As public sector banks’ (PSBs) non-performiing and restructured assets have constrained their profitability and market capitalisation, the Comptroller and Auditor General (CAG) of India is set to scrutinise these banks’ books for the first time to analyse how the capital provided by the Centre in the past five years was utilised by them, sources told FE.
“The proposal is to examine what has happened to the money given for recapitalisation of public sector banks. The required performamce audit will start sometime this year,” an official said.
Between FY11 and FY16, the capital infusions in the 22 PSBs cost R86,624 crore to the exchequer. The country’s largest lender, State Bank of India, accounted for nearly a quarter of this money. By March 31, the government may infuse another R5,000 crore in these banks. As part of the recapitalisation plan announced in last August, the government will infuse R25,000 crore each in 2015-16 and 2016-17 while R10,000 crore each would be provided in the subsequent two years to meet basel III capital adequacy norms and to grow business. Another R1.8 lakh crore is to be raised by these banks from market during 2006-18.
As on September 2015, the PSBs accounted for 86% of the R3.47 lakh crore NPAs with all scheduled commercial banks. This number has increased significantly in October-December of 2015 after the Reserve Bank of India mandated banks for an asset quality review (AQR) that has shaved off many PSBs’ bottom-lines due to reclassification of many accounts as NPAs to reflect the true value of the loans. The market value of listed banks has eroded by R1.8 lakh crore in just 40 days up to February 11 as investors turned bearish on banking stocks. Eleven public sector banks, including Bank of Baroda, IDBI Bank and Bank of India, have posted R12,867 crore loss in the December quarter, due to surge in provisioning for bad loans. The SBI has posted 62% dip while PNB reported a 93% fall in net profit in the quarter.
Even though the parameters of the CAG audit of PSBs is a work under progress, experts reckon that audit of PSBs — which hold about 75% of banking sector assets — could throw up examples of wrong practices which resulted in higher capitalisation requirement for banks. There have been reports of asset reconstruction companies, partly owned by banks, buying bad loans at higher than market prices, thereby suppressing the extent of NPAs in many banks.
While the CAG has conducted audit of non-bank PSUs over several decades, the supplementary audit of PSBs would be in addition to the existing practice of chartered accountants conducting statutory audit of the banks.