The government will soon set up a six-member autonomous Bank Board Bureau (BBB), chaired by a former chief of a big public/private sector bank or the RBI, to nudge public sector banks (PSBs) to opt for consolidation, besides helping them to revamp their boards, financial services secretary Hasmukh Adhia said on Monday.
In an interview to the FE, Adhia also said the PSBs had been told that the government, from FY17 onwards, would only allocate towards capitalisation a sum equal to the dividend given by them to the government.
Sending out a message that the PSBs themselves would have to find ways to improve their capital base, the government, in the FY16 Budget, allocated only R7,940 crore towards capitalisation. In FY15, the government had decided to infuse R6,990 crore and that too only in nine best performing PSBs. The government is currently planning to effect phased dilution of its stake in PSBs to 52%.
Maintaining that the PSBs, including the weak ones, are currently adequately capitalised to meet the Basel and RBI norms for capital adequacy, he said: “We don’t have the luxury to give more out of taxpayers’ money even after so many years of nationalisation as there are competing demands for taxpayers’ money. Efficiency criteria makes sense. There is no point in keeping on pumping money into a bank where constant capital erosion is taking place for whatever reasons. We will only reward performers so that they can grow to be among the largest banks in the world.”
Adhia said PSBs, including the weak ones, have been told 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%, they will be able to mop around R80,000 crore, he added. With the banking reforms being undertaken, the PSBs will be able to raise even higher amounts from the markets, he said.
For the time being the weak banks have been asked to reduce their credit growth rate, and go into niche segments like retail and housing finance, instead of big corporate financing.
In his FY’16 Budget speech, finance minister Arun Jaitley had proposed the setting up of the BBB to also search and select heads of PSBs and help them in developing differentiated strategies and capital raising plans through innovative financial methods and instruments. He had said that the BBB would be an interim step towards establishing a holding and investment company for banks.
Adhia said the government will not force the consolidation process, adding that it has to stem from the banks themselves on the basis of mutual agreements. He, however, said the BBB “is supposed to do this (start consolidation process). They will nudge the PSBs, sit with their boards, look at their strategy and make suggestions (on consolidation) wherever needed.”