 "Performance criteria for capitalisation of PSBs could change: Hasmukh Adhia")
Hasmukh Adhia, financial services secretary, tells Jayshree P Upadhyay and Arup Roychaudhary any consolidation among public sector banks (PSBs) will happen through consultation with the Bank Board Bureau. He adds there could be changes in the performance criteria for providing capital to banks, and non-performing assets (NPAs) could be considered. Edited excerpts:
On bank recapitalisation, what is the road map for consolidation in this sector? Will we see any big PSB merger or acquisition this financial year?
We will not force it upon anyone. Rather, they will be encouraged to talk to each other and see if there is possibility of consolidation. Some people are voicing doubt about whether something like this can happen. That is why the Bank Board Bureau has been brought in; it will act as an intermediate agency comprising five independent private or public banking professionals and a government official. The bureau will talk to various banks and look at their business models. If it finds there is sense in consolidation, it will suggest that to the government and the boards of the banks involved. This is the best way of going about any consolidation or restructuring. In the next stage, after two-three years, the bureau will become the bank investing company. All the government's stake in banks will go to that company, 51 per cent of which will be owned by us. The corpus that will be raised will become the second level of recapitalisation. But I want to add our banks are adequately capitalised. Even if we bring down our stake to 52 per cent in all PSBs, at today's capitalisation, they can easily collect Rs 80,000 crore.
Yes, definitely! We might change the parameters by which we judge their performance, based on the suggestion banks provide. But the performance factor stays. We could consider the level of NPAs. But you have to remember some of these are legacy issues. What we can do is incentivise those who have tried to rescue stressed assets.
What is the road map for stake sale by the government in PSBs?
Right now, we haven't given it any thought. Eventually, the government has to exercise all options; it has to be within the next two-three years. I can't say anything but right now, it is not on cards.
Why did the government object to a qualified institutional placement by Bank of India?
We never said 'no'; we said they should be careful about the timing. We have told banks if they have to go the market now, they may; but if they feel the situation in the market and economy will improve, they should wait. Of course, banks will have to go in tranches; they can't put all their eggs in one basket.
The Budget has announced new insurance schemes targeted at the poor. Please share some details.
Having opened a bank account for every family, we have to give them a simple insurance product, one that has less paperwork. They have to sign only one form at a bank branch - as know-your-customer (KYC) - and through Jan Dhan, all KYC details are with us. We are making Aadhaar the main KYC document. We would also like to get details of the nominee. All the three schemes will only be through bank accounts.
The accidental insurance scheme, or Pradhan Mantri Suraksha Beema Yojana, will have a premium of only Rs 12 a year and provide Rs 2 lakh of coverage per person, without any rider. In the case of Jan Dhan, the Rupay card has to be swiped every 45 days; that condition has been removed for these schemes.
There is a concern that the three new schemes are likely to put additional pressure on the already stressed insurance and banking sector.
First, we are not forcing anybody to get into these schemes. In fact, it will relieve the pressure in the banking and insurance system. They do not have to maintain any policy; they need an information technology database for all recorded information.
Each customer will have a unique code; no physical policy is required. The letter given by banks at the time of enrolment will become the entitlement document. It is cheap, as there are no administrative costs involved. The marketing cost will be borne by the government.
Any insurance company, private or public, can be part of this. If private players want to join, they have to accept the same terms and conditions. Importantly, they need to have a tie-up with at least one bank.
In his Budget speech, the finance minister said there would be several measures that would incentivise credit or debit card transactions and disincentivise cash transactions.
We have been thinking about measures in this direction; we haven't made up our minds yet. Soon, we and the government will sit together to discuss this initiative.
This is primarily being handled by the Department of Economic Affairs. There might be a committee to look into it.
Are there any initial public offerings by public sector insurance companies in the pipeline?
As of now, there is nothing on the cards.
For the Direct Benefits Transfer, there are 26 schemes connected with Jan Dhan. Will there be more schemes under this?
On the three big schemes - kerosene, urea, and food security, the government has to take a call.
On the other schemes, it has already been communicated by the government that all the benefits should be transferred to the accounts directly, including all pension schemes. We have also written to state governments to transfer the benefits under their schemes to accounts directly.
For instance, in Madhya Pradesh, Rs 6,000-7,000 crore worth of subsidy goes into bank accounts directly every year. For other states, the figure could be Rs 5,000-10,000 crore.
How do you plan to ensure fictitious accounts aren't being opened under Jan Dhan and the leakages seen in the case of Aadhaar aren't present here?
These checks and balances will happen by and by. We are seeking three levels of check --- mobile number, Aadhaar, and bank account details. Somebody in the system is bound to detect these.
On bank recapitalisation, what is the road map for consolidation in this sector? Will we see any big PSB merger or acquisition this financial year?
We will not force it upon anyone. Rather, they will be encouraged to talk to each other and see if there is possibility of consolidation. Some people are voicing doubt about whether something like this can happen. That is why the Bank Board Bureau has been brought in; it will act as an intermediate agency comprising five independent private or public banking professionals and a government official. The bureau will talk to various banks and look at their business models. If it finds there is sense in consolidation, it will suggest that to the government and the boards of the banks involved. This is the best way of going about any consolidation or restructuring. In the next stage, after two-three years, the bureau will become the bank investing company. All the government's stake in banks will go to that company, 51 per cent of which will be owned by us. The corpus that will be raised will become the second level of recapitalisation. But I want to add our banks are adequately capitalised. Even if we bring down our stake to 52 per cent in all PSBs, at today's capitalisation, they can easily collect Rs 80,000 crore.
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Will you provide capital to banks based on their performance this year?
Yes, definitely! We might change the parameters by which we judge their performance, based on the suggestion banks provide. But the performance factor stays. We could consider the level of NPAs. But you have to remember some of these are legacy issues. What we can do is incentivise those who have tried to rescue stressed assets.
What is the road map for stake sale by the government in PSBs?
Right now, we haven't given it any thought. Eventually, the government has to exercise all options; it has to be within the next two-three years. I can't say anything but right now, it is not on cards.
Why did the government object to a qualified institutional placement by Bank of India?
We never said 'no'; we said they should be careful about the timing. We have told banks if they have to go the market now, they may; but if they feel the situation in the market and economy will improve, they should wait. Of course, banks will have to go in tranches; they can't put all their eggs in one basket.
The Budget has announced new insurance schemes targeted at the poor. Please share some details.
Having opened a bank account for every family, we have to give them a simple insurance product, one that has less paperwork. They have to sign only one form at a bank branch - as know-your-customer (KYC) - and through Jan Dhan, all KYC details are with us. We are making Aadhaar the main KYC document. We would also like to get details of the nominee. All the three schemes will only be through bank accounts.
The accidental insurance scheme, or Pradhan Mantri Suraksha Beema Yojana, will have a premium of only Rs 12 a year and provide Rs 2 lakh of coverage per person, without any rider. In the case of Jan Dhan, the Rupay card has to be swiped every 45 days; that condition has been removed for these schemes.
There is a concern that the three new schemes are likely to put additional pressure on the already stressed insurance and banking sector.
First, we are not forcing anybody to get into these schemes. In fact, it will relieve the pressure in the banking and insurance system. They do not have to maintain any policy; they need an information technology database for all recorded information.
Each customer will have a unique code; no physical policy is required. The letter given by banks at the time of enrolment will become the entitlement document. It is cheap, as there are no administrative costs involved. The marketing cost will be borne by the government.
Any insurance company, private or public, can be part of this. If private players want to join, they have to accept the same terms and conditions. Importantly, they need to have a tie-up with at least one bank.
In his Budget speech, the finance minister said there would be several measures that would incentivise credit or debit card transactions and disincentivise cash transactions.
We have been thinking about measures in this direction; we haven't made up our minds yet. Soon, we and the government will sit together to discuss this initiative.
This is primarily being handled by the Department of Economic Affairs. There might be a committee to look into it.
Are there any initial public offerings by public sector insurance companies in the pipeline?
As of now, there is nothing on the cards.
For the Direct Benefits Transfer, there are 26 schemes connected with Jan Dhan. Will there be more schemes under this?
On the three big schemes - kerosene, urea, and food security, the government has to take a call.
On the other schemes, it has already been communicated by the government that all the benefits should be transferred to the accounts directly, including all pension schemes. We have also written to state governments to transfer the benefits under their schemes to accounts directly.
For instance, in Madhya Pradesh, Rs 6,000-7,000 crore worth of subsidy goes into bank accounts directly every year. For other states, the figure could be Rs 5,000-10,000 crore.
How do you plan to ensure fictitious accounts aren't being opened under Jan Dhan and the leakages seen in the case of Aadhaar aren't present here?
These checks and balances will happen by and by. We are seeking three levels of check --- mobile number, Aadhaar, and bank account details. Somebody in the system is bound to detect these.