Saturday, February 10, 2018

Banking crisis

Crisis in Indian banking seems to be all-pervasive. The largest bank, SBI, has reported loss during the third quarter.

During the quarter ended Dec 31st, the bank has incurred loss after tax to the extent of Rs.2,416 crore. Loss before tax is Rs.7,121 crore. This means SBI has secured tax refund or credit for Rs.4,705 crore during this quarter. But for this, the position would have attracted more adverse attention.

In the nine months ended Dec 31st, loss before tax is Rs.8,751 crore. In other words, SBI has made losses in previous quarters also. SBI Chairman says we have reached the end of NPA cycle. One hopes that his judgment is correct.

There is another disturbing development. GOI has advised banks to repay the Additional Tier 1 capital even if it is not due for repayment. This move is apparently because some banks have accumulated losses mandating non-payment of interest on perpetual bonds. This will lead to sovereign embarrassment unless prevented. The sum and substance of this is that banks have funds, but not profits. This is potentially a Ponzi situation.

1 comment:

Anonymous said...

You have mentioned that the Chairman SBI has said they have come to the end of NPA but within a day or two it came out that they did not show ₹23000 Crores NPA
K. Anandakrishnan