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The banking sector, which makes up a fourth of the listed universe of companies, finds a rather cursory mention in the BJP manifesto. Yes, the manifesto talks about inflation, interest rates and bad loans, but stops short of proposing concrete solutions to the woes plaguing banks, be they rising bad loans, interest rates or poor credit offtake.
The manifesto has listed out a number of measures to tackle the stubborn inflation. These include containing black marketing and hoarding, setting up a price stabilisation fund, evolving a single National Agriculture Market and so on. These have the potential to curb food inflation, not quickly, but over the long term. But the energy and fuel components of inflation are reliant on global factors and may not easily respond to policy measures.
We know that as long as inflation remains high, an easy money policy is unlikely , with the RBI setting its own inflation target at 8 per cent by January 2015.
That’s probably why the manifesto stops short of saying interest rates will be lowered and dwells, instead, on ‘rationalisation’ of interest rates. Lower rates can benefit banks in two ways. First, by reviving investment activity and boosting credit offtake.
The loan growth for banks has declined to 14 per cent in the last two years from 17-20 per cent in previous years. And the other, reducing the interest burden will take some pressure off delinquent borrowers, possibly alleviating the bad loan situation.
Route to recoveryIn the last one year, bad loans have worsened, particularly for PSU banks.
Stressed loans (bad plus restructured loans) now exceed 10 per cent of all advances, locking up ₹5.8 lakh crore in bank money.
The manifesto talks of steps to reduce NPAs without actually spelling these out. Banking sector reforms and a strong regulatory framework for NBFCs also find mention, again sans any details.
In fact, by not outlining any specific policy for banks, the BJP is probably only admitting to the truth. The only way for the sector to return to high credit growth, better asset quality and better margins is through a revival in industrial activity. Five sectors — Infrastructure, Iron & Steel, Textiles, Aviation and Mining — account for over half of all stressed advances.
These are core sectors where investment activity and policy clearances have come to a standstill.
If the BJP is keen to set right Indian banks, it needs to move ahead on these sectors.
Who loses: PSU banks stocks with higher stressed assets such as SBI, PNB, BOB, Central Bank, Bank of India
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