Government to soon recapitalise some PSBs with Rs10,000 crore
The government is likely to recapitalise some state-run banks in urgent need by up to Rs10,000 crore within a few days to help them meet regulatory capital requirements, official sources said on Tuesday.
 
According to the Finance Ministry sources here, these banks, which include the Punjab National Bank (PNB), Corporation Bank and the Central Bank of India, are under pressure to make interest payment to bond holders of their Additional Tier 1 bonds.
 
The high accumulated non performing assets (NPAs), or bad loans, of banks and the consequent provisioning for these, has hugely dented bank profits, while the government has decided to recapitalise four-five banks which are facing "acute shortage and risk breaching the regulatory capital requirement", the officials said. 
 
The fresh round of capital infusion of between Rs 8,000 and Rs 10,000 crore may take place within this week, or latest by the next, in these public sector banks (PSBs).
 
Last October, the Union Cabinet approved a Rs 2.11 lakh crore recapitalisation plan for PSBs.
 
In January this year, the government notified the recapitalisation bonds to allocate Rs 80,000 crore to 20 of these state-run banks. The bonds, split into six instalments, bear interest rates between 7.35 per cent and 7.68 per cent and will mature between 2028 and 2033.
 
The State Bank of India (SBI) will receive the biggest share of capital from the recapitalisation bonds, estimated at Rs 8,800 crore, followed by the IDBI Bank at Rs 7,881 crore and the Bank of Baroda at 6,975 crore.
 
As per the plan, PSBs are to get Rs 1.35 lakh crore through recapitalisation bonds, and the balance Rs 58,000 crore through raising of capital from the market.
 
The NPAs in the Indian banking system have reached a staggering level of Rs 9 lakh crore, while the bad loans of only the state-run banks add up to nearly Rs 8 lakh crore.
 
The government has embarked on a two-pronged strategy on bad loans.
 
On the one hand, it has brought in the Insolvency and Bankruptcy Code (IBC) which provides for a six-month time-bound insolvency resolution process, and on the other, it has adopted the recapitalisation plan to support the PSBs.
 
Commenting on the development, Acuité Ratings & Research President-Ratings Suman Chowdhury described the proposed fund infusion in PSBs as a significant affirmative action which will assure the bank bond investors of continuing government support. 
 
"It reinforces our belief that the government would continue to support the PSBs particularly those under PCA (prompt corrective action) of the RBI and would not allow regulatory capital breaches which might lead to defaults in hybrid and perpetual instruments," Chowdhury said in a statement.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 

 

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COMMENTS

B. Yerram Raju

5 months ago

Recap should be conditioned by rigid monitorable performance parameters. These should include responsible lending to the MSMEs and Agriculture in rural areas.

REPLY

Govinda Warrier

In Reply to B. Yerram Raju 5 months ago

Dr Raju, please correct me if I'm wrong. My perception is, in recent years, RBI has more freedom to initiate corrective action as and when deficiencies are noticed in the working of banks. The huge figures of NPAs etc now being discussed are the result of laxity in the past.

The Sour Experience of Bank Nationalisation
On 19 July 1969, the Indira Gandhi-led Congress government nationalised 14 commercial banks of the country. A few days before the 50th anniversary of that important decision, the current Union Minister of State for Home Affairs Hansraj Ahir wrote to the district collector, Chandrapur, Maharashtra, that salaries for bankers who did not meet the targets under the Micro Units Development & Refinance Agency Ltd. (MUDRA) Yojana should not be paid their salaries. This directive is very similar to the days of Mr. Janardan Poojari, former Union Minister of State for Finance, holding loan melas where he screamed at the bankers who did not achieve the Integrated Rural Development Program (IRDP) targets and handed out punishments. The politics of economics has not changed for the past 49 years of bank nationalisation.
 
Nationalisation of banks was dubbed as a huge reform. It was a rallying point for a lot of agitations pertaining to the banks’ reach to the poor and to sectors like agriculture and small industries, which were totally neglected.
 
More than 50 committees worked at the Reserve Bank of India (RBI) and government of India (GoI) to design a lead bank scheme for ensuring the spread of branches in the first place and later to monitor the targets under the priority sectors. 
 
Initially at one-third of the aggregate lending was aimed at the designated priority sectors; the target has later been scaled up to 40%. Within the priority sector, 45% of the lending was to go to the farm sector. This behest lending, followed by loan write-off diluted the lending discipline. The number of farm loan accounts reached more than two crores by the end of 1990. 
 
The banking reforms committee chaired by M. Narasimham in 1991 called for ushering in competition in banks through allowing private banks and creating large spaces for the public sector banks (PSBs) through consolidation. Its major recommendation for winding up the department of banking remains on paper till date. Economists treated this as a watershed in banking reforms, after which PSBs shut down many of their ‘unviable rural branches’. Let us see the performance of banks since 2001.
 
The RBI quarterly bulletin data on Indian banking shows that while the total credit deposit ratio at the end of December 2001 was 57%, it moved to 77% in 2012 but declined to 75% in 2017. Metro centres constituting 8.88% of branches in 2001 moved up to 17.6% in 2017. During this period, metro deposits moved up from 42% to 51.5% while credit moved up from 60% to 63.8% constituting 93% Credit-Deposit (C-D) ratio. Top 100 centres had a C-D ratio of near 90% at the end of December 2017. Urban, semi-urban and rural centres had a C-D of ratio 53, 57 and 59% in 2017 compared to 68, 33 and 41% in 2001 respectively. 
 
This performance of banks whittles down at once, when viewed in the context of ever rising non-performing assets (NPAs) for the banking sector as a whole, with significant contribution from the nationalised banks. NPAs have now shot past the Rs10 lakhs crore mark, notwithstanding the legal facilitation for recovery provided through the Debt Recovery Tribunals (DRTs), Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFAESI Act), Asset Reconstruction Companies (ARCs), Corporate Debt Restructuring (CDRs), Scheme for Sustainable Structuring of Stressed Assets (S4As), Asset Quality Ratings (AQRs), Insolvency and Bankruptcy Code (IBC) and regular periodical reviews by the Ministry of Finance. 
 
Government ownership of banks at the time of nationalisation was to ensure that the poor and the neglected sectors received their due share of credit. The return on investment for the government was more in ensuring that the welfare objective is achieved than the monetary return. But profit maximization became the major post- liberalisation concern and this has made P.J. Nayak recommend that the government reduce its share and allow these banks to be brought under the Companies Act. 
 
Speed of service by employing technology replaced the essence of quality and better reach. Banks eventually became servants of technology. Discretion in loan sanctions moved around the templates and unqualified projections followed lack of supervision. Cutting costs resulted in cutting the supervisory manpower. Dwindling domain knowledge, greed, and failure of governance have pushed under the carpet the frauds and malfeasance in the nationalised banks to paint a picture that it was nationalisation that played the spoilsport. 
 
The question before the nation today is “Do we need nationalised banks?” My answer would be a straight ‘Yes’. At the same time, I argue for thorough change in governance and shutting down the unprofessional Department of Banking. RBI would do well to appoint a high level committee to get a new direction and energy to deface the marred image of Indian banking that is driving away investments even in a growing economy.
 
NPA reviews commenced at the wrong end without addressing the root cause: short term resources were allowed to be lent for long term purposes. Development Finance Institutions (DFIs), institutions meant for the flow of infrastructure credit and project lending were wound up. Universal banking was introduced with banks doing more non-banking than banking business. The roots of the malaise are so deep that it reminds me of Shakespeare’s Macbeth: ‘Here is the smell of blood still: All the perfumes of Arabia will not sweeten this little hand.’
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COMMENTS

Sanjaya M

5 months ago

It now appears that we are coming back to the old days of Janardhan pujari. Government and Ministers are interfering with operational and personnel policies of the banks. Already the power of appointment of top executives of banks, in the hands of Government, as a majority stake holder in the equity, is playing its role. Every one is forgetting that almost more than 90% of the assets of a bank are built with depositors money and not by shareholders equity. What is that the depositors are getting after you take into account various charges and taxes he is required to pay.
His principle itself is at risk with large NPAs, especially to large borrowers.
May be we require a little different type of banks and their administration, supervision and regulation.

Deepak Narain

5 months ago

You give a gold coin to a wrong person and he will reduce it to dust in no time. So is the case of our incompetent and selfish politicians. We had expected so much from PM Modi!

ED team in Singapore to track down Nirav Modi
In a bid to tighten the noose around fugitive diamond jeweller Nirav Modi, wanted in India in a Rs 13,500 crore Punjab National Bank (PNB) fraud case, a three-member Enforcement Directorate (ED) team has reached Singapore.
 
"Our team is in Singapore to ready the case against Nirav Modi," a highly placed ED source told IANS.
 
The team will meet the authorities in Singapore to present India's case. 
 
The visit follows the case it registered against Nirav Modi earlier this year following three different cases filed the Central Bureau of Investigation (CBI). 
 
Most of the accused are common to the cases. The fraud was committed from 2011 to 17.
 
On Wednesday, the ED approached a special court in Mumbai seeking to declare Nirav Modi and his uncle Mehul Choksi as fugitives as they fled from India a month before they were named in the fraud case.
 
On July 2, the Interpol issued a Red Corner Notice against Nirav Modi. 
 
Nirav Modi left India along with his family in the first week of January, weeks before the scam was reported to the CBI. His wife Ami, a US citizen, left on January 6 and Choksi on January 4.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 

 

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