"Deprived of meaningful
work, men and women lose their reason for existence; they go stark, raving
mad."
—Fyodor Dostoevsky (Russian,
1821-1881)
Word for the day
Paseo (n)
A slow, idle, or leisurely
walk or stroll.
A public place or path
designed for walking; promenade.
Malice towards none
Hakuna Matata!
First random thought this morning
Profligate print and electronic media advertisement by an
institution or person, has in many cases been a harbinger of simmering scam
underneath.
Many in their 40s would remember the plethora of celebrities
endorsing "Home Trade" two decades back. Sahara India is another
name.
These days, a small jurisdiction in Africa is bombarding India
print and electronic media coaxing Indian investors to invest there.
Do you get an eerie feeling?
What's bothering Indian markets - 4
Indian banks have been struggling with the issue of non-performing assets
(NPAs), for past few years.
A deeper study may be needed to establish the cause and effect
relationship between the bank balance sheet problem and broader economic growth
trend. Nonetheless, the NPA problem got exacerbated when the GDP growth has
seen a declining trend;
...and credit growth has remained quite subdued.
More worrisome is the fact that Personal loans, usually considered
the most vulnerable segment of bank credit has become a dominant segment in
credit growth. In December 2017, it contributed 43.3% to the incremental credit
mix.
Within personal loans, the riskiest segment Credit Card lending took the
lead, while growth in vehicle financing moderated to 9.3% YoY.
There are a multitude of reasons responsible for deterioration in
asset quality of banks. Some prominent being:
(a) Delay in execution of
large infra and industrial projects, due to protracted litigation, departmental
clearances and financial closures.
(b) Poor judgment of the
viability of the project.
(c) Economic slowdown
impacting the demand.
(d) Frauds, scams and
manipulations
(e) Global development
(dumping, change in technology etc.) rendering the projects unviable
subsequently.
In past few months, the government took a number of steps to
repair the balance sheets of public sector banks, notably, recapitalization of
banks and accelerated resolution of NPAs under the new bankruptcy law.
However, some recent events appeared to have impacted the revival
plans for banks. For example:
(a) In its bid to
accelerate the NPL clean-up, RBI has withdrawn all forms of restructuring
dispensations such as 5/25 refinance, strategic debt restructuring (SDRs), S4A
etc. The RBI has also asked banks to expedite the resolution process in
existing cases where the restructuring guidelines have been invoked; else those
cases would be referred to the bankruptcy courts.
(b) The alleged fraud that
started at PNB, has created tremendous uncertainty in the entire banking
sector. The extent and impact of the fraud is difficult to judge at this stage.
This is likely to make bank managements, regulators and auditors excessively
paranoid.
(c) Most importantly, the
rate cycle in the economy looks to have started moving higher
These events:
(a) threaten to impact
profitability of lenders;
(b) may require material
amount of further provisioning; and
(c) may lead many more
"on the edge account" into NPA category.
The markets may therefore be right in bothering about the health
of financial sector in near term.
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