Modi to join policy brainstorm for struggling state banks

MUMBAI: India's state-run lenders will probably be the focus of a historic two-day gathering of bank chiefs and regulators as they seek to reverse the companies' lowest profitability rates in at least nine years.

India's Prime Minister Narendra Modi, Reserve Bank of India Governor Raghuram Rajan, Finance Minister Arun Jaitley and heads of government lenders will assemble in Pune, a city near Mumbai, to thrash out policies to help boost earnings and capital ratios, according to Reliance Securities Ltd. The session starts tomorrow and Modi will take part on Jan. 3.

The meeting could help Modi's efforts to bolster the economy by improving the health of lenders that account for more than 75 percent of loans in India. Higher amounts of soured debt and slower credit growth than private banks dragged state lenders' return on assets to 0.5 percent in the year to March 31, the lowest since at least 2005, central bank data show.

"This is the first time we are seeing an event of this proportion," Asutosh Kumar Mishra, a Mumbai-based banking analyst at Reliance Securities, said by phone. "A road map for improving productivity, capital adequacy and profitability at the state-run banks should be coming out of this."

State Bank of India, the country's largest lender by assets, gained 0.8 percent to 314.35 rupees as of 10:12 a.m. in Mumbai today. Bank of Baroda rose 0.3 percent and Canara Bank 0.8 percent.

Delegates at the retreat, known as "Gyan Sangam" or "confluence of knowledge," will discuss ways to improve the efficiency and recovery of nonperforming loans, the government said in a Dec. 24 statement posted on its website. The state-run banks require reforms to "improve and consolidate" their position, according to the statement.

Other topics that will be discussed include the use of technology in banking operations and plans to boost banking services and literacy among more marginalized segments of the population, the statement showed. A draft plan on possible reforms will be presented to Modi on Jan. 3.

"We are not expecting any immediate surprises," Hatim Broachwala, a Mumbai-based banking analyst at Nirmal Bang Securities Pvt., said by phone yesterday. "It's going to be a long-term process to turn around the public-sector banks. Hopefully plans to capitalize banks and consolidate them will emerge from this meeting."

Lax underwriting processes at some of the state-run banks is one reason for their higher stressed-asset ratios and declining capital buffers, which also curtails their ability to lend, Broachwala said.