 "'Consider stress management for capital infusion in PSBs'")
Indicating discomfort with the government’s strategy of infusing capital in public sector banks (PSBs) based on efficiency parameters such as return on equity and return on assets, the Reserve Bank of India (RBI) on Tuesday said capital should be infused in banks that showed greater resolve to clean their balance sheets.
“Targeted infusion of bank capital into scheduled public sector commercial banks, especially those that implement concerted strategies to clean up stressed assets, is warranted, so that adequate credit flows to productive sectors, as investment picks up,” the central bank said in its second bi-monthly policy statement this financial year.
In 2014-15, the government allocated Rs 6,990 crore for capital infusion in nine PSBs. For the allocation, two parameters were considered — the weighted average return on assets for all PSBs for the past three years (those scoring above average were considered) and the return on equity in the past financial year.
“Some PSBs will need more capital to clean up their balance sheets and support lending, as investment revives,” RBI said, making a case for government support to banks. Most PSBs have seen their capital positions being depleted, as bad loans rise. These banks are unable to tap equity markets for raising capital due to subdued valuations, primarily due to high non-performing assets. To address this, the central bank has taken initiatives to address quality issues. It has also released a framework for early identification of stress and suggested ways to resolve such issues.
“Going forward, they (banks) need capital to absorb some of the provisions, and when the economy picks up. Capital can be raised in many ways. One way is to issue new shares if they have access to the market; the other is the big owner, the government, puts in more money. The third is reducing dividend in case a bank is not in a very healthy position,” Rajan said in an interaction with the media.
The government plans to infuse Rs 7,940 crore into PSBs this financial year.
“Targeted infusion of bank capital into scheduled public sector commercial banks, especially those that implement concerted strategies to clean up stressed assets, is warranted, so that adequate credit flows to productive sectors, as investment picks up,” the central bank said in its second bi-monthly policy statement this financial year.
In 2014-15, the government allocated Rs 6,990 crore for capital infusion in nine PSBs. For the allocation, two parameters were considered — the weighted average return on assets for all PSBs for the past three years (those scoring above average were considered) and the return on equity in the past financial year.
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Many on Mint Road felt banks would have been surprised with implementation of the new norms immediately; they should have been given time to adhere to these. The finance ministry is in discussions with banks to tweak the capital infusion norms.
“Some PSBs will need more capital to clean up their balance sheets and support lending, as investment revives,” RBI said, making a case for government support to banks. Most PSBs have seen their capital positions being depleted, as bad loans rise. These banks are unable to tap equity markets for raising capital due to subdued valuations, primarily due to high non-performing assets. To address this, the central bank has taken initiatives to address quality issues. It has also released a framework for early identification of stress and suggested ways to resolve such issues.
“Going forward, they (banks) need capital to absorb some of the provisions, and when the economy picks up. Capital can be raised in many ways. One way is to issue new shares if they have access to the market; the other is the big owner, the government, puts in more money. The third is reducing dividend in case a bank is not in a very healthy position,” Rajan said in an interaction with the media.
The government plans to infuse Rs 7,940 crore into PSBs this financial year.