NO GLOBAL MELTDOWN FOR US: RBI UNDERTAKES SWACHH BANKING SECTOR ABHIYAAN  

It was a different Thursday altogether, at least for the stock markets. MadamYellen’s testimony reiterated what future is going to look like for global financial markets. Volatility is going to be the basics for stock markets world over. Her statements made it clear that central banks themselves are on an uncertain path and all policy decisions for the US FED are going to be relative to both domestic and global developments for next March meeting. US Fed meeting coincided with bank results in Europe and thus market turmoil worsened. But the actual culprit is Mr Kuroda and his negative interest rate policy leaving financial markets stumped as Japan also started following below zero interest rates similar to European countries already in recession.

But what happened to us. Okay rest of the world also had a hard landing but our indices lost more than 3% in a single day. This time it’s just not them, it is also us. Sate Bank of India came up with its quarterly results with a 70% fall in profits and provisions going up by a whopping 60% YOY and 83% QOQ. That was disastrous and unexpected by the markets. Though the rest of PSU banks were giving poor results with Dena bank, Allahabad bank and IOB even reporting negative quarterly profits, SBI’s quarterly performance was like last nail in the coffin.

Our Governor at CII’s banking summit yesterday did his best to put issues at rest with respect to Indian banking sector. RBI duly supported by the central government is on a clean up drive which might be painful in the short run but was long overdue. Since, 2008 crises, PSU banks were forced to lend heavily to power & infrastructure sector and even below their base rates. Although banks are in better position since then especially with respective to administration and decision making process with change of guard at center, old cobwebs have to cleaned, unwanted stuff has to be discarded to let in new hope for the future. Without this clean up, growth would be very difficult for public sector banks which still accounts for 70% of the total banking sector. Any major infrastructure or power project in India is financed by consortium of PSU banks. Thus economic growth would be hindered, if our PSU banks are not fully healthy and financially sound.  These quarterly results with high provisions and low banking profits should be viewed as an aberration and not a regular feature for our banking sector. Mr. Raghuram Rajan has put Indian banks on an irreversible path of growth and stability and we should pray that either his term gets renewed or he joins the government.