This is bad news for the Banking Industry

Rising interest rates accompanied by a rise in inflation is bad news for the banking industry. This will have a huge impact on PSBs and they may have to book huge losfs on account of revaluation of securities held in the Asset for Sale portfolio. Already facing the heat due to ballooning NPAs, this development is most unwelcome. After demonetisation banks were forced to invest in long-term securities to earn a steady income.The NPAs of PSBs are expected to go up putting further pressure on the income of banks. With 10 banks already placed under Prompt Corrective Action framework leading to loss of deployment opportunities, the financial sector is passing through a critical period. Banks will be under increased pressure due to fall in capital adequacy ratio culminating in fall in ROA. With the extended timeline for full implementation of the Basel III capital regulations set for March 31, 2019, the Government has to hasten the process of capital infusion.Merger is no solution but stricter management and compliance with rules, and administration with tight control with accountability is the need of the hour. Most banks have properties to cover required funds in theory which cannot be sold off. But if banks’ sale is offered with cent per cent safety and repayment of deposits, there will be many offers. Still banks with huge NPAs can be managed without merger, and safeguarding existing depositors and account holders. Professional management without any reservation and political considerations can revive ailing banks.

Source: BusinessLine

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