Announcing the banking sector reforms, Finance Minister Arun Jaitley said stringent norms for disbursal of high value loans have been framed, with strict surveillance on big loan defaulters and mandatory reporting of loans of over Rs 250 crore.
The government today said it will infuse an unprecedented Rs 88,139 crore capital in 20 public sector banks (PSBs) before March 31 to boost lending and revive growth, and unveiled steps to tackle the bad loan problem which has reached record levels. The lenders, which include State Bank of India, account for more than two-third of India’s banking assets as well as most of the over Rs 8 lakh crore of non-performing assets (NPAs) or bad loans. Announcing the banking sector reforms, Finance Minister Arun Jaitley said stringent norms for disbursal of high value loans have been framed, with strict surveillance on big loan defaulters and mandatory reporting of loans of over Rs 250 crore. Bank have also been instructed to become more professional. The capital infusion is part of the massive Rs 2.11 lakh crore bank recapitalisation plan announced by the government in October last year. It is spread over two fiscal — 2017-18 and 2018-19. The finance ministry will raise Rs 80,000 crore through recapitalisation bonds and provide another Rs 8,139 crore from the Budget to recapitalise the banks. The total recapitalisation will cross Rs 1 lakh crore in the fiscal ending March 31, 2018 after including funds raised from sales of shares to external investors, said Rajeev Kumar, Secretary, Department of Financial Services. The banks have so far raised Rs 10,312 crore from the capital markets and more is expected to be raised in the remaining period of the 2017-18 fiscal. Of the Rs 2.11 lakh crore bank recapitalisation plan announced in October last year, Rs 1.35 lakh crore was to come through sale of bonds and Rs 76,000 crore through budgetary support and from the market. Such bonds would not impact government’s target to shrink fiscal deficit to 3.2 per cent of GDP in current fiscal as IMF’s rules classify such debt as “below-the-line” financing. Jaitley said his ministry had undertaken a detailed exercise on the amount of capital to be infused into the PSBs. The recapitalisation would be dependent on performance and reforms, Kumar said. Banks will have to adopt the differentiated business strategy and exit from non-core businesses and focus on their core competencies. “This is no easy money (that the banks will get),” Kumar said, adding that PSBs will be adequately capitalised. The Rs 1 lakh crore more in capital enables additional credit offtake capacity of PSBs by more than Rs 5 lakh crore. To support and catalyse the economic upsurge, banks are now sufficiently capitalised to maintain their regulatory capital and also the lead the growth and do financial inclusion.
The ministry would gauge the performance of banks on parameters like customer responsiveness, responsible banking, credit offtake, MSME lending, deepening financial inclusion and digitalisation. The banks will have to keep a strict watch on lending and recovery and undertake specialised monitoring of loans over Rs 250 crore. Besides, the PSBs need to have a dedicated stressed assets management vertical. Besides, to ensure financial inclusion the banks would have to provide doorstep banking for differently-abled and senior citizens. The banking sector in India is staring at Rs 10 lakh crore worth non-performing loans, which has hindered their lending capability. Jaitley said steps need to be taken to ensure governance of banks follows highest standards and there is a need for institutional mechanism to ensure past is not repeated. “We inherited a very major problem and therefore, we have been involved in finding a solution to that problem”, he said, adding that the government wants to create an institutional mechanism to sure the past is not repeated. “Now the entire objective of this exercise is that the government has the prime responsibility of keeping the public sector banks in good health,” Jaitley said. During the current fiscal, IDBI Bank will get highest infusion of Rs 10,610 crore, followed by State Bank of India (Rs 8,800 crore) and Bank of India, Rs 9,232 crore. UCO Bank will get Rs 6,507 crore; Punjab National Bank -Rs 5,473 crore; Bank of Baroda – Rs 5,375 crore; Central Bank of India – Rs 5,158 crore; Canara Bank – Rs 4,865 crore; Indian Overseas Bank – Rs 4,694 crore and Union Bank of India – Rs 4,524 crore. Oriental Bank of Commerce would get Rs 3,571 crore; Dena Bank – Rs 3,045 crore; Bank of Maharashtra – Rs 3,173 crore; United Bank of India – Rs 2,634 crore; Corporation Ban Rs 2,187 crore; Syndicate Bank – Rs 2,839 crore; Andhra Bank – Rs 1,890 crore; Allahabad Bank – Rs 1,500 crore, Punjab and Sind Bank – Rs 785 crore. Kumar said the government would come out with EASE (Enhanced Access & Service Excellence)-Index for ranking of banks.
This would increase public accountability of PSBs as independent agencies to evaluate and rank PSBs annually on reforms. He said the government will not interfere in commercial decisions taken by banks so that they are independent but they have to undertake reforms and do “prudent and clean” lending. Strengthening, empowerment and professionalisation of bank boards is high on the agenda of the government. Kumar said one independent director on the board of each bank will have to review the progress of reforms every quarter. “The emphasis is to improve governance on the boards of banks”. Economic Affairs Secretary Shubhas Chandra Garg said the bonds would not be tradeable in market and have maturity period of 10-15 year. The pricing would be based on 3 month average plus a spread. “These would not be SLR bonds and would be swap deal,” he said. Garg said the bonds would not impact the fiscal deficit calculation of the government as it would be cash neutral arrangement. Asked if the there is a proposal to raise FDI in banking sector, he said there is no such proposal “at present”.