Wednesday, December 3, 2014

Modi's PSB Banks go Bankrupt

Centre invites suggestions from public to help improve banks’ performance

Our Bureau

People can give their views on, says FinMin
With bad debts rising and profit margins depleting, the Centre will use crowd sourcing to help improve the performance of public sector banks (PSBs). There are total of 27 public sector banks, including five associate banks of State Bank of India.
“Suggestions from the general public as to how to improve performance of public sector banks on various parameters are invited by Department of Financial Services, Ministry of Finance, Government of India,” a Government statement said. Suggestions can be given on
In order to assist the public in suggestion-making, the Centre has uploaded comparative data on various parameters of public and private banks. “It can be observed that there is a huge scope for improvement of public sector banks in all parameters, especially efficiency parameters,” the Government said. The data is for 2013-14. However, much of the updated data (up to September 30 in the current fiscal year) on the same subject was given to the Lok Sabha in response to a question on November 28. Minister of State for Finance Jayant Sinha said it had been observed from the data that public sector banks lagged private ones on asset quality and profitability parameters.
Bad debts
The issue of bad debts (non-performing assets or NPAs) had figured prominently during a review meeting taken by Finance Minister Arun Jaitley last month. After the meeting, a senior Finance Ministry official had termed NPAs as a ‘legacy’ issue and claimed that things would change now.
“It has happened because of a number of reasons. For two-three years, no good projects were coming. So, when total asset size does not increase, naturally your percentage of NPA will go up. These are all legacy issues. Now when the economy looks up, when new portfolio is generated by banks, these percentages will start coming down,” he said.
The Centre has already initiated some measures, such as changing the appointment process of chairman and managing director and executive director in public sector banks. It is also planning to separate the post of chairman and managing director.
At the same time, the Finance Ministry also told the Lok Sabha that it is considering reducing its stake in public sector banks to 52 per cent. Currently, regulation prescribes a minimum of 51 per cent government shareholding in public sector banks, however informally it has been kept at 58 per cent.
(This article was published on December 1, 2014) 
Mindful and intelligent technology is the solution. Despite huge investments in technology, the using of this for loan monitoring, reduction of overheads and business intelligence is almost not attempted by the Government banks . Self-serving managerial staff and rickety command structructure with loud Unions and waiver-conditioned custonmers are at the rootvof the problems, and NOT systems and procedures. Govt shd appoint chairman by open invitation and talent evaluation rather than by coterie approach and fire the incompetent just as they are done in the corporate world!Get the best technology solutions NOT THROUGH THE FARCIAL OLIGOPOLY CREATING TENDERING which always results in giving the tech, consulting and risk tenders to the big fisgh ignoring the meritorious ostensibly through transperent tendering with hifgh eligibility criteria. Will any one bother ? Professor Satchidananda, former central banker and Director , Chidambara Research

 S N  
If government is sincere about identifying the reasons about the deteriorating health of Public sector banks, first of all they should look into the functioning of the first generation private sector banks and try to find out the reasons for the far better performance , they are showing better performance that too not on off and on basis but consistently. one example why the HDFC bank is showing a NIM(net interest margin) well above 4% consistently? Once the exercise for identifying the reasons is completed they will come to know why public sector are not performing. At the moment public sector banks are under the total control of the government and CMDs and EDs are playing to their tune. Reduction of shareholding to 52% will not serve the purpose. But if it is 49, difference will be definite and categorical. Present government, if has the will power, can do it as they have absolute majority in the parliament . There is no standard solution or package which could applied in this case

 yash pal  
But government has not given comparative chart of wages (pay slip) of banks, central government employees and pvt sector banks. there is vast difference in wages of even PSBs and pay commission beneficiaries. Pay commission beneficiaries basic pay grade pay is higher than banks, banks officers are getting housing rent allowance as 8.5% whereas pay commission beneficiaries are getting 30% as HRA. Such data is also required for making comparison.

 M Govinda  
To make things easier and analysis quicker, the group entrusted with the work of follow up on ‘improving services of PSBs’ may get hold of a copy of the print version of RBI Governor’s Anand speech on November 25, 2014 and also start perusing articles/reports in the media on: • Net Interest Margins • HR issues in PSBs • Unclaimed deposits • ATM services The list is illustrative. Websites of Hindu Business Line, Business Standard, and similar sites will also give enough information to make a beginning. M G Warrier, Mumbai
Source: Business Line Journal of Emerging Trends in Economics and Management Sciences
(JETEMS) 4 (6): 547-553(ISSN: 2141-7016) 547
Basel III Implementation:
Readiness of Public Sector Banks in India
Anita Mirchandani, and Swati Rathore
AMITY University, Dubai.
Corresponding Author:
Anita Mirchandani

Basel III is a new regulatory framework recommended by Basel Committee on Banking Supervision in order to strengthen capital & liquidity structure of International Banking System. This framework aims to promote
stronger liquidity buffers in the banking sector in order to improve its ability to absorb shocks arising from
financial and economic stresses. Under Basel III the total capital a bank is required to hold is 8.0
% of its risk-weighted assets. Total capital is divided into two broad categories: Tier I capital which is available to absorb losses on a "going-concern" basis and Tier II Capital, "gone concern" capital that absorbs losses in insolvency prior to depositors losing any money. The implementation of Basel III norms will have significant impact on profitability and lending capabilities of the banks particularly across few industries such as construction, project financing, shipping etc. This study is an effort to explore capital adequacy framework of Indian Public Sector Banks to a nalyze their readiness to comply with the regulations of Basel III. It will offer an insight into the measures taken by various PSBs to meet the capital adequacy requirements of Basel III.

The New Regulatory Framework Basel III is a continuation of Basel I and Basel II initiatives of the
Basel Committee on Banking Supervision (BCBS). The BCBS proposed the Basel III framework as a
response to the financial crisis that hit the G8 capital markets recently. The framework targets to strengthen global capital and liquidity regulation in order to inculcate prudent practices in capital markets and foster a strong international financial system.
Basel III reforms work on two tiers, the bank level and macro prudential level. The former aims to help
in raising the resilience of individual banking institutions to periods of stress, while the later addresses wider risks that can be built up across the entire banking system and the whole economy.
Key elements of this framework require financial institutions to strengthen the capital requirements for
counterparty credit risk exposures.
Provisions of Basel III Under Basel III the total capital a bank is required to hold is 8.0% of its risk
-weighted assets. Total capital is divided into two broad categories: Tier I capital and Tier II capital. Broadly speaking, Tier I capital is capital that is available to absorb losses on a "going-concern" basis, or capital that can be depleted without placing the bank into insolvency, administration or liquidation. Tier II capital is capital that can absorb losses on a "gone-concern" basis, or capital that absorbs losses in insolvency prior to depositors losing any money.
Tier I capital is comprised of both Common Equity Tier I capital and Additional Tier I capital. Common
Equity Tier I capital is the purest form of capital and includes common shares and retained earnings. The
required ratio of Common Equity Tier 1 capital to risk-weighted assets will go up from 2% to 4.5%
under Basel III. This percentage will also be more difficult to meet as Basel III has introduced stricter
regulatory adjustments. These new capital requirements will be progressively phased in between
1 January 2013 and 1 January 2015.
Additional Tier I capital mainly consists of instruments issued by the bank which are able to meet specific criteria (and are not included in Common Equity Tier I capital). Basel III has introduced stricter criteria for determining what constitutes Additional Tier I capital in order to ensure these instruments a bsorb losses of a bank on a going-concern basis.
Basel III has also introduced a capital conservation buffer which requires an additional 2.5% of Common
Equity Tier I capital to be held over and above the absolute minimum requirements. This buffer is intended to be available to be deployed during periods of stress. If the buffer falls below 2.5%, constraints on a bank's ability to distribute earnings will be progressively applied on a sliding scale. The regulator has been given
authority to determine the Journal of
Emerging Tre
nds in
Economics and Management Sciences
(ISSN: 2141
level of the buffer according to its perception of the
systemic risk that has built up in the banking system
as a result of excess credit growth.
A separate counter
cyclical buffer has also been
roduced to ensure that the banking sector's capital
requirements take account of the macro
environment in which banks operate. This buffer will
range between 0 to 2.5% of a bank's risk
assets and will be determined by the relevant
or in each jurisdiction.
The Basel Committee has also introduced a new non
weighted leverage ratio to prevent banks
up excessive on
and off
balance sheet
leverage. The Basel Committee is currently testing a
minimum Tier I le
verage ratio of 3% of bank
exposure, which generally follows the accounting
measure of exposure.
Under Basel II, Tier II Capital was divided into upper
and lower tiers of capital. Upper Tier II Capital
consisted of permanent cumulative pre
ference shares
and other undated instruments with a cumulative
feature. Lower Tier II Capital consisted of
instruments that were dated and subordinated. Under
the Basel III Framework, however, Tier II Capital, or
as the Basel Committee refers to it, "gone
capital, has been simplified. Under the Basel III
Framework, there are no sub
categories of Tier II
Capital (
, the distinction between upper Tier II and
lower Tier II capital has been eliminated).
Under Basel II, short
term s
ubordinated debt (
debt with a minimum maturity of two years) could be
recognized as Tier 3 Capital. Under the Basel III
Framework, however, Tier 3 Capital has been
abolished. The justification cited by the Basel
Committee for this decision is to ensu
re that capital
used to meet market risk requirements will be of the
same quality as capital used to meet credit and
operational risk requirements.

To enumerate the key proposals of Basel III and
likely impact of these proposals on
performance of PSBs in India.

To assess the readiness of Public sector banks
in India for Implementation of BASEL


To identify changes brought in BASEL III vis
vis BASEL II and to assess the impact of
improved capital requirement as envisaged
BASEL III on the growth of business of the
sample banks.
This research is conducted to analyse :

Whether Public Sector Banks in India have
taken adequate measure to implement capital
adequacy norms of Basel III.

What may be t
he likely impact of
implementation of Basel III on bank capital
in light of their existing NPA level in PSBs.
Barrell et al. (2009), Kato et al. (2010) and Wong et
al. (2010) adopt reduced
from probit models for a
panel of countries over
a period of years. The
probability of a crisis occurring is based on the
statistical relationship between the incidence of crisis
episodes and aggregate data on bank capital and
liquidity, as well as other variables that serve as
Comparing with
Barrell et al. (2009), Kato et al.
(2010) used a general
specific approach to choose
the preferred specification by considering the
substitutability between Japanese banks' capital and
Tarashev and Zhu (2008) used a standard portfolio
t risk model to estimate links between capital
and the probability of bank default, which is treated
as a signal for a systemic banking crisis. They
interpret the banking system as a portfolio of banks
and estimate the loss distribution arising from bank
efaults. They concluded that bank failures are
correlated and the correlations can be estimated from
market information.
Gauthier et al. (2010) described a stress testing model
to generate loss distributions under severe but
plausible scenarios. This meth
odology assumes losses
arise from systemic spillover effects, either from
party exposures in the interbank markets or
from asset fire sales that affect the mark
value of banks' portfolios.
Meanwhile, Miles et al. (2011) interpreted an
sumed probability distribution for changes in
annual GDP to calculate the probability of a banking
crisis occurring in any given year for different levels
of bank capital. They generate distributions of GDP
with added stressed shocks by using calibrated
rameters and determined Probability of Banking
This research is carried out to investigate the
probable impact of implementation of Basel III on
Public Sector Banks in India. This study is based on
secondary data that have bee
n collected from the

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