A day after the State Bank of India reported a record loss, the government today said one or two quarters of "pain upfront is okay" when the lenders are cleaning up books, but the worst for state-run banks is over.
Financial services secretary Rajiv Kumar said the government will provide capital support to public sector banks (PSBs) and not allow any one of them to default.
"Banks books are getting cleaned up and NPAs are also being recognised in a transparent manner. In the process, even if there is a (higher) provisioning requirement or even if there is a loss for one or two quarters, it is okay... We are ready to take this," Kumar told reporters on the sidelines of an event here.
The worst, he said, is over.
"Whenever you do the cleaning part, a bit of dust, a bit of pain upfront is okay. One or two quarters is not a problem. The future and the road map (for state-run banks) is only that worst is over and it is only the positive which can take place now," he said.
Most public sector banks reported losses in the quarter ended March 31 after making higher provisions for non-performing assets (NPA) or bad loans. State Bank of India, the country's largest lender, yesterday reported a net loss of Rs 7,718 crore due to doubling in provisions for NPAs. SBI predicted earnings will start to improve this financial year, buoyed by loan recoveries under a revamped bankruptcy law.
Scam-hit Punjab National Bank had posted a net loss of Rs 13,416.91 crore for the March quarter. In private sector, ICICI Bank last month reported halving of income in the quarter, while Axis Bank posted its first-ever loss.
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Kumar said the government has taken number of steps including introduction of the Insolvency and Bankruptcy Code, reducing the size of members in a lenders' consortium to seven from 20 earlier, rationalised international branches and fugitive economic offenders law to plug any possible gaps which could lead to any default.
In October 2017, the government had announced a bank recapitalisation plan of Rs 2.11 lakh crore over two fiscal - 2017-18 and 2018-19.
"The capitalisation amount which we have worked out is sufficient. Nearly Rs 65,000 crore is left out of the Rs 2.11 lakh crore. There is no way, the government can allow any bank to default," Kumar said.
He said the government is planning to give ranking to public sector banks on the basis of the implementation of the banking reforms undertaken by the government.
"We are ranking all the banks on the reforms, and at the end of every year we will make that ranking public. So, it is will be a report card to the citizen on the health of each bank," he added.
The finance ministry recently met 11 state-run banks that are under the Reserve Bank of India's prompt corrective action (PCA) to discuss various measures taken by them to come out of the watch list.
Kumar said by Friday all banks that are under PCA are likely to come out with a specific plan as to how they want to go ahead.
"The plan will include their business strategy, niche areas of operations, sale of non-core assets and capital requirement. The government is committed to give them the regulatory capital and maintain their capital adequacy levels," he said.
The government is also in the process of appointing managing directors and chief executive officers of public sector where the position is lying vacant, the secretary said.
"We are aware of it and the Banks Board Bureau is in the process of selecting the candidates. It's the management which is the key and we are in the process of bringing the best possible talent to the banking industry," he said.
The state-run banks which currently headless include Dena Bank, Andhra Bank, Punjab & Sind Bank and Allahabad Bank.
He also allayed the fear that there is any policy paralysis or fear of lending by banks due to scrutiny by any investigative agencies.
"There is as such no fear. Credit offtake is taking place," he said.
Talking about the proposed merger of three state-owned general insurers - National Insurance, United India Insurance and Oriental India Insurance - Kumar said the process is on the track.
"The appointment of consultant is in the process and the idea is to do it (merger) this year itself," he said.