Long after the subprime crisis in the
USA had passed into the public's short term memory as a blip although it merely happened just eight years ago,Indian Public Sector Banks have brought out a
lot of skeletons from the closet.
Overall banking earnings down 98%
Seven Public Sector Banks slipped into
the red.during the quarter.
Punjab National Bank(PNB) set a record
for the highest quarterly loss ever in Indian banking history.
Syndicate Bank wrote off Rs 8 billion
due to a four year fraud.The Bank's Chairman and former director were
arrested in a cash-for-loans scam in 2014.
Having myself worked in IDBI Bank,I
have seen the restrictive practises,Government intervention,lack of
autonomy and political leanings that do not allow the average manager
on the ground to utilise his or her talent or even policies that
work.When coupled with an unscientific merger between the lending
institution – IDBI,its obvious that the organisation could not find
direction and focus on its strengths.
Almost all PSU banks face militant
trade unionism,lack of low cost deposits,exposure to high risk
corporate lending or farm lending leading to lower margins than their
private sector competitors.
They have also been used as the
Government's very own “piggy”bank and dispenser of favours to
businessmen of all hues.
The Vijay Mallya fiasco is but a small
saga compared to the mountains of debt of some other corporate
houses.Truly its the small guy/businessman/individual who faces
scrutiny and remains cut off from credit where the businessman with
political connections can scim of billions even with failing
businesses(as seen in the Kingfisher airlines case).
So who amoungst the PSU banks will
survive this crisis?
At this point the only survivor looks
like State Bank of India.Merging its associates is the first
step.Making it technology driven with more professional managers in
the middle management would allow it to benefit from its strong and
large customer base.
Although it does offer other financial
services,none of the divisions have toplines large enough to
matter.Nor has it successfully pushed the digital wallets or even
e-banking till date.
Raghuram Rajan and the RBI has been
commendable in forcing these PSU banks to provision for the NPAs but
a lot more needs to be done and at least four to six quarters before
anything could be said with certainty.
Do not be fooled by cheap valuations
and cheaper stock prices.Most of these banks are trading below book
value(BV).The key question is not why they are below book value.
The key question is 'WHAT IS THE ACTUAL
BOOK VALUE'.
So everytime your broker recommends you
to invest in them,this is what you should ask them!
