A key action point for banking sector reforms thrown up at the maiden PSB Manthan, held last November, was to rationalise overseas operations across all public sector banks (PSBs). Subsequently, in March, the Department of Financial Services (DFS) had asked the state-owned banks to examine their collective 216 overseas operations to enhance cost-efficiencies.
Lenders have lost no time in following this order. Citing a senior Finance Ministry official, The Indian Express reported that PSBs are expected to close down nearly one-third of their foreign branches and other operations by the end of this year.
"The banks have initiated sale of non-core assets, closure of unviable branches and other steps to reduce capital. So far, they have closed down 37 overseas operations and another 60-70 operations will be closed down by the end of the year. These operations are a combination of full-fledged branches, representative offices and remittances offices," the official said, adding that some of the branches are being converted into smaller representative offices.
For instance, State Bank of India (SBI) is in the process of closing down nine foreign branches. "Branch rationalisation is an ongoing process. I think every branch has to justify its existence. So unless it is commercially viable, it doesn't make sense for us to be operating particularly in foreign locations," SBI's Managing Director Pravin K. Gupta told PTI last month. SBI has previously closed six foreign branches while some branches in Sri Lanka and France are reportedly being converted into representative offices.
Several other PSBs are in a similar retrenchment mode. Bank of India, Andhra Bank, IDBI Bank and Indian Overseas Bank closed down their Dubai operations while Punjab National Bank, Canara Bank and Union Bank of India shut their Shanghai offices. Bank of India also closed down operations in Yangoon and Bostwana, while Bank of Baroda shut down its Hong Kong branch.
According to the daily, leaving aside profitable operations - like the remittance offices in Gulf countries such as Oman and UAE - those not generating enough revenues are being closed down. Lenders are also merging smaller branches into bigger ones, and consolidating equity stakes in overseas joint ventures in order to cut costs and preserve capital. Moreover, banks are already in the process of obtaining regulatory approvals for shutting down full-fledged branches, which the source claimed is a time-consuming exercise.
There's another reason why the PSBs are on an overdrive to rationalise overseas operations - FinMin's carrot of capital infusion. Last October, the government had promised a whopping Rs 2.11 lakh crore capital infusion to strengthen the NPA-hit PSBs, of which Rs 65,000 crore is yet to be doled out. But in order to bag a share of this kitty, lenders have to meet specified milestones, including actively tackling their bad loans problem, arranging capital from the market and shutting down loss-making branches at home and abroad. Shutting unviable operations will free up capital, which the banks can then deploy for domestic operations.
That is a particularly pressing need for most PSBs since only two players managed to post a net profit in the year ended March 31 - Vijaya Bank and Indian Bank. The remaining 19 state-owned banks collectively ran up a loss of nearly Rs 10 crore per hour during the last fiscal.
Things aren't looking good for the current fiscal, too. The RBI's Financial Stability Report released last month predicted that the Gross NPA (GNPA) ratio of scheduled commercial banks is likely to rise in the current fiscal.
Furthermore, referring to the PSBs under its prompt corrective action framework (PCA), the RBI said that they may experience "a worsening of their GNPA ratio from 21 per cent in March 2018 to 22.3 per cent by this fiscal-end". The 11 banks under the PCA framework are IDBI Bank, UCO Bank, Central Bank of India, Bank of India, Indian Overseas Bank, Dena Bank, Oriental Bank of Commerce, Bank of Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank.
With PTI inputs