Tag: Bad Loans | Page 7

7 March, 2016

In The Public Sector Bank Crisis, Govt Needs To Do A Lot More Than Just Blame Bankers

The Times of India reported on Saturday that Jayant Sinha, the minister of state for finance, had indicated to public sector bank chiefs that they were wasting public funds. Sinha said this at an offsite for public sector bankers organised at Gurgaon.

The Economic Survey for 2015-2016 points out that between 2009 and September 30, 2015, the government had infused Rs 1.02 lakh crore of capital. It is this money that Sinha was perhaps referring to.

The government is the main owner of 27 public sector banks. If it has chosen to invest more than Rs 1 lakh crore in these banks over the last seven years, then as the owner of these banks, it has chosen to waste public money.

There is no point in trying to pass on the buck to the chiefs of public sector banks. Of course, it needs to be pointed out here that, the government in this case means both the Manmohan Singh government that governed until May 2014 and the Narendra Modi government which has been in power since then.

The current budget has made an allocation of Rs 25,000 crore for further capital infusion into these banks. As the finance minister Arun Jaitley said in the budget speech: “If additional capital is required by these Banks, we will find the resources for doing so. We stand solidly behind these Banks.” This was Jaitley’s way of saying that the government will do whatever it takes to keep these banks going.

This builds in a tremendous amount of moral hazard into the entire system. Economist Alan Blinder writing in After the Music Stopped says that the “central idea behind moral hazard is that people who are well insured against some risk are less likely to take pains (and incur costs) to avoid it.”

Hence, if the government keeps infusing capital into public sector banks and keeps rescuing them when they are in trouble, there is no real incentive on part of public sector banks to run a responsible, viable and a profitable business. This is moral hazard at play. It is not surprising that as of the end of December 2015, the gross non-performing assets of listed public sector banks stood at Rs 3.9 lakh crore.

The government is keen to hold on to these banks. As the Economic Survey pointed out: “The return on assets for most banks is currently less than one third of the norm of 1 per cent that is considered reasonable. Many, though not all, of the less profitable banks are those with smaller levels of employment.” Despite this, the government remains obsessed with the idea of owning 27 public sector banks.

There has been no effort made to sell out of these banks or even shut them down. The total employment in public sector banks currently stands at around 87,000 employees. Given this, shutting down some of the smaller banks which are in trouble, is not going to much of a difference, at least on the employment as well as the lending front. Further, no effort has been made to privatise them either.

The state that some of these banks are in right now, there is no way the government is going to get a decent valuation while selling them. Nevertheless, the chances of these banks being turned around by private management are higher than if they are continued to run as they currently are. In such a scenario the minority stake that the government will continue to hold in these banks will be worth much more than the current majority stake is. The point being that the government needs to stop looking at these banks as “family silver”.

Also, by trying to run 27 public sector banks, the government has spread itself too thin. As Kaushik Basu, current chief economist of World Bank and former chief economic adviser to the ministry of finance, writes in An Economist in the Real World: “One mistake early Indian policymakers made was to try to micromanage the economy. While it is true that the government needs to attend to a range of policies, from shipping to the quality of education in villages to managing the nation’s international economic relations, it is imperative to realize that it is not feasible for the government to attend all the varied and layered needs of society with equal diligence.”

As Basu further adds: “An intelligent government recognizes that no matter what kind of society it aims to build, it is hopeless to try to deliver it all by itself.” The point being it is a hopeless idea continuing to own and run 27 public sector banks. There are more important things that the government needs to be concentrating on.

The government’s big plan to solve the mess in public sector banks is to get banks to merge. As the finance minister Jaitley said over the weekend: “The bankers’ themselves have supported the proposal of consolidation of banks in order to have strong banks rather than having numerically large number of banks.”

In the past mergers have happened when a bank has been in trouble. In this scenario, a weak bank has been merged with a strong bank. The New Bank of India was merged with the Punjab National Bank. The Global Trust Bank was merged with Oriental Bank of Commerce. The strong banks had to go through several years of pain to accommodate the weak banks.

The trouble now is that almost all public sector banks are in trouble, though of varying degrees. Hence, any merger would be effective if excess employees are fired, unviable branches shutdown and assets sold. Is the government willing to do this?

The way the Modi government has gone up until now, the answer is no. In this scenario the government will essentially end up merging two banks with small problems and end up creating one bank with a bigger problem. And that will mean basically postponing the problem, not solving it.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column was originally published on Huffington Post India on March 7, 2016

22 February, 2016

China Unleashes Another Round of Easy Money

In 2015, China grew by 6.9%. This is the slowest the country has grown in more than two decades. For a country which has been used to growing in double digits for a very long time, an economic growth rate of 6.9% is very low. Further, there are many economists who believe that even the 6.9% number isn’t correct.

A recent report in the Wall Street Journal quotes, an economics professor Xu Dianqing, as saying “that China’s gross domestic product growth rate might just be between 4.3% and 5.2%”.

The Chinese manufacturing sector which makes up for 40.5% of the economy grew by 6% in 2015. Nevertheless, many underlying indicators like power generation, railway freight movements, steel, cement and iron output, paint a different picture. As the Wall Street Journal points out: “Of some 60 major industrial products, nearly half saw output contract in the January to November period, while railway cargo volume fell 11.9% for all of last year, according to official sources.” (Doesn’t this sound similar to what is happening in India as well?)

Given this, it is only fair to ask how did the Chinese manufacturing sector grow by 6% in 2015? And how did the overall economy grow by 6.9%?

The point being that China is not growing as fast as it was and not as fast as it claims it is. Of course, if economists outside the government can figure this out, the government obviously realises this. Nevertheless, like all governments they need to maintain a position of strength and try and revive a flagging economy.

In the world that we live in, economists and politicians have limited ideas on how to tackle an economy that is slowing down. The solution is to get people to borrow and spend more. In a country like China where the government controls large parts of the economy, it means encouraging banks to lend more.

And that is precisely what has happened. In January 2016, responding to the low economic growth in 2015, the Chinese banks gave out loans worth 2.5 trillion yuan or around $385 billion. This is “a new record for a single month!” point out Dr Jim Walker and Dr Justin Pyvis of Asianomics Macro.

To give you a sense of how big the lending number is, let’s compare it to what the scheduled commercial banks in India lent during a similar period. Between January 8 and February 5 2016, the Indian banks loaned out around Rs 72,580 crore or $10.6 billion, assuming that one dollar is worth Rs 68.7. The way RBI declares lending data of banks, it is not possible to figure out how much the banks lend during the course of any month and hence, I have picked up the nearest comparable period.

The Chinese banks lent around 36 times more than Indian banks during a similar period. Of course, the Chinese economy is bigger than India is one factor for this difference.

A number of explanations have been offered for this huge jump in Chinese lending. One is the revival of the Chinese property sector. Further, with the yuan depreciating against the dollar in the recent past, many Chinese companies are replacing their dollar debt with yuan debt, in order to ensure that they don’t have to pay more yuan in order to repay their dollar loans in the future.

But these reasons clearly do not explain this huge jump in lending. Chinese banks are lending out so much money because the government wants them to increase their lending dramatically.

The idea, as always, is to get people to borrow and spend money, and companies to borrow and expand, and in the process hope to create faster economic growth. The trouble is that all this borrowing and spending will only add to the excess capacity that already exists in China.

As Satyajit Das writes in The Age of Stagnation: “It would take decades for China to absorb this excess capacity, which in many cases will become obsolete before it can be utilised. Yet China continues to add capacity to maintain growth.”

Further, the credit intensity or the amount of new debt needed to create additional economic activity has gone up in China, over the years. As Das writes: “The incremental capital-output ratio(ICOR), calculated as the annual investment divided by the annual increase in GDP, measures investment efficiency. China’s ICOR has more than doubled since the 1980s, reflecting the marginal nature of new investment. China now needs around $3-5 to generate $1 of additional economic growth; some economists put it even higher at $6-8. This is an increase from the $1-2 needed for each dollar of growth 8-10 years ago, consistent with declining investment returns.”

The point being that China now needs more and more money to create the same amount of growth. And this means the effectiveness of borrowing in creating economic growth has come down over the years. This also means that the chances of money that the banks are lending out now, not being returned, is higher now than it was in the past.

In fact, as Walker and Pyvis of Asianomics Macro point out: “The China Banking Regulatory Commission reported that official nonperforming loans had jumped 51% year to 1.3 trillion renminbi [yuan] by December, now greater than at the last peak in 2009. While small in terms of the total number of loans out there – the bad loan ratio increased from just 1.25% to 1.67% – it is the direction that is bothersome, particularly given the well-publicised concerns over the accuracy of the data (hint: NPLs are much higher than 1.67%).”

Further, the Reuters reports that the special mention loans (loans which could turn into bad loans or what we call stressed loans in India), rose by 37% in 2015. And bad loans and special mention loans together form around 5.5% of total lending by Chinese lending. Indeed, this is worrying.

This huge increase in lending will obviously push up the economic growth in the short-term. But in the long-term it can’t be possibly good for the economy, as it will only lead to the non-performing loans going up and creation of many useless assets which the country really does not require. The current jump in bad loans of banks happened because of the huge jump in bank lending that happened in 2009, after the current financial crisis started.

Whatever happens, in the short-term, the era of “easy money” seems to be continuing in China. And that can’t possibly be a good thing.

The column originally appeared on the Vivek Kaul’s Diary on February 22, 2016.

16 February, 2016

Taxpayers will have to Pick-Up the Final Bill of the Mess in Govt Banks

In a column I wrote last week I said that I was happy that the profit of the State Bank of India, the country’s largest bank, had fallen by 62%. Along the same lines I need to say that I am happy that the Bank of Baroda has made a loss of Rs 3342 crore, for the period October to December 2015. This is the biggest loss ever made by any Indian bank. In fact, the losses would have been higher if not for a Rs 1,118 crore tax write-back that the bank got.

Over the years, banks have not been recognising bad loans as bad loans. This process that has started now and is bringing out the real state of the Indian public sector banks and that is a good thing. In case of Bank of Baroda, the gross non-performing loans (or bad loans) of the bank jumped by 152% to Rs 38,934 crore, in comparison to as on December 2014. In percentage terms, the bad loans as of December 2015 stand at 9.68% of total lending in comparison to 3.85% in December 2014.

What this clearly tells us is that the Bank of Baroda, like the other public sector banks, had been under-declaring its bad loans up until now. This can be easily said from the fact the bad loans as a percentage of total loans, as on September 2015, had stood at 5.56%. By December 2015, this had jumped up by 412 basis points to 9.68%. One basis point is one hundredth of a percentage.

The situation could not have become so bad over a period of just three months. This clearly tells us that the bank had not been putting out the correct situation of its loans earlier. But now that it is, the stock market is clearly happy about it, with the stock rallying by 22% to Rs 139.55 as on February 15, 2016.

It needs to be pointed out here that the public sector banks are finally getting around to presenting the right set of accounts because the RBI led by Raghuram Rajan has pushed them to do so, by unleashing the asset quality review on to them.

As Rajan pointed out in a recent speech: “ With markets generally in decline, the decline in bank share prices has been more accentuated. However, part of the reason is that some bank results, mainly public sector banks, have not been, to put it mildly, pretty. Clearly, an important factor has been the Asset Quality Review (AQR) conducted by the Reserve Bank and its aftermath.”

This leads to the question as to what was the RBI doing all these years, especially in the pre-Rajan years given that such a huge build-up of bad loans couldn’t have happened overnight.

Also, it needs to be clarified here that a bad loan doesn’t mean that the bank has lost all the money. This seems to be the general understanding and is incorrect. A loan is typically declared to be a non-performing asset (or a bad loan), 90 days after the borrower starts defaulting on the interest and principal payments. When this happens a bank can no longer continue to accrue interest on the portion of the loan that remains unpaid. It has to start making provisions i.e. start keeping money aside.

This basically means that the bank starts keeping money aside so that if the loan is totally defaulted on or partially defaulted on or the bank cannot recover enough money from the assets that it has as a collateral, then enough money has been set aside to meet the losses.

Along these lines, the Bank of Baroda has increased its provisioning. For October to December 2015, the bank set aside Rs 6,165 crore. This is an increase of 389% in comparison to the money it had set aside for September to December 2014.

The question is even with this huge jump in provisioning, is the bank setting aside enough? The Reserve Bank of India(RBI) Master Circular on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances: “Banks should build up provisioning and capital buffers in good times i.e. when the profits are good, which can be used for absorbing losses in a downturn. This will enhance the soundness of individual banks, as also the stability of the financial sector. It was, therefore, decided that banks should augment their provisioning cushions…and ensure that their total provisioning coverage ratio…is not less than 70 per cent.”

The provisioning coverage ratio is defined as the total provisions set aside by a bank as on a particular date divided by the total gross non-performing assets (bad loans) of the bank as on the same day.

The RBI wants banks to maintain a provision coverage ratio of 70%. But that doesn’t seem to have happened. In fact, as a recent news-report in The Indian Express points out: “An analysis of provisioning coverage ratio data of 20 public sector banks for March 2011 to March 2015 shows a steady fall in the coverage ratio. It has dropped from an average of 72 per cent for the group of 20 banks in the year-ended March 2011 to 57 per cent for the year-ended March 2015.”

In fact, for Bank of Baroda, the provisioning coverage ratio as on March 31, 2015, had stood at 64.99%. Since then, despite the absolute jump in provisioning, the provisioning coverage ratio of the bank has fallen to 52.70%. So, the bank clearly is not setting aside enough money against its bad loans, even though its setting aside more money in absolute terms, than it has done in the past.

How do things look for other banks? Let’s take the case of Punjab National Bank, the second largest public sector bank. The provisioning coverage ratio of the bank as on March 31, 2015, was at 58.21%, since then it has fallen to 53.85%. The same is the case with the State Bank of India. The ratio has fallen from 69.13% to 65.23%.

So none of the bigger public sector banks are fulfilling the provisioning coverage requirement of 70% as required by the RBI. What this tells us is that if the banks work towards achieving this ratio in the coming quarters, the losses of these banks will only go up. This would also mean eating into the capital of the bank.

Also, it is worth asking here what portion of the bad loans will the public sector banks be able to recover? The answer is not encouraging if we look at the numbers of the two biggest banks—the State Bank of India and the Punjab National Bank.

During the course of this financial year, the State Bank of India has managed to recover loans of Rs 2,761 crore. During the period its bad loans jumped up from Rs 56,725 crore to Rs 72,792 crore.

How do things look for Punjab National Bank? During the course of this financial year, the bank has managed to recover loans worth Rs 6,382 crore. During the same period, the bad loans of the bank have jumped from Rs 25,695 crore to Rs 34,338 crore. For both, State Bank of India as well as Punjab National Bank, there has been a huge jump in the loans recovered in comparison to April to December 2014. Nevertheless, the total amount of bad loans has gone up as well, in effect negating the recoveries. And this doesn’t augur well for the banks.

My guess is that public sector banks losses will eat into their capital in the months and years to come and the government (i.e. the taxpayer) will have to keep coming to their rescue by infusing fresh capital into these banks. Since 2010, the government has pumped in Rs 67,734 crore into public sector banks. It will have to put in a lot more money in the days to come.

As Michael Pettis writes in The Great Rebalancing: “Traditionally the cost of a banking crisis is borne directly or indirectly by households. Whether it is in the form of foregone deposits, government bailouts funded by household taxes…Households always foot the bill for banking crisis.”

The situation in India will be no different.

The column was originally published in the Vivek Kaul Diary on Equitymaster on February 16, 2016

15 February, 2016

Rajan Explains what’s Exactly Wrong with Public Sector Banks

In a speech he made last week Raghuram Rajan, the governor of the Reserve Bank of India, put forward some very interesting data points.

It is well known by now that the lending growth of public sector banks has been very slow as they grapple with burgeoning bad loans. Nevertheless, agglomerated data on the loan growth of public sector banks is generally not available in the public domain.

As Rajan said: “Non-food credit growth from public sector banks, the more stressed part of the system, grew at only 6.6% over the calendar year 2015. Industrial credit growth for PSBs was only 3.3% while growth in lending to agriculture and allied lending was only 10.4%. The only area of strength was personal loans, where growth was 16.9 %.”

Banks give out loans to the Food Corporation of India to run its operations. After adjusting for these loans, what remains is the non-food credit growth. The overall non-food credit in 2015 grew by around 9.3% (actually between December 25, 2014 and December 24, 2015) against 6.6% of public sector banks. This tells us very clearly that the loan growth of public sector banks has been significantly slower than the overall loan growth of banks.

In fact, the only area where lending of public sector banks has been robust enough is what RBI refers to as personal loans. These personal loans are different from what banks refer to as personal loans. Personal loans as categorised by RBI include home loans, vehicle loans, education loans, credit card outstanding, loans given against fixed deposits, shares and bonds and what banks call personal loans.

How does the situation of public sector banks look in comparison to private sector banks? As Rajan said: “In contrast, non-food credit growth in private sector banks was 20.2 %, in agriculture 25.4%, in industry 14.6%, and 23.5% in personal loans. Put differently, in each of these areas except personal loans, loan growth in private sector banks was at least 10 percentage points higher than public sector banks, while loan growth in personal loans was 6.6 percentage points higher.”

The loan growth of private sector banks at 20.2% was significantly higher than that of public sector banks at 6.8%. As Rajan put it: “The most plausible explanation I have is that the stressed balance sheet of public sector banks is occupying management attention and holding them back, and the only way for them to supply the economy’s need for credit, which is essential for higher economic growth, is to clean up. The silver lining message in the slower credit growth is that banks have not been lending indiscriminately in an attempt to reduce the size of stressed assets in an expanded overall balance sheet, and this bodes well for future slippages.”

Hence, public sector banks have been going slow on lending primarily because they already have a huge amount of bad loans piled up and they don’t want to continue to lend indiscriminately and have more bad loans piling up. What Rajan is essentially saying here is that the public sector banks could have continued on their indiscriminate lending spree and expanded on their loan books. In the process, the total amount of bad loans as a proportion of the total loans given out by banks, would have come down, at least for a short-time.

The fact that they did not do that is a good thing, feels Rajan. But the damage of their indiscriminate lending in the past is now coming out in the open. Take a look at the following table.

Extent of the problem

The bad loans plus restructured assets plus the assets written off in total made up for 17% of the books of public sector banks. This means that for every Rs 100 of loan given by public sector banks, Rs 17 worth of loans are in dodgy territory. Rs 6.2 have become a bad loan, where the repayment of the loan by the borrower has stopped happening. Rs 7.9 has been restructured i.e. the repayment of the loan has been placed in a moratorium for a few years. In some cases, the borrower does not have to pay the interest during the moratorium period. In some other cases the tenure of the loan has been extended. Further, Rs 3 out of every Rs 100 has been written off, with no hope of recovery of the loan.

Now how do private sector banks and foreign banks perform on the same parameters? Take a look at the following table.

Divergent NPA trends

What the table tells us very clearly is that the situation in private banks and foreign banks is significantly better than public sector banks. In private sector banks Rs 6.7 out of every Rs 100 of loans is in dodgy territory. In case of foreign banks, the number is even lower at Rs 5.8.

What this tells us very clearly is that the problem of bad loans is largely limited to public sector banks. And it is interesting that the large borrowers are primarily responsible for the mess in the banking system. This becomes clear from the following table. Public sector banks make up for close to three-fourths of the Indian banking system.

Divergent NPA trends

As can be seen from the table medium and large industries are primarily responsible for the mess in the banking sector. Rajan also said during the course of his speech that all bad loans were not because of malfeasance. As he said: “Let me emphasize that all NPAs are not because of malfeasance. Indeed, most are not. Loans can go bad even if the promoter has the best intent and banks do the fullest due diligence before sanctioning. Nevertheless, where there is evidence of malfeasance by the promoter, it is extremely important that the full force of the law is brought against him, even while banks make every effort to put the project, and the workers who depend on it, back on track.”

Let’s sincerely hope that this happens, else we will have a situation where banks will have to write off more and more of their bad loans, with the taxpayer having to pick up the ultimate bill. And that can’t possibly be a good thing.

The column originally appeared on the Vivek Kaul Diary on February 15, 2016

12 February, 2016

I am Happy that State Bank of India’s Profit Fell by 62%

The country’s largest bank the State Bank of India (SBI) declared its results for the period October to December 2015 (or what analysts like to call the third quarter) yesterday. And the results were disastrous with the net profit falling by 61.7%.

The second largest public sector bank, the Punjab National Bank, declared its results for October to December 2015, earlier this week. And its results were even more disastrous than that of SBI, with the net profit falling by 93%. In fact, the bank would have made huge losses if not for tax reversals of Rs 910 crore.

Banking is a stable business, where banks borrow at a certain rate of interest and lend at a slightly higher rate of interest. Of course everybody who takes a loan does not repay it. But if banks keep provisioning (i.e. setting aside money) for such loans in a proper way, such a huge fall in net profit, can only happen under exceptional circumstances.

Over the last one year, I have written in great detail about the mess that public sector banks are in. And it’s all coming out in the open now. In fact, many banks have been evergreening their loans by giving fresh loans to borrowers so that previous loans can be repaid.

Further, they have been under-declaring their level of bad loans by restructuring loans and kicking the can down the road. Nearly 40% of the restructured loans have gone bad over the last two to three years.

When a bank restructures a loan it allows the borrower a certain moratorium period of few years, in which the borrower has to pay only the interest on the loan. In some cases, interest also does not have to be paid. This is done in the hope that after the moratorium the borrower would have managed to turn around the business and be in a position to repay the loan. In some other cases, the tenure of the loan is increased.

But this facility has been abused by the banks, and loans which were bad in the first place (i.e. the borrower was not in a position to repay it), have also been restructured. This has allowed banks to pass off bad loans as restructured loans and continue to present a rosy set of numbers.

The Reserve Bank of India governor Raghuram Rajan calls this the band-aid approach. In fact, this approach entails banks giving fresh loans to the promoter as well. As Rajan said in a speech he made yesterday: “There are two polar approaches to loan stress. One is to apply band aids to keep the loan current, and hope that time and growth will set the project back on track. Sometimes this works. But most of the time, the low growth that precipitated the stress persists. The fresh lending intended to keep the original loan current grows. Facing large and potentially unpayable debt, the promoter loses interest, does little to fix existing problems, and the project goes into further losses.”

What Rajan is essentially saying here is that the band-aid approach followed by banks up until now has not been working. And what is needed is essentially a surgery. As Rajan said: “To do deep surgery…the bank has to recognize it has a problem – classify the asset as a Non Performing Asset (NPA).”

A loan is typically declared to be a non-performing asset (or a bad loan), 90 days after the borrower starts defaulting on the interest and principal payments. When this happens a bank can no longer continue to accrue interest on the portion of the loan that remains unpaid. It has to start making provisions i.e. start keeping money aside.

For the first year, after the loan has been categorised as a non performing asset, it is referred to as a sub-standard asset. On this loan, the 15% of the outstanding loan amount needs to be set aside a provision. At the end of the year, the loan becomes a doubtful asset. In this case the scale of provisioning goes up. In the first year that a loan remains a doubtful asset, the level of provisioning has to go up to 25%. In the second year, the level of provisioning has to go up to 50%. And in the third year, the loan is categorised as a loss asset and the provisioning has to go up 100%.

As Rajan said: “If the bank wants to pretend that everything is all right with the loan, it can only apply band aids – for any more drastic action would require NPA classification. Loan classification is merely good accounting…It is accompanied by provisioning, which ensures the bank sets aside a buffer to absorb likely losses. If the losses do not materialize, the bank can write back provisioning to profits. If the losses do materialize, the bank does not have to suddenly declare a big loss, it can set the losses against the prudential provisions it has made. Thus the bank balance sheet then represents a true and fair picture of the bank’s health, as a bank balance sheet is meant to.”

And this is precisely what has happened with banks like State Bank of India and Punjab National Bank. Let’s understand this in the case of the State Bank of India. The non-performing assets of the bank went up by Rs 20,692 crore (or what are referred to as fresh slippages). The number was at Rs 5,875 crore during the period July to September 2015. This implies a huge jump. What does this tell us? It tells us very clearly that the bank is finally recognising that there is a problem and that has led to this huge jump in non-performing assets. And that is a good thing.

The net increase in gross non-performing assets is Rs 15,959 crore after adjusting for recoveries and write-offs (i.e. loans on which 100% provisioning has been carried out).

Given that the fresh slippages have gone up by Rs 20,692 crore, the provisioning against these bad loans (i.e. setting aside money) has also gone up. The provisioning has gone up by 58.9% to Rs 7,645 crore, in comparison to the same period in 2014. This means more money is now being set aside to tackle the problem of bad loans. And this is the main reason why the bank’s net profit fell by 61.7% to Rs 1,115 crore. Interestingly, the operating profit of the bank (earnings before tax and provisioning) went up by 2.25% to Rs 9,598 crore.

This trend is visible right across public sector banks in their third quarter results. It tells us very clearly that the Rajan led RBI is cracking the whip and forcing banks to project a correct state of affairs. And that is a good thing as Rajan explained in his speech. I hope this continues in the coming months because the first step to tackling a problem is to recognise that it exists.

The column originally appeared in Vivek Kaul’s Diary on February 12, 2016