Saturday, July 29, 2017

Banker To Every Indian, Indeed

Arundhati Bhattacharya, the bank’s self-effacing chairperson is the ‘Woman Business Leader of the Year’ in BW Businessworld’s edition of the ‘Most Respected Companies 2017

Few banks play such a pivotal role in a country’s economy as the State Bank of India (SBI); it’s truly a ‘Big Daddy’. At end-March, the bank’s share of systemic deposits and advances stood at 23.07 per cent and 21.16 per cent, respectively (after the merger of SBI with its associate banks and the Bharatiya Mahila Bank in the previous fiscal). And if you were to also pencil-in the share of state-run banks in this business at around 70 per cent, it makes SBI (though governed under a separate Act) very much the ‘polestar’.

No doubt that SBI has shown the way admirably. And for the same Arundhati Bhattacharya, the bank’s self-effacing chairperson is the ‘Woman Business Leader of the Year’ in BW Businessworld’s edition of the ‘Most Respected Companies 2017’. She was also conferred the ‘Lifetime Achievement Award in Banking’ in BW’s ‘Best Banks’ Survey 2017’ earlier this year. It tells you Bhattacharya is a standout both in her peer group and India Inc.

Numbers Say a Lot

A good part of SBI is legacy brings out its set of woes; the bank also helms a lot many programmes on behalf of the Centre. And, in turn, all of this — at many levels — tends to handicap the bank. What is the dread in the system as on date? Dud-loans and capital constraints. The bank’s performance shows it has tackled the plot admirably.

At end-March, operating profit grew by 17.55 per cent to Rs 50,847.90 crore; the net-profit by 5.26 per cent to Rs 10,484.10 crore after the higher provisioning requirements. The asset quality review (AQR) undertaken by Mint Road saw non-performing assets (NPAs) increase to Rs 1,12,343 crore (Rs 98,173 crore). Gross NPAs stood at 6.90 per cent (6.50 per cent), but the net-NPA ratio fell by 10 basis points (bps) to 3.71 per cent. Provisioning coverage was up 526 bps to 65.95 per cent.

You can’t also overlook the fact that capital quotes increased at a premium even as dud-loan pressure continues to hold sway. Yet it is to the credit of Bhattacharya that gross advances grew over the Rs 16,00,000-crore mark — at 7.80 per cent to Rs 16,27,273 crore. To contextualise this growth, Bhattacharya points out in the bank’s annual report for 2016-17: “The interesting part is as per the limited information available in public domain, China had injected $127 billion into their banking system during 2004-07, while the Fed (US Federal Reserve) injected $2.27 trillion following the 2008 crisis. In contrast, during the period 2006-2017, the cumulative capital infusion into state-run banks was at $17 billion.”

The other feather in the cap is the merger of SBI with its associate banks, which is the first large-scale consolidation in the Indian banking industry — State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad, and State Bank of Patiala. The merger was particularly taxing given the state-run nature of the SBI Group— union’s sensitivities had to be handled with great care. That said, it will give SBI the much-needed heft in the face of the competition, which will arise in the near future.

With this merger, SBI has entered into the league of top 50 global banks (up from 55th position in 2016, Source: The Banker, July 2016) with a balance sheet size of Rs 33 lakh crore, with 24,017 branches and 59,263 ATMs servicing over 42 crore. The bigger balance-sheet size will enable the bank to command better terms in both international and domestic markets.

It has been a truly command performance by Bhattacharya. 

Is India prepared for demonetisation 2.0?

Demonetisation 2.0? That might happen soon. Phasing out the
Rs 2,000 note makes sense, but it should be done with caution.

Mumbai, July 27: According to reports, the Reserve Bank of India has stopped printing the Rs 2,000 currency notes altogether and will not be bringing in new notes in the current financial year. The last few weeks saw a shortage of Rs 2,000 notes. Many attribute this scarcity to cash-hoarding, given that it is easier to hoard black money in Rs 2,000 notes as compared to other denominations. But is that all?

If the government really plans to go ahead with a demonetisation drive once again, there are several things it should do, in order to avoid the chaos that the November 8, 2016 announcement caused.

1) First of all, the government should definitely not scrap both the high-value denominations. A lack of Rs 2,000 notes is something the people may be able to survive, but the absence of both notes (Rs 2,000 and Rs 500) will be tough for everyone. A section of the population may be better prepared for another wave of cashlessness, but a huge chunk still isn’t.

An RTI enquiry has revealed that the Pradhan Mantri Jan Dhan Yojna has 28.9 crore bank accounts as of July 14. According to an ICE 360° survey from December, 2016, covering 61,000 households 99 per cent of households in both rural and urban India have at least one member with a bank account.

But that still does not change the fact that digitisation of currency will not affect people. A bank account neither guarantees availability of accessible branches or ATMs, nor does it account for the section of people unable to use internet banking, mobile wallets and debit cards because of nonexistent infrastructure.

2) The RBI should have a new currency ready to minimise damage caused by cashlessness. A lot of problems emerged during the first wave of demonetisation and the unpreparedness was one of them. Notes were not being reprinted fast enough, bank ATMs did not have the hardware to carry the new notes and haphazard notifications from the central bank did not help any.

It is more than evident that black money cannot be flushed out by demonetising notes. In fact, a month into the drive, huge chunks of black money caught by the Income Tax department and the Enforcement Directorate were found to be in the new currency. Additionally, the central bank is yet to give us a figure on how much of India’s estimated cash currency (in Rs 500 and Rs 1,000 notes) have been deposited.

3) There have to be stricter laws about the use of demonetised currency for emergency services. Hospitals, petrol pumps, ration stores and pharmacies should be allowed to use demonetised notes, in case the cash shortage becomes a problem. Too many lives were lost due to mismanagement last time. The government should exercise all forms of caution this time.

The Centre is fairly unpredictable. We don't know what they can or will do. But we can speculate. And in terms of a second wave of demonetisation, the signs are abundant.

Economic Times reported that there is talk of this in Parliament as well. The Opposition on Wednesday, July 26, in Rajya Sabha asked finance minister Arun Jaitley to clarify whether the government has decided to scrap the newly launched Rs 2,000 note. Jaitley, however, did not respond.

Another report says that State Bank of India (SBI) - the country’s biggest bank - has started recalibrating the Rs 2,000 currency cassettes in a few of its ATMs to Rs 500 currency ones so that more cash can be stuffed inside the machines.

A few months ago, The Statesman reported that in order to curb fresh generation of black money, the government is preparing to gradually phase out the Rs 2,000 note. An official was quoted saying: "The idea behind introduction of the high denomination Rs 2,000 notes was to quickly remonetise the economy with the value in circulation.”

It was a stop-gap arrangement and now there is enough currency and hence the note should be given the marching orders.

A Mint report quotes an anonymous source (who is aware of the inner workings of the Reserve Bank of India), according to whom, about 3.7 billion Rs 2000 notes amounting to Rs 7.4 trillion had already been printed, when the printing process was allegedly stopped five months ago. The report also adds that RBI’s printing press in Mysuru has started printing the new Rs 200 notes, which are likely to come into circulation by August.

“Initially, around a billion Rs 200 notes are expected to hit the market,” revealed the source.

Phasing out the Rs 2,000 note makes sense. It is too huge a denomination, especially when the next biggest denomination is Rs 1,500 away. But there has to be a proper way of doing it. India managed to survive a mindless move once. The country is now stronger and will probably withstand another.

But does it still make sense to subject the population to yet another mismanaged demonetisation drive? No.