Despite huge losses made by large public sector banks in the fourth quarter of 2017-18, the government has indicated it may not increase the capital allocation beyond what had already been budgeted.
“The capitalisation amount which we have worked out is sufficient,” said Rajiv Kumar, Secretary, Financial Services in the Finance Ministry, on the sidelines of an event.
“We have with us which is nearly ₹65,000 crore which is the leftover of ₹2.11 lakh crore. That capital is intact, that’s budgeted and it is with us,” he said when asked what kind of support the government could provide to the banks in the wake of mounting losses. Mr. Kumar said there were other avenues for banks to raise funds like selling of non-core assets.
Last year, the government had announced a ₹2.11 lakh crore capitalisation plan for the public sector banks for two years, including ₹1.35 lakh crore via recapitalisation bonds. The government had already allocated the capital of the previous financial year.
Following stricter norms on bad loans, many banks, including the country’s largest lender State Bank of India and the second largest, Punjab National Bank, reported a loss of ₹7,718 crore and ₹13,400 crore respectively in the Jan.-March quarter.
Cleaning of books
“One or two quarters no issues. It’s the cleaning of the books, transparently recognising everything, and in the process even if there is a provisioning requirement or even if there is a loss, it’s okay. We are ready to take this,” Mr. Kumar said. “The future and the roadmap is only that worst is over and it’s only the positive which can take place now. It is visible in the credit offtake.”
The Finance Ministry is also planning to rate public sector banks based on their performance and make the rating available on public domain. “We are ranking all the banks on the reforms and at the end of every year, we will make that ranking public. So, its a report card to the citizen on the health of each bank,” Mr. Kumar said.
The government may start announcing the ranking from the next financial year taking into account this year’s performance. Future capital infusion in banks may depend on how the bank fare in these rankings.
CEO appointments
With the CEO post in three public sector banks remaining vacant and another divested of portfolios, the Finance Ministry said the Bank Board Bureau was in the process of selecting the candidates. “We are aware of it and the banks board bureau is in the process of selecting the candidates. We are in the process of bringing the best possible talent to the banking industry,” Mr. Kumar said. The CEO’s post in Dena Bank, Andhra Bank and Punjab and Sind Bank is vacant, while the board of Allahabad Bank has divested its MD & CEO Usha Ananthasubramanian of power after investigative agencies named her in the charge sheet filed in the Nirav Modi scam.
Mr. Kumar said that the BBB was also in the process of selecting a new CEO for Allahabad Bank.
Banks under PCA
Mr. Kumar said the Finance Ministry had asked all the banks that were facing restrictions under the prompt corrective action framework of RBI to come out with a specific plan for the future. “It includes their business strategy, niche areas, sale of non-core assets, capital requirement. The government is committed to give them the regulatory capital and maintained their capital adequacy levels,” he said.
