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Is the Worst Over for Indian PSU Banks?
May 20, 2016

Following RBI's asset quality review (AQR) exercise that pushed banks to make proactive provisions of stressed loans, Indian PSU banks have been reporting heavy losses.

The Indian banking system reported the worst NPA levels among Asian economies in 2015. Vivek Kaul has written extensively about the mess in public sector banks in his Diaries.

While most corporates blame the economic slowdown for the poor asset quality of banks, Vivek offers an alternative perspective. As per him, the real story behind the bad loans of Indian banks is about diversion of funds and willful defaults...

    As on December 31, 2014, the top 30 defaulters accounted for nearly one third of the bad loans of close to $47.3 billion, which is clearly worrying. Also, many high value loans have gone bad. And they keep piling up. In fact, in a survey carried out by the EY Fraud Investigation & Dispute Services found that 87% of the respondents that included bankers stated that diversion of funds to unrelated business through fraudulent means is one of the root causes for the NPA crisis.

The March quarter and full year results of Indian companies have been pouring in. And yet again, Indian PSU banks are in the limelight. The chart of the day shows PSU banks that have reported the biggest losses in the financial year 2015-16.

Is the worst over for Indian PSU banks? Here is what Madhu, our public sector banks analyst says:

    Betting on profits of PSU banks over the next two to three years is as good as throwing darts. The RBI's mandate has definitely front loaded most of the provision pain for these banks. But that is not to assume that the banks have seen the end of it. Provisions will continue to hurt profits...and in some cases even the networth of the banks. Hence, if at all, investors should bet on which of these banks will be around even 5 to 10 years down the line. And value them conservatively. That's what we have been doing...

Data Source:The Economic Times

This Chart Of The Day was published in The 5 Minute WrapUp - Inflation Coming Back to Haunt Government, Rajan and You

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