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Seeking Answers On Basel III

| 7/12/2012 9:00 PM Thursday

Helping Investors

Thank you for sending me the latest issue of Dalal Street Investment Journal. I think the article ‘Cyclical Sectors May Yield Good Returns’ (DSIJ Vol. 27, Issue No. 14, dated July 1, 2012) has come out quite well. I must compliment you on your magazine. It is very informative from the investors’ perspective.

We look forward to a good association considering we are in the same industry and working towards the same goal of ensuring that investors benefit from advice and services.

- Rajnish Kumar
CEO, Fullerton Securities & Wealth Advisors

Good Coverage

I am fully aware that Dalal Street Investment Journal is synonymous with indepth research, clarity of thought and an expert panel of journalists with market expertise. I certainly believe that stories have to be factual, and am glad that the recent cover story ‘A Low-Spirited Performance’ featured in the July 1, 2012 issue has articulated the auto environment well enough. It was an interesting and informative read.

Please accept my appreciation for a story well written, and keep up the good work.

- A K Sonthalia
Executive Vice President & CFO, Greaves Cotton

Seeking Answers On Basel III

I read your Special Report ‘Basel III: What It Spells For Indian Banks’ (DSIJ Vol. 27, Issue No. 14, dated July 1, 2012) with eager interest, but found it incomplete.

  1. Reports of Basel I & II are necessary at least for Indian banks – how they have complied, how many went bust, why co-operative banks are going bust, as well as related topics like why a stress test is not carried out for our banks (as done for the US/European banks). A report card is a must for us to go in for the Basel III norms.
  2. A report card regarding asset quality/why gross NPAs are rising (i.e. why public sector banks are reluctant to lend money, they want to do away with their net performing assets by their profit, etc.). Who is responsible for this? What action has the government/RBI taken?
  3. You mentioned on Page 30 that the price-to-book value for PSBs should be greater than 1. Why? This result has not been explained.
  4. Let us have the Basel III prudential norms in detail, only then can one comment on the matter.
  5. Let there be RTGS for the Basel III norms. How many banks can stand for it?

Why is the government subsidising/giving money to banks? Let the banks issue shares for this. After all, it is the taxpayers' money which is being laundered by the government. So, why are magazines like yours keeping mum over it?

- D D Panse

Reply -

Thank you for your detailed comments.

With regard to the third point that you have made, we would like to clarify here that we did not say that PSBs should have a price-to-book value greater than 1. What we said is, “the norms will negatively impact the banks that are trading at an adjusted price-to-book value of lower than 1, as capital raising would lead to dilution in the EPS and book value”.

 

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