Banks will have their task cut out in the coming years, According State Bank of India, the country’s largest public sector bank, it will be a very challenging time for banks and not only because of the NPA crisis. In fact, banks will have to look beyond the bad loan resolution to other pressing matters like frauds, cyber security and governance.
In its Annual Report 2017-18, SBI has said that the operating environment has become increasingly complex, reports the media.
The state-owned lender has further said that as resolution of stressed assets has progressed satisfactorily and the final outcome will take some more time to reflect in the profit and loss (P&L). As the laws are new and will take time to mature, the results are not immediately obvious, said the bank.
"The coming years will be very challenging for the banking system as a whole," media reports quoted SBI.
"The structural transformation of banks must move beyond the non-performing asset (NPA) resolution and address other pressing issues, such as frauds, customer retention and servicing , human resource, cyber security and governance," the bank report added.
Notably, 19 of the 21 public sector banks (PSBs) have together reported a loss of Rs 873 billion in 2017-18. The list is topped by Punjab National Bank (PNB) which posted a net loss of nearly Rs 122.83 billion during the year. Only two public sector banks have made profit – Indian Bank and Vijaya Bank.
SBI noted that policy initiatives have gathered momentum over the past four years and led to far reaching structural transformation in all sectors and that banks are unlikely to remain untouched by these changes.
Further the SBI report said that post the capital infusion in PSBs, it is now up to them as to how they capitalise on the opportunities deploy technology to address some of the burning issues.
It is worth noting here that the gross NPAs of SBI, as on March 31, 2018, is Rs 2234.27 billion (10.91 per cent of the gross advances). It was Rs 1778.66 billion (9.11 per cent) by end-March 2017. SBI suffered a net loss of Rs 65.4745 billion in 2017-18, as against a net profit of Rs 104.841 billion in the preceding fiscal.
The net NPAs grew to Rs 1108.55 billion (5.73 per cent) from Rs 969.78 billion (5.19 per cent).
It was as eventful time for the banks in 2017-18. Asset quality, resolution of stressed assets and muted credit growth in fist half have continued to pose major challenges for most lenders.
"Higher NPAs impacted interest income adversely and led to elevated provisions, thus putting pressure on the profitability of banks. Further, some PSBs have been put under the Prompt Corrective Action (PCA) framework of RBI, which puts restrictions on key areas viz. dividend payment, branch expansion..," the report said.
The SBI report also notes the uncertainties in the external environment despite a positive outlook on growth and the escalating trade wars and said that the situation will continue in 2018.
Looking at these external challenges, most banks across the world have revisited their foreign business strategy in line with growing risks, and Indian banks are also treading cautiously. Further, the government too has advised banks to rationalise their foreign branches. “However, this does not constitute a blanket withdrawal but a more realistic strategy in line with changing trade patterns of the country. This rationalisation in foreign business will therefore continue," the largest PSB said.
The report calls the past year as "an exceptional year" in many ways. It also emphasises the need for a clearly articulated and executed strategy for the future.
It said that in the next two years the bank will adopt a strategy that will achieve a healthy credit growth of 10-12 per cent by 2020.
(Source: Financial Express, media reports)