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Last Updated : Jul 18, 2019 03:21 PM IST | Source: Moneycontrol.com

PSU banks fall 2-5% amid asset quality concerns, reports of fraud

DCB Bank, Federal Bank, Yes Bank, Dhanlaxmi Bank and IndusInd Bank all reported increase in gross non-performing assets sequentially for quarter ended June 2019

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Nifty PSU Bank index was the biggest loser among sectoral indices, falling nearly 3 percent intraday on July 18 as earnings so far announced indicated that asset quality concerns may not have over yet.

Bank of Baroda, Canara Bank, Bank of India, Union Bank, PNB, IDBI Bank, SBI, Oriental Bank, Syndicate Bank and Indian Bank were down 1.6-4.6 percent intraday.

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DCB Bank, Federal Bank, Yes Bank, Dhanlaxmi Bank and IndusInd Bank all reported increase in gross non-performing assets sequentially for quarter ended June 2019.

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In addition, few PSU banks have been reporting frauds for last few days including Punjab National Bank which recently declared fraud of Rs 3,800 crore by Bhushan Power & Steel.

Allahabad Bank and Punjab & Sind Bank also reported a fraud of Rs 1,775 crore and Rs 238.30 crore, respectively, by Bhushan Power.

Moreover Allahabad Bank, on July 17, said the non-performing account of SEL Manufacturing with outstanding dues of around Rs 688.27 crore has also been declared as fraud and reported to RBI.

The Street will closely watch Rs 70,000 crore capital provided by the government to PSU banks would be enough to solve challenges of PSU banks for long term.

Kotak said the government's decision to commit another Rs 70,000 crore of capital to PSU banks is targeted at (1) improving the financial health of PSU banks and (2) driving credit growth.

"We note that the government has (1) given Rs 3.3 lakh crore of capital over FY2011-19 to PSU banks and (2) consolidated a few PSU banks to improve their operating performance. It remains to be seen if these measures will be enough to solve the challenges of PSU banks on a long-term basis," it added.

PSU banks reported large losses in FY17-19 as they reported very high NPLs and loan-loss provisions. The government did not receive any dividends from the PSU banks in FY2018-19 while the market capitalisation of the stocks had collapsed over FY2011-19.

"We note that the market capitalisation of PSU banks (excluding SBI) is similar to the capital infused in the banks," Kotak said.

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First Published on Jul 18, 2019 03:21 pm
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