Ambit Capital red flags banks’ books

FINANCIAL Services firm Ambit Capital, in a recently released report has said that there has been a decline in the quality of banking supervision by the Reserve Bank of India over the last four years. It has advised investors to shun large Indian banks where the asset quality is suspect and profits and net worth are heavily overstated. The report has further said that disclosures across Indian banks are inadequate and non-uniform and that some of them were overstating their net worth.

"We urge investors not only to be vigilant about Indian banks' dodgy financial statements but also to step up the pressure on these banks to get their act together," said the report prepared by Saurabh Mukherjea of Ambit Capital.

"We reiterate that investors should shun large Indian banks where asset quality looks highly suspect and where profits and networth are obviously heavily overstated," the report added.

The report says that financial statements of both public and private sector banks are no longer worth the paper they are written on and has also raised concern over the aggression practised by the CEOs of the banks.

The report however approves the financial statements of three large banks —ICICI Bank, Bank of Baroda and Kotak Mahindra Bank.

The firm has raised its concern over rise in restructured portfolio of banks and said that the proportion of restructured advances soared over the last four years to 3 per cent of loans outstanding as of March 2012, and has continued rising further during first half of FY'13.

According to the report, this was after August 2008 when YO Reddy, the then governor of RBI allowed a degree of regulatory forbearance and permitted banks to restructure loans without having to downgrade the asset classification.

The report claims that while RBI turned a blind eye to banks that allegedly cooked their balance sheets, during FY'11 and FY'12.

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