RBI had pegged this figure at Rs.8374 crore.  This divergence of Rs.6355 crore and since then been adjusted – 47% was upgraded in H1FY18, 27% was repaid, 19% was classified as NPA in Q2FY18 and balance 7% was sold to ARCs.

Consequently, in current Q2FY18, on a sequential basis, Gross NPA rose to 1.82% from 0.97% and Net NPA rose much sharply from 0.39% to 1.04%. Provisions rose to Rs.1177 crore from Rs.819 crore. Total slippages were at Rs.1989 crore. Provision coverage fell from 60% to 43.3%.

Following this, most global brokerages have turned cautious and almost everyone, in unison thinks that there is a deficit of trust and they have downgraded the stock, cutting the target price too.

This is not the first time that Yes Bank is the eye of a storm, raising serious ethical questions. In 2016, it abruptly withdrew its Qualified Institutional Placement (QIP). It took umbrage under the lack of clarity in SEBI rules which stipulated keeping the QIP open for three days. SEBI had also stepped in and it investigated the stock - the planned equity placement, the surge in the Yes Bank scrip in the run-up to the issue date and its intra-day fall before the announcement to call off the issue. SEBI also questioned the Bank as to why there was no pre-intimation to stock exchanges that there would be a board meeting.

This QIP blotch-up had tarnished the bank’s name and this divergence has truly cast a pall. If PSU banks could declare their bad loans, without “window dressing” their numbers, why do private sector banks have to resort to such tricks? We understand there could be divergences but so much, of over Rs.6000 crore?

Yes Bank got away with Rs.6 crore penalty but the question is – is that enough? When Govt banks are declaring minor divergences how can Yes Bank and the others do this?  Axis, ICICI and IndusInd, along with Yes, have reported huge divergences and there is no doubt, this is huge hit to their credibility. Huge penalties are in no way a deterrent to these private banks.

Private sector banks do need to get their act together; trust once broken cannot be repaired and we hope that the banks glue back this breach – the crack though will always remain as a reminder.

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