PSB bad loans fell faster than RBI estimates
Last week, the government announced a first-of-its-kind EASE Reforms Index for Public Sector Banks (PSB), which showed improving performance, including a faster-than-projected decline in bad loans.
The report showed significant improvement in PSBs’ performance hinged on the government’s 4R’s strategy.
As such, stress recognition appears nearly complete with standard restructured advances as a percentage of gross advances falling from 7 per cent in March 2015 to 0.5 per cent at the end of December 2018.
Similarly, gross NPA ratio which peaked in March 2018, has declined for three successive quarters.
This was led by healthy loan recoveries to the tune of Rs 98,493 crore during the first nine months of FY19, thanks to the Insolvency and Bankruptcy Code. Recoveries grew by a staggering 103 per cent year-on-year.
PSBs balance sheets also strengthened through the infusion of Rs 3.19 lakh crore, thanks to the government and banks’ raising from capital markets.
This has helped over eight banks to exit RBI’s stringent Prompt Corrective Action (PCA) framework, while the provision coverage ratio improved from 46 per cent in FY15 to 69 per cent in December 2018.
Interestingly, fresh slippages reduced by Rs 58,000 crore during the first nine months of FY19 compared to the same period of the previous year.
The report prepared jointly by Indian Banks’ Association and BCG with Forrester Inc, measured PSBs’ performance on 140 metrics spread across 6 themes, offering a comparative evaluation of where each bank stands vis-a-vis benchmarks and peers.
The periodic updates, including bank-specific scorecards and inter-bank comparisons, allow PSBs to track progress and continue to drive change by spurring healthy competition among themselves.
According to the report, banks under PCA showed a 30 per cent improvement in responsible banking under the EASE Index and have together recovered about Rs 35,405 crore in the past nine months. On an annual basis, this translates to 72 per cent growth.
Also, the PCA banks’ corporate exposure reduced from 49 per cent as on March 2018 to 40 per cent in December 2018.
It was also found that PSBs posted strong performance over the past three quarters following the launch of EASE Reforms Agenda with the overall score increasing by 15 per cent between March and December last year.
Some key areas with strong progress across themes include responsible banking, branding, digitisation, financial inclusion and customer responsiveness. For instance, while banks’ strengthened large credit appraisals, monitoring, recovery processes and improved risk and capital management practices, they also rolled out initiatives for their staff including online learning platforms, increased measurability in appraisals, etc.
As for digitisation and financial inclusion, the corner stone of future banking, state-run lenders ensured Bank Mitras remained active, widened services, focused on improving adoption digital transactions, and improved Aadhaar-mobile seeding.
Considering retail and MSMEs will drive growth, banks reduced loan processing time in retail, focused on the revival of stressed MSMEs, drove adoption of TReDS, and deployed dedicated marketing teams and relationship managers.
Lastly, PSBs focused on improving customer satisfaction, by identifying and reducing complaints in the top five complaint categories to improve customer acceptance.
Key areas of improvement
Strong progress was recorded by state-run banks in themes like responsible banking, branding, digitisation, financial inclusion and customer responsiveness, according to the first EASE Reforms report