The story of its ruin is simple and obvious, and instead of inquiring why the Roman empire was destroyed, we should rather be surprised that it had subsisted so long. The victorious legions, who, in distant wars, acquired the vices of strangers and mercenaries, first oppressed the freedom of the republic and afterwards violated the majesty of the purple. The emperors, anxious for their personal safety and the public peace, were reduced to the base expedient of corrupting the discipline which rendered them alike formidable to their sovereign and to the enemy; the vigour of the military government was relaxed, and finally dissolved, by the partial institutions of Constantine; and the Roman world was overwhelmed by a deluge of Barbarians. — Edward Gibbon, The Decline and Fall of the Roman Empire
The majority of the public sector banks (PSBs) in India are not many years away from becoming footnotes!
While banking in the current format itself may become prey to the sweeping fintech revolution, the demise of the PSBs may be on the fast track.
My curiosity to look at their journey over the years, since the heralding of the economic liberalisation by the government in 1991, ended in this exercise to look at some available statistics which entirely speak for themselves.
Just as a quotation of Edward Gibbon in his famous book “The Decline and Fall of the Roman Empire”, reproduced above succinctly gives the reason for the decay of the greatest empire of all times.
The PSBs in India have similarly been rotting internally and have only themselves and their poor top management and a lackadaisical regulator to blame for the decline, than any market or external reason.
PSBs cannot be singled out for poor governance. Private banks would have more than their share if one were to look at the reported developments in many institutions that are not in government ownership and with distinguished boards with well-known names as independent directors.
Yes Bank, Lakshmi Vilas Bank and Punjab and Maharashtra Cooperative (PMC) Bank may have been the extreme cases, but many others have not done significantly better either.
The statistics are all taken from the public domain, primarily the RBI website and a few from newspaper reports.
Snapshot of Banks Over Three Decades
The Decade of BIG Credit Growth
India Stands Tall in the Wrong Place!
Key Legislative Intervention for Debt Recovery
Debt Recovery Tribunals (DRT) 1993
Lok Adalats 2001
SARFAESI Act 2002
Asset Recovery companies(ARC) 2002
Insolvency and Bankruptcy Act 2016
Major Administrative Actions
Prompt corrective action (PCA) 2002
Corporate debt restructuring (CDR) 2005
5:25 Rule 2014
Joint lenders' forum 2014
Asset quality review 2015
Strategic debt restructuring 2015
Sustainable structuring of stressed assets S4A 2016
Bad bank 2021
Recovery Record Pre-IBC
SARFAESI, Lok Adalats & DRT
Wake up Alarm of asset quality review (AQR) & Raghuram Rajan Effect
“The size and nature of the NPA problem necessitated concomitant measures to signal intent and commitment of the Government and the Reserve Bank to meet the challenge squarely. The IBC was in place but the required action in respect of the large stressed accounts was not forthcoming on the part of banks and JLFs. Part of the inertia may have to do with the initial days of the IBC; but part of it was also the typical (and severe) agency and moral hazard problems of not resolving NPAs when the banking sector is majorly government-owned.”
- (From RBI Governor’s (Urjit Patel) speech, 19 August 2017)
The Dubious Dozen That Became Dirtier with Delay!
13th June 2017: RBI IAC identifies 12 accounts. Criteria: Outstanding > Rs5,000 crore; and 60% recognised as NPA
July – August 2017: 11 cases admitted by NCLT May 2018: 12th case admitted
Big Debts and Small Recoveries!
Write off Calendar! Period of Denial!
Rajan Effect! BIG Write-offs!
At the end of three decades ………….
A Tax Payers’ Largesse! (Filling the Hole in Banks’ Capital)
Rs2.35 trillion had been pumped into the banks since 2005 for recapitalisation until 2017-18. Figures for subsequent periods need to be incorporated.
Growth in Personality Banking?
Concentration of Big Loans > Rs100 crore
…… And in personal banking?
The Ascent of the Private Banks, Gradual Demise of PSBs?
(The author is a CA and CS and retired as a partner at EY, Chennai heading tax and regulatory advice.