Operating environment becomes complex, lenders need to look beyond NPAs: SBI

New Delhi : The coming years will be very challenging for banks which will have to look beyond the bad loan resolution and address pressing issues such as frauds, cyber security and governance, SBI has said.

The operating environment has become increasingly complex, the state-owned bank said in its Annual Report 2017-18. Resolution of stressed assets has progressed satisfactorily and the final outcome will take some more time to reflect in the profit and loss (P&L), it said, adding that this delay is mainly because new laws take some time to mature in practice, .

“The coming years will be very challenging for the banking system as a whole,” said the country’s largest lender.

“The structural transformation of banks must move beyond the non-performing asset (NPA) resolution and address other pressing issues, such as frauds, customer retention and servicing , human resource, cyber security and governance,” it added.

SBI said the policy initiatives over the last four years have gathered momentum with far reaching structural transformation in all sectors and banks are unlikely to remain untouched by these changes.

With capital infusion in PSBs, it will be up to them how they grab the opportunity and deploy technology to address some of these pressing issues, the report said. As on March 31, 2018, the gross NPAs of SBI rose to Rs 2,23,427 crore (10.91 per cent of the gross advances), from Rs 1,77,866 crore (9.11 per cent) by end-March 2017. The bad loans grew to Rs 1,10,855 crore (5.73 per cent) from Rs 96,978 crore (5.19 per cent).

“The year 2017-18 was a difficult year as far as net profits are concerned. The main contributing factors being increase in loan loss provisions, mark to market losses on government securities and provisions and payments to employees,” Chairman Rajnish Kumar said in the report.

The banking environment remained eventful in 2017-18 as asset quality, resolution of stressed assets and muted credit growth in first half continued as major challenges for most banks.

“Higher NPAs impacted interest income adversely and led to elevated provisions, thus putting pressure on the profitability of banks. Further, some PSBs have been put under the Prompt Corrective Action (PCA) framework of RBI, which puts restrictions on key areas viz. dividend payment, branch expansion..,” it said.

The external environment has become more uncertain, despite a positive outlook on growth, it said, adding that trade wars have become more acute and the situation will continue in 2018 in the same direction. So, the banks across the world have revisited their foreign business strategy in line with growing risks, it said.

“Such cautions prevails among Indian banks as well. The government has advised banks to rationalise their foreign branches. However, this does not constitute a blanket withdrawal but a more realistic strategy in line with changing trade patterns of the country. This rationalisation in foreign business will therefore continue,” SBI said.

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