Performance-based criteria for Public Sector Bank (PSB) capitalisation will stay and the Centre, from FY17 onwards, will allocate towards capital infusion only a sum equal to the dividend given by state-owned lenders to the government, says financial services secretary Hasmukh Adhia. In an interview to Arun S, Adhia says the proposed Bank Board Bureau (BBB) will initiate the PSB consolidation process and help in the revamp of their boards. Excerpts:
How do you respond to criticism that allocation for PSB capitalisation in Budget FY16 is inadequate?
PSBs, including the weak ones, are now adequately capitalised to meet the Basel III and RBI norms on capital adequacy. However, we can’t keep on pumping money into PSBs where constant capital erosion is taking place for reasons including having a wrong chief or poor governance at the board level. Since there are competing demands for taxpayer’s money, the Budgetary allocation will be very limited. We can only reward performers to help them grow be among the world’s largest banks. From now on our yearly allocation for capital infusion will be equal to the total dividend amount given to us by all PSBs, but we will decide the banks that will get the money.
What is your message to weak and poorly performing PSBs?
We have told them to raise money from the stock market in tranches whenever the market is good, bank nifty is up and their own valuation is improving. Even at the current market valuation, if all PSBs decide to bring down the government share in them to 52%, together they will be able to mop up around Rs 80,000 crore. With the banking reforms being undertaken, the PSBs will be able to raise even higher amounts. Weak banks have also been asked to reduce their credit growth rate, and go into niche segments like retail and housing finance, instead of big corporate financing. But if the government keeps on capitalising them, they will not change their business strategy.
Will this strategy of the government lead to mergers and acquisitions among PSBs?
The government will not force consolidation. It has to stem from the banks. The BBB is supposed to do this (start consolidation process). They will nudge the PSBs (to consider consolidation), sit with their boards, look at their strategy and make suggestions (on consolidation) wherever needed.
How will you ensure that the BBB is autonomous?
BBB will be a part-time bureau comprising six members headed by a chairman who will be a former chief of PSB or private sector bank or the RBI. There will be only one government member, which will most probably will be the financial services secretary. The rest will be five professionals and three out of them, including the BBB chairman, will be mandatorily public and private sector bankers. Two others will be professionals including financial, management, legal and M&A experts. Besides helping in selection of chiefs of PSBs, the BBB will suggest suitable candidates for both non-official chairman and directors so that PSBs have great boards that can in turn improve governance.