Losses posted by Public sector banks have ballooned to Rs 87300 crores in FY18 (2017-18).
This amount is over six times the loss accumulated by Punjab National Bank in the LoU-scam allegedly masterminded by hi-profile diamantaire Nirav Modi and his uncle Mehul Choksi.
According to estimates, the Nirav Modi scam itself is estimated to cause a loss of Rs 14,000 crores on the books of the state-run PNB.
Bad loans have hit almost all the major PSU banks, except for Indian Bank and Vijaya Bank.
According to a PTI report, net profit in the previous fiscal year stood at Rs 473.72 crores, but there have been losses for FY18. Net losses have been pegged at Rs 87,357 crores from 19 government-run state banks.
Punjab National Bank topped the charts of the most bleeding PSU bank, posting a loss of Rs 12,282.22 crore during FY18. IDBI bank, during the same period, posted losses of Rs 8237.93 crores (losses of Rs 5158.14 crores in FY17).
SBI was third best in the losses department with a net loss of Rs 6547.45 crores. The bank had posted a net profit of Rs 10484.1 crores for its year ending March 2017.
Such losses have been forcing the government and law agencies to ascertain whereabouts of profits in Indian state-run banks, even as they are busy ascertaining the whereabouts of Nirav Modi. There have been speculative reports of Modi allegedly hiding in in Hong Kong, USA, and even London.
Losses have piled on from the last fiscal year, and continued unto the fourth year of the current BJP led central government. So far remedial measures such as demonetisation that was aimed at curbing corruption and black-money, a grand PSU-bank recapitalisation worth Rs 88,000 crores, and the launch of an Insolvency and Bankruptcy code as a legal framework to deal with bankrupt companies have met with no change of the on-ground situation.
Bad-loans have been a stress on the government exchequer and it impedes the flow of reforms. Minister of State for Finance Shiv Pratap Shukla said in a written reply in Lok Sabha during March that by December 2017, the gross non-performing assets (NPAs) of banks in the country amounted to Rs 8.40 lakh crores.
The rising bad loans also prompted the Reserve Bank of India to swoop into action. It has so far categorized 11 out of the total 21 PSU banks into a prompt corrective action (PCA) plan.
The interim finance minister Piyush Goyal also announced setting a committee headed by Sunil Mehta, the non-executive Chairman of Punjab National Bank, as part of a reform recently. This committee is expected in two weeks to share inputs towards the formation of an Asset reconstruction company for speedier resolution of stressed assets.
There were also speculations of a merger between four PSU banks to stem bad loans. There were reports that the Department of Financial Services may be merging IDBI Bank, Bank of Baroda, Oriental Bank of Commerce and the Central Bank of India. The resulting entity could emerge as the second largest PSU bank with combined assets of Rs 16.58 trillion. Also, these four banks reported of losses for the year ending March 31 2018, at a collective Rs 21646.38 crore.
In terms of asset-value losses or Non performing assets, the State Bank of India reported the highest NPAs of Rs 2.01 lakh crores. Others from the public sector included Punjab National Bank at Rs 55,200 crore, IDBI Bank at Rs 44,542 crore, Bank of India at Rs 43,474 crore, Bank of Baroda at Rs 41,649 crore, Union Bank of India at Rs 38,047 crore and Canara Bank at Rs 37,794 crore. ICICI Bank, among the private sector lenders had gross NPAs amounting to Rs 33,849 crore.
Bad loans have not only caused a worry for the bank management, the regulator and the government, but it has also worried retail share market investors. The volatility owing to bad loans has been a big dampener to the PSU banking stocks. The Nifty PSU Bank index is down by 12.85% in the past one year. The value of stocks such as IDBI (down by 9.99%), Bank of Baroda (down by 7.07%), Oriental Bank (down by 4.24%) and Syndicate Bank (down by 2.56%) in the past one year reflects a long-term negative growth.
Here is a chart showing the turnover, and change in past 30 days and 365 days of the stocks on the Nifty PSU bank index.