As many as 9 PSU banks, which are currently under RBI watch for poor financial health, have submitted a two-year recovery plan to the government entailing stake sale in subsidiaries and reduction of corporate loan book. Finance Minister Piyush Goyal had last month asked these 11 PSU banks to come up with a plan to strengthen finances and meet the RBI’s capital adequacy norms. Of these, 9 banks have already submitted report to the Department of Financial Services, an official said.
The 11 banks under Prompt Corrective Action (PCA) are Dena Bank, Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce and Bank of Maharashtra. Under the PCA, banks face restrictions on distributing dividends and remitting profits. The owner may be asked to infuse capital into the lender. Besides, the lenders are stopped from expanding their branch networks and need to maintain higher provisions. Management compensation and directors fees are also capped.
The recovery plan as presented by these banks include cost cutting, reducing branches size, closing foreign branches, shrinking corporate loan book as well as sell risky assets to other lenders, the official said. During its meeting with the PCA banks, the Finance Ministry had asked them to actively consider stake sale in subsidiaries, maintain capital adequacy and conservation buffer, the official added. Attributing the bad financial health of the PSU banks to reckless lending during the Congress regime, Goyal today said the present NDA government is trying the fix the banking sector woes.
“During the Congress regime, PSU banks gave loans recklessly, which impacted their financial health. Those loans were also restructured to present a distorted picture. The present government has provided the true picture of the health of banks and is now making effort to improve their finances,” Goyal said in a tweet. In October last year, the government had announced plans of massive capital infusion of Rs 2.11 lakh crore spread over two fiscals — 2017-18 and 2018-19.