Poor Losing PSU Banks: Way Forward

In my one of the post shared on 6th November, 2015 , I had expressed my views about the banking industry registering huge losses in the coming months. This has been proved right currently when almost all the banks including big banks like SBI, PNB , BOB etc. are reporting huge losses in the third quarter of the current financial year. Bigger the Bank, higher the loss.  In my view all the Public sector banks taken together will report loss of around Rs. 25000 crores in this quarter. Real picture will be cleared by the end of current financial year after closing of the books.

Although this is not a new development to the people connecting to Indian finance world that the banks were reeling under huge losses, what is really commendable is the steps taken by the new Government led by Mr. Modi and RBI Governor to clean up the books of the banks and bring them to the reality. The banks may have to bear further hits in coming some more quarters. It is always good to have clean books showing real picture, what is unfortunate is the way this was pulled on for such a long time.

Ultimately PSU banks will be adversely affected and so their capabilities too. A lot has been said about the reasons for this situation but to move forward, the GOI should take drastic painful steps which can not only help them in reviving but also ensure that no such repetition happens in at least near future.

In my view there is no need to get panic but the need of the hour is to take 360 degree view of the situation. The banks will blame the errant borrowers , poor economic situation and everybody else except themselves this situation. They will continue to remain holy cow cursing the borrowers, politicians etc. There is need of honest introspection too as the bankers are equally responsible for this situation. I don’t mean that borrowers are not responsible. I would like to share my views in regard to the future corrective action plan :

1.   GOI should not infuse a single penny anymore as this will further drain out. The problem is not in economy or borrower or banker to some extent, it is more with the appraisal system, knowledge built up and attitude of the bankers;

      2. Bankers have to get themselves well equipped in appraisal of loans, shed their highest level of  EGO and ready to listen the others;

      3.  Till they are well equipped, accountability fixed and customer friendly, lending should be fully controlled;

      4. Banks are in business of lending and accepting deposits but they are asset heavy carrying huge assets on their shoulders which may be disposed off so that the liquidity is retained;     

       5. Loss  making banks may be re-privatised again as this is the harsh truth that lending is not the baby of bureaucrats too;

6      6.  Private players shall not be given any assets of the bank as these have been created by hard earned public money but the business of lending may be definitely outsourced;  

       7.  Banks should gradually exit from the direct lending  as this has caused huge holes in the pocket.

More views in next post.