Desperate Measures

Shifting the heads of three large PSBs may not bring any respite to the trouble-torn banking space.

Shifting the heads of three large PSBs may not bring any respite to the trouble-torn banking space

It is not the best of times for public sector banks ( PSBs) in India, neck deep in trouble due to deteriorating asset quality. In an unprecedented rejig, the government has transferred the heads of three large PSBs to smaller banks even though they have spent less than two years in their current roles. This means they were struggling to cope with legacy issues and capital constraints, but the government was in no mood to show leniency. The heads rolled because they did not deliver and failed to tackle the huge accumulation of nonperforming assets or NPAs.

Bank of India’s Chief Executive and Managing Director Melwyn Rego, who was handling assets over `6 lakh crore, will now head Syndicate Bank with assets of `3 lakh crore-plus. Usha Ananthasubramanian, MD and CEO of Punjab National Bank ( PNB), is moving to Allahabad Bank. It is a small portfolio as she will now handle assets over `2 lakh crore instead of `6 lakh crore. Earlier, IDBI Bank chief Kishor Kharat, who used to manage `3.5 lakh crore, was shifted to Indian Bank, which has an asset base of nearly `2 lakh crore. Rego was deputy MD at IDBI Bank for two years before he was promoted as Bank of India CEO.

The recent shifts outline how keen the government is to resolve the long-standing NPA crisis. But the question remains: Is this move justified? Let us delve into it further.

Bad Legacy

Those shifted from their current positions did not create the existing NPA mess, especially at these banks, if one takes into account their movements to and fro. Prior to joining IDBI Bank, Kharat worked with Union Bank of India. Rego came to Bank of India from IDBI Bank as he was promoted. Ananthasubramanian joined PNB from Bhartiya Mahila Bank. All of them inherited huge and rising NPAs from their predecessors.

Dip in Asset Quality

The banks’ profitability was affected due to Reserve Bank of India’s ( RBI) asset quality review, which called for higher provisioning. The incumbents joined their respective banks at the end of 2015. During the first full financial year in 2016/17 (nine-month results are available) under their stewardship, NPA provisioning went north due to regulatory diktat. For instance, under Rego, Bank of India’s provisioning went up to ` 7,000 crore from around ` 3,500 crore. Similarly, the provisioning doubled under the tenure of PNB’s Ananthasubramanian and IDBI’s Kharat.

Short Tenure

The tenure of less than 18 months is too short to judge the performance of a Chief Executive heading a bank with an asset size of `4-6 lakh crore, especially in a challenging environment. There was limited capital support from the government and the valuations had hit rock bottom, which restricted their ability to raise capital from the market.

Stuck Resolution Process

No support came from the existing resolution mechanism either. Consequently, NPAs piled up with no recovery in sight. The government and the RBI are working towards some effective solutions but, meanwhile, these CEOs are gone.~

PROFITABILITY WAS AFFECTED DUE TO RBI’S ASSET QUALITY REVIEW, WHICH CALLED FOR HIGHER PROVISIONING