Banking News. For a greener planet, please don't print this unless necessary. Estd FEBRUARY, 2016

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1 Banking News Estd FEBRUARY, 2016 NEWS BULLETIN from ALL INDIA BANK EMPLOYEES ASSOCIATION For a greener planet, please don't print this unless necessary THE HINDU 12 FEB 2016

2 Q-3 RESULTS OF BANKS BANK BANK OF INDIA INDIAN OVRSEAS BANK CENTRAL BANK OF INDIA STATE BANK OF PATIALA DENA BANK ALLAHABAD BANK ORIENTAL BANK OF COMMERCE SYNDICATE BANK NET PROFIT/ NET LOSS FOR Q crores Loss 1425 cr Loss 837 crores Loss 690 crores Loss 662 crores Loss 486 crores Loss 425 crores Loss 119 crores Loss STATE BANK OF INDIA STATE BANK OF HYDERABAD UNION BANK OF INDIA PUNJAB & SIND BANK PUNJAB NATIONAL BANK INDIAN BANK VIJAYA BANK UNITED BANK OF INDIA 1115 crores Profit 185 crores profit 78 crores Profit 70 crores profit 51 crores Profit 42 crores Profit 53 crores Profit 17 crores profit

3 Write-offs a scam, small loans rarely in it, says former RBI Deputy Governor George Mathew and Khushboo Narayan INDIAN EXPRESS February 11, 2016 According to a former government official, some banks write off accounts to sell them to asset reconstruction companies (ARCs) at lower prices and make easy money out of it. (Reuters) Former Reserve Bank Deputy Governor Dr K C Chakrabarty says technical write-offs by banks is a scam and should be stopped. Technical write-offs by Indian banks are inequitable and should be stopped. It is a big scam. Small loans are rarely written off, most of them are big loans, London-based Chakrabarty, who handled the supervision department of the RBI from 2009 to 2014, told The Indian Express. Public sector banks have written off Rs 1,14,000 crore in the last three years, as reported in The Indian Express on February 8, based on a response by the Reserve Bank of India to an RTI application. Banks are planning to write off more bad loans in the current year, and this could be Rs 52,227 crore, similar to the quantum written off in There s a reason for the eagerness on the part of banks to write off loans though a loan is technically the bank s asset. It benefits banks in terms of tax liability, M Narendra, former chairman and MD of Indian Overseas Bank, said. The other benefit is that the bad loan no longer stays in the bank s books. The write-off instruction comes from the head office. Technical or prudential write-off is the amount of non-performing loans which are outstanding in the books of the branches, but have been written off (fully or partially) at the head office level. Amount of technical write-off should be certified by statutory auditors, says the RBI s master circular on income recognition and asset classification. Banks should either make full provision as per the guidelines or write off such advances and claim such tax benefits as are applicable, by evolving appropriate methodology in consultation with their auditors/tax consultants.

4 Recoveries made in such accounts should be offered for tax purposes as per rules, the RBI says. Narendra said, Write-off happens when a loan becomes non-recoverable or dead asset. It s done after making 100 per cent provisioning. The bank continues its recovery measures even after the write-off. Non-performing assets (NPAs) reflect poorly on the bank and they are eager to write it off or remove it from the balance sheet and reduce the tax liability. According to a former government official, some banks write off accounts to sell them to asset reconstruction companies (ARCs) at lower prices and make easy money out of it. Banks don t want to take on the tedious recovery process. Selling the assets to ARCs is a quick-fix solution for banks. In some cases, bank officials cut sweet deals with the promoter of defaulting companies to write off loans, the official said. There s lack of vision to manage the NPA accounts among bank managements. There s also lack of direction on the part of the Reserve Bank. What s happening in PSU banks doesn t get noticed. The attitude of borrowers is also changing on the issue of repayment. Many of them inflate the cost of the project. Valuers empanelled with the banks also go by that valuation, Ramnath Pradeep, former chairman and MD of Corporation Bank, said. I have seen some of the banks in a consortium writing off loans while others don t do it. There s no uniformity in their approach. If it is the head office of a bank that approves write-offs, loans are sanctioned by a credit approval committee comprising the chairman, executive directors and the general managers of a bank. This mechanism was put in place through a 2012 directive by the Finance Ministry. These committees can approve credit proposals up to Rs 400 crore in the case of Category A banks and Rs 250 crore in the case of other PSU banks. If the loan proposal is above this limit, it has to be vetted by the board committee. Often, the board clears the proposal put across by the management without much discussion. Small PSU banks blindly follow the decisions of bigger banks without going for any due diligence on their own, a government source said. Boards of public sector banks have senior officials from the government as well as the RBI on their boards. The irony of NPAs of PSU banks is that they have happened right under the nose of RBI officers who are on the boards of

5 PSU banks. Thus, in a way the RBI becomes directly responsible for the banks decisions on credits that became NPAs, K K Srinivasan, former Member (Life) of the Insurance Regulatory Development Authority of India, said. For instance, Financial Services Secretary Anjuly Chib Duggal and Reserve Bank Deputy Governor Dr Urjit R Patel are on the SBI board. Rajesh Aggarwal, Joint Secretary in the Department of Financial Services, is a Director on the board ofpunjab National Bank. B P Kanungo, who was Regional Director of the RBI in Kolkata, is also on the board of PNB. In Bank of India, Anna Roy, Joint Secretary in the Department of Financial Services, is the government nominee while S S Barik, Regional Director of RBI, North Eastern States, is the RBI nominee on the board. Alok Pande, Director in the Department of Financial Services, and Nirmal Chand, Regional Director of RBI, Thiruvananthapuram, are on the board of Indian Overseas Bank. A regulator should not be a part of the apex business decision-making body (board of directors) of regulated entities. This position needs to be rectified if the RBI is to be absolved of the responsibility of NPAs of PSU banks, Srinivasan said. This will require the RBI to withdraw its nominees from 27 PSU bank boards. Bad loans push three govt banks into red New Delhi: Three state-run lenders Central Bank of India, Dena Bank and Allahabad Bank reported massive losses on Tuesday, while Punjab National Bank narrowly missed slipping into the red as the growing pile of stressed loans took a toll on their health, raising concerns over the precarious state of the financial sector. "The surgery is not over... Something which has to be cleaned up has to be cleaned up. Everybody has to undergo the pain," PNB managing director & CEO Usha Ananthasubramanian said. The trends available from the December-end quarter results, announced on Tuesday, and ICICI Bank's performance pointed towards tough times for other lenders as well following the Reserve Bank of India's bad loan clean-up drive.

6 Analysts expect bank profitability to remain under stress for at least one more quarter as RBI has given lenders two quarters to provide adequately for loans that are under pressure. Many steel and infrastructure companies are on the list where banks have had to keep aside more more funds, known as provisioning, to stay within the regulator's red line. The health of the banking sector has been in doubt as bad loans soared following the impact of economic slowdown, which dented the books of companies after borrowed excessively during the boom years to fund projects, some of which never took off. As a result the volume of stressed assets was estimated at around Rs 8 lakh crore. Unlike the past when banks could hide defaults, new rules mandate that banks set aside funds for potential losses to avoid ballooning of risk when loans actually turn into a non-performing asset (NPA). A loan is classified as an NPA if an instalment remain unpaid for 90 days. This time, RBI's diktat following an asset quality review, has gone beyond what banks classify as NPAs to include loans that were sticky. As a result, at the end of December 2015, the strict norms pushed up PNB, Central Bank and Dena Bank stock of gross NPAs by at least 49% over the year ago level.

7 For Dena Bank, nearly a tenth of its advances have turned NPAs, while the ratio of gross NPA to advances for PNB was only marginally lower at 8.5% of their total loans levels which have not been seen in nearly 15 years when a massive systemic overhaul was undertaken, including legal changes. Powered by a surging economy gross NPAs of commercial banks had declined from over 12% in to a little under 2.5% in But loans started coming under stress after the 2008 financial crisis but RBI and the government sought to protect banks through a set of special measures. The sustained slowdown, however, pushed RBI to finally crack the whip late last year as the ratio of NPAs and restructured loans where instalments were being paid on time added up to nearly 11% of advances for the public sector banks at the end of December 2014 and has been steadily rising. While banks were expected to put up a poor show, the performance was much worse than anticipated and saw stocks tumble. Dena Bank closed over 12% lower on BSE, while PNB fell almost 7% and Allahabad Bank over 3%. NPA provisioning drowns banks' profits BS Reporter Mumbai February 12, 2016 A steep rise in provisions for bad loans has made a heavy dent in the bottom-line of banks. While State Bank of India (SBI), Union Bank and Indian Bank reported large fall in their profit for the quarter ended December 2015 (Q3), Bank of India (BoI) and Oriental Bank of Commerce booked losses. For BoI, this is the second-loss making quarter in a row. Only Jammu & Kashmir Bank posted a 12.5 per cent rise in net profit.

8 Bankers and analysts said along with provisions for non-performing loans (NPAs), reversal of part of interest income on NPAs and income forgone because of base rate cut also hit the profitability. SBI's net profit declined by per cent, from Rs 2,910 crore in Q3 of FY15 to Rs 1,115 crore in FY16. Arundhati Bhattacharya, its chairman, said the bank had recognised the provisioning impact in line with Reserve Bank of India's Asset Quality Review according to the agreed time-frame. The slippages into the NPA category were around Rs 20,000 crore in Q3. It is the highest-ever amount reported as slippage in one quarter. "Slippages in the fourth quarter of FY16 are expected to be of a similar order. Actual numbers would depend on the quality of restructuring underway for some accounts," Bhattacharya said. SBI's net interest income (NII) declined by 1.24 per cent from Rs 13,777 crore in Q3 of FY15 to Rs 13,606 crore in Q3 of FY16, primarily because of the reduction of 70 basis points in base rate.

9 Its non-interest income comprising gains from treasury and fees increased by per cent from Rs 5,238 crore in Q3 of FY15 to Rs 6,178 crore in Q3 of FY16. SBI's capital adequacy was per cent at the end of December Its share closed three per cent down at Rs 154 per share on the BSE. Bank of India has posted net loss for the December 2015 quarter of Rs 1,506 crore as compared to a net profit of Rs 173 crore for Q3 of FY15. Total provisions (other than taxes) increased from Rs 3,238 crore to Rs 3,604 crore, on sequential quarter basis. The bank had posted net loss in Q2 of Rs 1,126 crore. This was before the Reserve Bank of India's fiat to recognise weak loans early and provide for them sooner. The net interest income for Q3 of FY16 declined to Rs 2,605 crore from Rs 2,780 crore of Q3 of FY15. The capital adequacy of was per cent with Tier-I of 7.88 per cent at end of December BoI stock was down six per cent at Rs 85 per share on BSE. Another Mumbai-based Union Bank of India posted 74.2 per cent drop in net profit at Rs 78 crore as against Rs 302 crore in Q3 of FY15 on fall in net interest income and rise in provisions for bad loans. The net interest income dipped by 5.8 per cent to Rs 1, 997 crore from Rs 2,120 crore a year ago. Its non interest income showed just 1.5 per cent growth of Rs 892 crore. Showing effect of the RBI's directive for accelerated recognition of bad loans, the gross NPAs rose to 7.05 per cent (Rs 18,485 crore) in December 2015 from 5.08 per cent (Rs 12, 596 crore) a year ago. Over 50 per cent of slippages were on account of RBI's fiat, it chairman and managing director Arun Tiwari said. The capital adequacy ratio was 10.3 per cent with Tier-I of 7.7 per cent. The bank has permission to raise equity capital of over Rs 2,000 crore. Its stock was down by three per cent to Rs 118. Delhi-based Oriental Bank of Commerce reported a net loss of Rs crore as against net profit of Rs crore in the same quarter of the

10 previous year. The burden of NPAs grew on account of fresh bad debts, led by the steel sector and higher provisioning for non-performing assets for them during the quarter. Its stock closed 11 per cent down at 85 per share. Chennai-based state lender Indian Bank posted a net profit of Rs 42.3 crore, down from Rs crore for the quarter ended December 31, Its share was down six per cent to Rs 80. Srinagar-based Jammu & Kashmir Bank posted 12.5 per cent rise in net profit for Q3 at Rs crore as against Rs crore in Q3 of FY15. Its share closed flat at Rs 69 per share. AIBEA This day 10 th FEBRUARY Supreme court strikes down Banking Companies Acquisition Act. Xth Conference of WFTU at Havana. Com. T Chakraborti Participates Country wide demonstrations 7 th Bipartite Demands. AIBEA This day 11 th FEBRUARY Hindustan Standard, Calcutta Correspondent reports on humiliation, horrible service conditions of bank employees in Calcutta. Protest demonstration against PNB Management on unfair large-scale transfers of New Bank of India employees Successful conclusion of 50 days strike in Federal bank 2006 AIBEA delegation visit to Srilanka- Com. V K Sharma, Gourdas, Saraiya, B Vijayal & Anoop Mathoor th B P Talks at Mumbai 2010 AIBEA submits proposals on Budget to Finance Minster

11 AIBEA This day 12 th FEBRUARY 1970 Nationwide protest against Supreme Court Judgment striking down Bank Nationalisation act. ON 14 TH MARCH, 2016 ALL INDIA BANK EMPLOYEES' ASSOCIATION Central Office: PRABHAT NIVAS Singapore Plaza, 164, Linghi Chetty Street, Chennai Phone: , & Fax: , e mail ~ chv.aibea@gmail.com