Hide the Scams: Canara bank-PNB with 9 other banks to be merged!

Discussion in 'General Talk' started by swatkats, May 17, 2019.

  1. swatkats

    swatkats Keeping TE Alive!

    The consolidation of public sector banks is expected to get fresh impetus as a few mid-sized and small state-run lenders are being considered for mergers with Punjab National Bank (PNB) and Canara Bank, two senior finance ministry officials told ThePrint.

    The mid-sized lenders that have been identified for merger include Allahabad Bank, Andhra Bank, Bank of Maharashtra, Central Bank of India, Indian Overseas Bank, UCO Bank, United Bank of India and Union Bank of India, said one of the officials who didn’t wish to be named.

    PNB and Canara Bank will separately lead the merger process with these banks, said the official.

    With the Bank of Baroda merger with Vijaya Bank and Dena Bank already underway, the next phase of PSB consolidation is expected to begin early next year, said the second official who also spoke on condition of anonymity.


    The Reason Behind the Mergers and How Will They Affect You?
    • Combating bad loans and struggling to maintain credit growth, particularly industrial credit, gives rise to the consolidation of banks to nurse its balance sheets back to health and boost its capital raising ability.
    • Small-scale banks have limited business operations, while larger banks reap the benefits of economies of scale. This can help the former to overhaul their business models and resolve liquidity issues.
    • Mergers reduce costs of banking operations, with better NPA and Risk management.
    • With a larger capital base and higher liquidity, the burden on the central government to recapitalize the public sector banks reduces.
    • The geographical reach of banking widens with the merger of large public sector banks and leveraging on their expertise, with newer employees.
    • Larger sized banks offer more products and services and help in the integrated growth of the banking sector, thus improving professional standards.
    • The Indian banks shall gain greater recognition and a higher rating, as the focus now reduces on some most prominent banks.

    Source: https://trak.in/tags/business/2019/...9-smaller-banks-find-the-shocking-reason-why/
    mh09ad5578 likes this.
  2. adventureguy

    adventureguy Well-Known Member

    Our banking sector is going in the way of broken american one.

    Consolidate all the banks, make them "too big to fail", let bad loans pile up, and when they're exposed, punish few and cover the losses with "recaptilisation" aka our taxpayer money
    mh09ad5578, ssslayer and nimod like this.
  3. pratikb

    pratikb Well-Known Member

    ibc ie insolvency abd banking code strong enough to make ruia pay up 56000 crores .mallya begging to pay 9000 cr .
    I doubt bank mergers is to cover up scams.
  4. adventureguy

    adventureguy Well-Known Member

    Ruia isn't paying 56k crores. Instead Arcelor mittal 39,500 crores for getting essar steel and another 2,500crores for odissha slurry pvt

    mallya only offered to pay princpal amount and not the interest. so SBI PNB and other banks have to take haircut if they were to take his deal


    govt spent 1,00,958 crores on "recaptilisation" out of which PNB is largest receiver of that money (due to bad loans to nirav modi and vijay mallya and other people)

    recaptilisation /IBC is a good precautionary measure but like everything this govt does, it seems theres' a hidden motive for it

    captilize the profits/socialise the losses
    mh09ad5578 likes this.
  5. abhi1984

    abhi1984 Well-Known Member

    I don't understand this topic header. Where does the theory of hiding scams come in? I don't see anything in both the linked article to suggest anything of malice.

    Consolidation is an evolutionary step in the business cycle. First, we have a single company in a sector, then slowly many emerge, all of which handle a small portion of the target demographic. After sometime there are just too many companies, handful of which are actually succeeding. Then one day a particular company wants to grow larger so it starts to consolidate and merge small operations. As Mohnish Pabrai puts it companies and mammals have size limit. So once consolidated company grows large enough it loses touch with customers, slowly many companies emerge, all of which handle a small portion of the demographic...and then ...cycle repeats itself.

    21 banks is just too many. Any industry with more than 5 players is going to struggle for everyone to make a decent profit. The worst part is the competition between the 21 banks itself might cause some really big issues trying to win over business.

    Additionally, mergers don't eliminate debts. They exist on merged companies books irrespective. This is true for every company out there, not only banks.

    Also, India already has a list of too big to fail banks also known as Domestic Systemically Important Banks. These banks have extra capital requirement and monitored strictly by RBI. Here's the short list:
    pratikb and blr_p like this.
  6. blr_p

    blr_p Well-Known Member

    Mergers generally mean job losses as skills redundancy builds up
    --- Post Merged, May 18, 2019 ---
    Could that be the reason some big wigs got sweet loan deals in the first place. Heh :)
  7. adventureguy

    adventureguy Well-Known Member

    There's a reason why only two private banks posted a loss last year while public sector banks posed 60,000cr rs in Q4 of FY18 alone.

    Main problem is avoid losses thru not giving out bad loans in the first place.

    instead what seems to be happening is all the bad loans are being consolidated at one place by mergers and then those banks are being recapitalised and taxpayers are effectiving wiping out loans given to private parties.


    Every private bank in the country except 2 showed profits while almost all the public sector banks lost money (due to provision for bad loans) according to latest P&L statements.

    Recaptilisation can be a good thing but ultimately it doesnt mean nothing if bad loans are being given out like before without any change
  8. abhi1984

    abhi1984 Well-Known Member

    Recapitlisation doesn't effectively wipes out a loans. No one says - well, we got the money, lets wipe out private debt.

    Instead recapitlisation adds legs to these banks so that they can survive till the pending issues are resolved. Without the liquidity and capital, these banks will go under and forced to sell of their debts at losses. And then there is the issue of unemployment too. And farmer, MSME and small retail loans which private banks tend to runaway from.

    Public banks by their charters are for public utility. Private banks in comparison are all about shareholder value. Comparing both is a foolhardy task.

    Lastly, the provision for bad loans is based upon a company's assessment of it's own loan portfolio. Nearly all banks, including private ones, tend to deflate their net NPAs to show that provisions are low.
    A slightly tangential example is the recent Zee fiasco which shows what depth private banks MFs have. HDFC FMP MFs were invested in Zee NCD which defaulted on 22nd March 2019. So these FMP MFs were supposed to write down the NAV of the MF to the impaired NCD value. Instead they pretended to show full NAV even after the default.
    blr_p and pratikb like this.
  9. adventureguy

    adventureguy Well-Known Member

    Isn't that exactly whats happening? did we get back kingfisher debt? do we have any hope of getting back rcomm debt? less said aboput IL&FS, the better (LIC is largest shareholder in IL& FS)

    sure. this is the reason and its valid. whats the reality though?

    then why are public banks making record profits thru fees and minimum balance charges? Is it for public or for shareholders?

    That's because Zee chariman gave personal gaurantee and he's not broke and still in india. So MFs agreed to not write down the NAV till he sells his stake in Zee entertainment group and pay his debt.

    That being said, recapitlisation is a good thing but ultimately it'll lead to just govt paying private debt untill NPAs aren't dealth with iron hand and stop bad loans in the first place.
    nimod likes this.
  10. rdst_1

    rdst_1 Well-Known Member

    This is difficult to do mate. A loan may not turn bad for years. I am looking to start a business and hence am looking for a loan. I know I can succeed in my venture, but there is no guarantee of that. No private bank will give me a loan because their risk assessment is very strict. However, that doesn't mean that chances of me turning NPA are high. They are not, but private banks usually only deal with sure-shot loans, like home and car loans to salaried people who they know have the least chance of defaulting.
    If public banks were to start doing the same, all development and growth will be stifled. Only the govt will be able to do anything substantial and all of us will be mere employees.
    The rules need to be strict for people who are repeated offenders. Before the Kingfisher debacle, Mallya was one of our leading businessman. What the banks don't do properly and has to be improved upon, is actually doing the follow-ups after a loan properly. Making sure the money is being utilized for what it's given for and repeatedly doing independent audits of the company's health, so that the bad loans don't baloon to such high numbers. Until and unless, a prospective businessman is completely fraud there is no guarantee that a loan might not turn into an NPA.
    mh09ad5578, blr_p and pratikb like this.
  11. pratikb

    pratikb Well-Known Member

    main problem with mallya was he would throw party and congress leaders attending party would sanction the loan without any due diligence .

    same was case with nirav modi .

    loan sanction would happen in party celebration .
    no rules followed .no due diligence .

    political interference in loan sanctioning is main problem .
  12. abhi1984

    abhi1984 Well-Known Member

    You are just mixing two different things to pull out a conclusion. Do we have any hope of getting all the debts back? No, we don't. There is a reason we call it non-performing asset - the loans cannot be paid in full. There has to be a deal cut to get as much amount as possible. It surely means there is going to be a shortfall.

    As for why public banks are charging fees and minimum balance charges - because they have to make money somehow. If they are not making money and growing, then the government will need to recapitalize them even more - above and beyond the loans. You don't want that, do you?

    The Zee chairman thing - that is how a scam starts you keep referring to. First you are in default, tell everyone that everything is fine, everyone turns their head away thinking - Well, this guy is rich and famous, owns so many properties so its okay. And then things stretch out for more time.
    Then they realize that even stake,property sales don't work because the nature of a fire sale is such that you are never going to get the promised value. Happened with Anil Ambani (Rcom), Mallya though he run away.

    So, no MFs owned by private banks are doing the same thing which you are saying about public banks. Every financial institution needs to write down their asset value immediately after things turn bad. But currently that is not happening.

    So, yes I agree that we need better controls and we will slowly get there with IBC and till then the let banks be recapitalized.
  13. adventureguy

    adventureguy Well-Known Member

    Mallya pledged same properties with different banks to get different loans. All these can be avoided if they just crossed checked the assets pledged as guarantee
  14. adventureguy

    adventureguy Well-Known Member

    if youre talking speculations, might I remind you mallaya was BJP MP and BJP let mallya and nirav modi get away from india?
    blr_p likes this.
  15. adventureguy

    adventureguy Well-Known Member

    public banks were doing fine before bad loans ballooned and now squeezing the public for money. you and I dont have any problem paying atm fees but common man will definitely feel the punch.

    Zee chairman has physical tangible properties. Its not the same case as mallya where he pledged single property in different banks to get different loans which is fraud.

    As I said, MFs exposed to Zee tv came to an agreement to not write down the exposure for few more months. All MFs exposed to IL&FS wrote down their exposure

    Right now it just seems like common man is paying for mallya and nirav modi losses.
  16. rdst_1

    rdst_1 Well-Known Member

    This can't be done unless there is collusion with bank officials as well as political pressure unless value of his properties was much higher than both loans combined. Even for a 1 lakh loan, a proper legal report is made by the bank lawyer which is attached with the report from the Tehsil showing current mortgages on that piece of property. That is the first thing a bank does if deciding to pass the loan. So there is definite collusion in such cases.

    The deputy MD of IDBI, Mr. Batra, who was arrested among other bank officials for collusion with Mallya, was actually my neighbour for some time and my father's senior officer and my father always used to tell me how corrupt he was.

    Just political pressure is usually not enough if the bank officials are ethical and follow the rules properly. Some of my friends who are currently in the banking sector also tell me how their seniors sometimes force them to pass loans to unfeasible projects and there is always a cut these bankers take for passing such loans. Now, with increased scrutiny and accountability pushed on loan officers, such cases are going to come down. Also, special posts have been introduced (I know for sure about IDBI Bank), at district levels whose job is now just to scrutinize and assess loans which are being passed by officers at branch levels.
  17. pratikb

    pratikb Well-Known Member

    loan sanctioning is what I am talking about .
    --- Post Merged, May 19, 2019 at 9:27 PM ---
    I am not talking speculation. this is very well known fact about how raga attended party at delhi and next day nirav loan was sanctioned despite one board member saying no to sanction.
    #17 pratikb, May 19, 2019 at 9:17 PM
    Last edited: May 19, 2019 at 9:27 PM
  18. blr_p

    blr_p Well-Known Member

    What is the difference between you looking for a loan to start a business & Malya ? He wants a bigger sum and has to throw a party.

    End of the day it goes back to what rdst_1 said, if loans are not sanctioned then the private sector is going to dry up. All become employees.

    They always have a cashflow situation that needs to be kept going. If capital is tight, then it starts to have deeper effects that can balloon out of control. The illusion to maintain is normalcy no matter how hard to prevent panic spreading. The price is public bail out at some point but we keep the taps going. I don't think there is a way out unless we are willing to accept depressions instead of recessions.
  19. Lord Nemesis

    Lord Nemesis Overlord

    Actually no, the banks have limits on amount of money that they can out as loans. When loans are not recovered, they cannot give out more loans beyond the limit. They have to operate within the limit. Lets say if a bank can give out 10,000 crore in loans and 4000 crore cannot be recovered back. So, their effective limit is reduced to 6000 crore that is cycling back as long as the Rs 4000 crore non recoverable loan is on the books. So, after a while they write off the old loans as non recoverable reset the counter back to the full 10,000 crore and will be able to give 4000 crore more in loans.

    Private banks will have no choice but to post it as a loss and fill that void from within their business operations. So, they cannot afford to give out loans that they cannot recover.

    But in case of nationalized banks the govt recapitalizes the bank at the expense of the tax payer. This is why nationalized banks have such poor due diligence process or have all process road rolled when giving out loans to big corporate with political influence.
    mh09ad5578 likes this.
  20. Lord Nemesis

    Lord Nemesis Overlord

    Adani had $1 billion loan approved by SBI for his sham mining operation in Australia after BJP came into power and at a time when no other bank was ready to given him fresh loans. It was later canceled after a controversy arose from it. A big chunk of NPA's plaguing the system are because of companies close to Modi when he was CM of Gujarat.

    Vijay Mallya had a lookout notice against him that prevented him from leaving the country for months before he left. The same was cancelled. He also met the Finance minister just before he left with huge amount of luggage in tow. The govt tried to suppress the entire thing and it took a supreme court case to formally declare that he fled the country and a court order to initiate the necessary process to bring him back.

    While I agree that congress practiced crony capitalism, don't try to preach that BJP doesn't do the same thing or does it any less than congress.
    mh09ad5578 likes this.

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