1. Keeping fingers crossed on bad loans: Arun Jaitley

Keeping fingers crossed on bad loans: Arun Jaitley

Arun Jaitley said it was important to expedite the recapitalisation of PSBs.

By: | New Delhi | Published: May 23, 2015 1:46 AM
Arun Jaitley on bad loans

Even as bad loans of public sector banks eased marginally in the March quarter, finance minister Arun Jaitley on Friday cautioned against seeing it as a trend. (PTI)

Even as bad loans of public sector banks eased marginally in the March quarter, finance minister Arun Jaitley on Friday cautioned against seeing it as a trend.

Jaitley said it was important to expedite the recapitalisation of PSBs. In a bid to professionalise the management, the government will appoint new heads for three PSBs — filling up the vacancies — by next month.

Gross NPAs of PSBs, as a percentage of their advances, came down from a high of 5.64% as on December 31, 2014, to 5.2% in Q4FY15, but Jaitley said he will not jump to a conclusion that things are getting better.

“Only if this trend continues for three or four quarters can you say that there is a pattern. There was a lot of pressure on the banking sector due to the slowdown in the last few years and this will ease only when there is a full economic turnaround… (To help the banks) We need to do recapitalisation fast,” Jaitley said at a media interaction to mark one year of the Modi government.

The government recently shifted to a performance-based criteria of recapitalisation. This follows one of the general principles adopted during the January 1-2 Retreat (Gyan Sangam) of the chairpersons and managing directors of PSBs and financial institutions  — attended also by PM Narendra Modi — which stated that “efficient banks should be encouraged”. “Banks which are more efficient would only be rewarded with extra capital for their equity so that they can further strengthen their position,” the government had said then.

A recent finance ministry review had said the bad loans had risen on account of a slowdown in the global recovery, sluggishness in domestic growth as well as uncertainty in global markets.

In his Budget speech last July, Jaitley had said that, to be in line with Basel-III norms, there was a need to infuse R2.4 lakh crore into PSBs as equity by 2018. To meet this huge capital requirement, he said, it was important to raise additional resources.

While preserving the public ownership, with government holding at least 52%, the capital will be raised by increasing the public shareholding in a phased manner via sale of shares through retail to Indian citizens, he had said. The government is currently planning to effect phased dilution of its stake in PSBs to 52%.

Gross NPAs of banks are likely to rise from R2.6 lakh crore to around R4 lakh crore by fiscal end 2016, according to ratings agency Crisil.

Earlier this year, the government had split the post of chairman and managing directors at PSBs. The finance ministry recently sent a proposal for a Bank Board Bureau (BBB) to the Appointments Committee of the Cabinet for its clearance. The BBB, proposed in the Union Budget FY16, will choose PSB heads, besides giving suggestions on M&As, consolidation and capital raising.

The government infused capital of R12,000 crore in 2011-12, R12,517 crore in 2012-13 and R14,000 crore in 2013-14.

In February, the Government decided to infuse R6,990 crores into nine PSBs out of the FY15 Budget and said this was done on the basis of their efficiency in performance.

To infuse capital on efficiency parameters, weighted average of return on assets (ROA) for all PSBs for the last three years was put together and all PSBs that were above the average were considered for capital infusion.

The second parameter that was considered was return on equity (ROE) for these banks during the last financial year and, similarly, those who performed better than the average were rewarded. Earlier, the government was infusing capital into banks that were hit by equity erosion.

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