The government is likely to offer funds to only those public sector banks (PSBs) this fiscal which were capitalised in 2016-17 as well, a senior government official told FE. As part of the Indradhanush scheme, the government infused capital into 13 PSBs, including State Bank of India (SBI), Indian Overseas Bank (IoB) and Punjab National Bank (PNB), in the previous financial year. The government has budgetted Rs 10,000 crore for capitalisation of the PSBs in 2017-18. The government also made it clear that it could provide more funds should there be any pressing need for it. However, in a carrot and stick policy, any capital infusion will be linked to adherence to strict conditions from now on.“There is no plan as of now to capitalise more banks in 2017-18 than what the government did last year. But, of course, the government remains sensitive to the capital needs of other PSBs as well,” the official said. PSBs have also been allowed to raise capital from markets through follow-on public offer or qualified institutional placement by diluting the government holding to 52% in a phased manner to boost their capital base.
Of Rs 25,000 crore allocated under the Indradhanush scheme for 2016-17, the government infused Rs 22,915 crore (the rest could be provided this fiscal over and above the amount budgetted for 2017-18). Last fiscal, SBI received Rs 7,575 crore from the government, followed by IoB (Rs 3,101 crore), PNB (Rs 2,816 crore), Bank of India (Rs 1,784 crore) and Central Bank of India (Rs 1,729 crore). In 2015-16, the government had provided Rs 25,000 crore to 19 PSBs. From this fiscal, austerity and effective resolution of stressed assets will top the list of conditions for PSBs seeking capital infusion. Austerity plans are mostly about tightening staff benefits, which include industry-standard wage hike and other perks and benefits such as leave travel concessions.
The department of financial services is learnt to have sent a letter to some PSBs, setting these stiff conditions for recapitalisation. Apart from efficient management of non-performing assets (NPAs), these conditions include sale of non-core assets and closing of loss-making branches. Quarterly performance goals could be set and these will be monitored regularly. However, if a bank marks a turnaround quickly, such benefits may be restored early as well. A tripartite MoU between the government, the PSB and its staff has to be signed for the bank to receive capital from the government. A time-bound plan, especially for NPA resolution, will be a must in that agreement, said the source.
The strict conditions come at a time when employees of some public sector banks, including loss-making IDBI Bank, are seeking pay revision. Analysts have termed the 2017-18 budgetary allocation for recapitalisation too low, considering that PSBs are struggling with massive bad loans. The total toxic assets with banks stood at Rs 7.11 lakh crore as of April, with most of them belonging to the PSBs, showed data by Capitaline.
In fact, the rise of stressed assets has raised PSBs’ provisioning requirement, making capital infusion by the government important. As part of its Indradhanush plan, the government is supposed to provide Rs 70,000 crore over a four-year period through 2018-19 (Rs 25,000 crore each for each of the first two years and Rs 10,000 crore for each of the next two years) for recapitalisation of the PSBs. While announcing the Indradhanush plan in August 2015, the government had estimated PSBs’ total capital requirement of about Rs 1,80,000 crore over a four-year period through 2018-19. It then proposed to provide Rs 70,000 crore of budgetary support of the total requirement; the rest, Rs 1,10,000 crore, was to be raised by the lenders from the market.