Scam no risk to PSU banks, LICHF books: Brokers

For instance, LICHF`s total exposure (in the cases currently investigated by CBI) constituted only 0.6 per cent of its balance sheet (amounting to loans of Rs 300 crore and exposure to DB Realty is Rs 180 crore). In a release, LICHF made it clear that its developer portfolio stands at 11.34 per cent of total loan book, which is secured by assets and the entire developer loans are performing loans.

However, LICHF will have to contend with the bigger impact  in terms of reputational risk, as unlike other PSU banks where a lower-ranked official or a non-executive has been named in the scam, in LICHF`s case it is the CEO himself who has been implicated.
Speculation is rife over various numbers being suggested by industry sources, but there is not enough data as yet to put a definitive number to guage the magnitude of this scam, say investment bankers.  It is not clear as to how much of the corporate loans (especially to realty developers) was released above the mandatory norms.

Ambit Capital says: “It would be premature to cast aspersions on the asset quality of a bank, from isolated incidents such as these - also, this should not be construed as a malaise that afflicts PSU banks alone.” 

The practice was widely prevalent during the appraisal stage of various credit proposals, it said and pointed out that over the last 18 months, many PSU banks have already addressed this malaise by curbing the sanctioning powers / limits at an individual level.

Most banks have set up credit committees where at least 5-6 people are involved at the credit appraisal stage. ICICI Securities avers that this(scam) does not lead to any systemic danger since the alleged forgery is against individuals and is a bribery case and hence not against companies (as clarified by the department of finance and banking secretary). However, the event specific reaction would keep the stock under pressure..., it said.

As the details on loans of developers under investigation have not been disclosed by CBI, Religare Capital Markets views that credit losses for these banks and LICHF are unlikely to be significant, as these loans generally have a good collateral cover. 

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