Banking sector this week: RBI transfers lower dividend, assures banknotes quality; SBI, Bank of Baroda posts high NPAs
RBI transfers to Government only half of dividend surplus from a year ago; Economic Survey says spending on social services in India grew while SBI and Bank of Baroda see lower net profits amid rise in NPAs
The much noisy banking sector this week saw some big announcements with RBI transferring only half of its dividend surplus to the government this year, allaying currency notes quality and security fears, government releasing the mid-year review with the Economic Survey and big banks such as State Bank of India and Bank of Baroda announcing their financial results.
Starting with RBI this week:
The Banking regulator reduced its annual dividend surplus transfer to the government by half to Rs 30659 crore from Rs 65,876 crore a year ago, upsetting the government’s fiscal math this year.
The lower dividend payout also ran counter to the widely held view that demonetisation and unreturned currency notes could lead to a windfall for the government through special dividends.
On Friday, the central bank also allayed concerns on the quality of currency notes saying its bank notes are printed with best global practices, high-security features and stringent quality control.
Announcing the Economic Survey mid-year review released on Friday, the government said spending on social services in India grew by 11.5 per cent to Rs 11,18,094 crore in 2016-17, but the country needs to strengthen social infrastructure by investing in health and education as it is emerging as a knowledge-based economy, Economic Survey said on Friday.
Additionally, chief economic adviser Arvind Subramanian dropped a loud hint on Friday that India may wind down the 150-year old practice of an April-March financial year, a move that can disrupt a string activities from accounts’ finalisation, to tax returns filing and budget presentation.
Charges waiver and Bank strike
Amid competition in banks on grabbing the retail loan pie, customers are now getting a waiver on their charges on transfer of housing, auto and personal loans to marginal cost based lending rate (MCLR) and to other banks with lower rates.
In another news, bank unions also announced their plan to go on strike on August 22 with about 10 lakh bank employees to protest against 17 issues including privatisation of public sector lenders, bank mergers, write-off of non-performing loans and hiked services charge post GST (goods and services tax).
NCLT and Insolvency
In a big setback to homebuyers of Jaypee group, the Allahabad bench of the National Company Law Tribunal on Wednesday declared Jaypee Infratech as an insolvent company. Homebuyers are unsure whether they will get their homes for which they have been waiting for years and have invested their life-long earnings.
SBI, Bank of Baroda, Union Bank of India report Q1 results
In the biggest results for the banking sector, State Bank of India, bank of Baroda posted dismal profit numbers with some deterioration in their asset quality for the first quarter from April to June period.
Although the profits for SBI's merged entity jumped 5-fold by 436 percent to Rs 2,006 crore, on a standalone basis, the bank’s standalone net profit declined 20 percent on account of higher provisions towards bad loans.
Quoting science in the merger process, Chairman Arundhati Bhattacharya said, the physics of the merger is over and the chemistry has just started. “We have worked hard for the past 3 months and obviously it (merger) will have its impact and we will work towards it for the next two quarters,” she said in a post results conference call.
It remains to be seen how much of the banking bellwether’s merger can be digested by the investors.
Among the top three lenders, Bank of Baroda’s profit dipped by half with a 52 percent fall in net profit at Rs 203.39 crore for the first quarter ended June on higher provisioning towards bad loans.
The government-owned bank will also look at selling some of its non-core assets of about Rs 2000 crore during the financial year 2018 as a part of its capital raising plan.
Reporting its first quarter results with 29 percent dip in net profit, Union Bank of India MD also said it has got an in-principle agreement with Japan-based Dai-ichi Life insurance firm to sell 40 percent stake in the bank's wholly-owned asset management company.
Union bank also plans to raise Rs 6,350 crore in the current fiscal year, of which includes Rs 2,000 crore through equity capital raising.
Private banksamount written off by the three banks in FY17 stood at Rs 19,783 crore, more than double as compared to Rs 7,292 crore in FY16, as per the banks’ annual reports. This is just below half of the loans written-off over five years.