 "Hasmukh Adhia")
After announcing a seven-pronged strategy to revamp public sector banks, Financial Services Secretary Hasmukh Adhia hopes more of capital infusion would be given to public sector banks on the basis of their efficiency from next year than allocated this year. He tells Dilasha Seth the government is yet to come out with the exact contours of Employee Stock Ownership (ESOP) plans and whether it could be extended to manager and deputy manager levels as well. Edited excerpts:
You announced appointments from the private sector in Canara Bank and Bank of Baroda out of five lenders. Will the vacancies that come up in the remaining banks also be filled the same way?
This was a separate competition between public and private sectors for these five PSBs. However, in the 16 remaining banks, as and when posts fall vacant, we will have a pool of insiders only who will be competing and there will be no private sector there. We feel these people have been working for a number of years, hoping they will rise to the top. Their opportunity should not be hampered. We wanted to experiment to see if this succeeds well. For this year, recruitment will be from the pool of only executive directors of PSBs.
Will there be lateral movement in the mid-level as well?
There is going to be some vacuum there. But whether it would be possible to allow them to recruit at that level remains to be decided. If it is to be allowed, we will have to look at the procedure of recruitment, given that in PSBs we cannot hire people across the table. We have to have a transparent procedure. Ultimately they will be joining the ranks and have to rise to the top. It is not a contractual kind of job. Here, we are looking at inductions at the regular ranks and that poses some challenge. We are looking at options.
Will ESOP be extended to general manager and deputy general manager level as well?
We are working out all options. We want to understand the financial implications. Yes, in principle we have accepted ESOPs but we are yet to decide as to what level it will apply, what should be the quantum, the resting period, etc. All this we are yet to work out.
Will formation of the holding company-Bank Investment Company- be delayed due to legislative changes?
It will require legislative changes, that's why it is the second stage, not the first stage. The Bank Board Bureau is the interim measure and after a couple of years, we will probably go for it. There are no immediate plans.
Going ahead, do we see the structure of capital infusion in public sector banks change? Maybe, more allocation on a performance basis?
The exact structure might not be the same but the broad thinking is that we need to ensure all banks have a bare minimum buffer. To meet the minimum requirement of buffer we will have to give more money. Hopefully next year, that requirement might not be there if all banks perform well. As the requirement to meet the minimum buffer may go, a greater portion could be allocated on performance basis. We have not yet decided next year's allocation structure. However, we want to shift more to performance-based allocation.
Is there a strategy to merge smaller banks with larger ones?
As minister of state Jayant Sinha said, it is a bottom-up approach. First we will like them to work out the possibility of synergies among themselves. They will need to start talking to each other. If that doesn't happen, in the second stage, once the BBB comes into being from April 1 next year, it will start talking to banks and understand their strategy, try to nudge Them and prod them to marry each other or come together. Only the BBB can play this role effectively rather than the government superimposing some decision based on some facts. That is the job given to the BBB and it can look at it.
PSBs require Rs 1.8 lakh for Bsael-III and other requirements by 2018-19, but the government will provide only Rs 70,000 crore. How difficult will it be for banks to raise Rs 1.1 lakh crore on their own?
Rs 1.1 lakh crore is nothing. When we did the calculation of Rs 1.8 lakh crore, the valuations were very low. The market picked up for PSBs only after we announced the capitalisation of Rs 70,000 crore. Now, after 'indradhanush', the market will have enough confidence. Even if all banks go down to a level of of 52 per cent capitalisation, they can easily raise Rs 80,000 crore. We are not in any hurry, this is a plan for the next three years. A lot can happen in the next three years. If the GDP growth rate accelerates, there will be immediate improvement in their position. Even this will change completely. So, they are not in a hurry. They can go to the market as and when they need. The banks are adequately capitalised. Still, we have given them a buffer now, so no one feels they are on a margin. First of all, the Reserve Bank of India norms for Basel are also a little more than Basel itself and we are giving is over that. For example, as on March 2016, the common equity Basel norm is 6.12 per cent, but we have given them 7.3 per cent. The calculation has been done taking into account the capital that banks will require to meet 12 per cent credit growth rate. This is how we have decided the capital to be given to banks who are on the margin. The remaining banks are all more than 7.5 per cent already.
Finance Minister Arun Jaitley had said there would be more variants to the social security schemes? What will they be?
We are encouraged by success of these schemes and are looking at products in the health insurance sector. It will take care of medical Bills of the insured . It is still in the design mode.
PSU banks are grappling with non-performing assets (NPAs), what is the strategy to address it?
Percentage of NPA is a function of two things - increase in gross balance of non-performing assets and increase or decrease in the total outstanding credit of bank. It is a ratio of gross NPA and outstanding loan of the bank. On the issue that gross NPA has gone up to six per cent,let me tell you that every first quarter as there is hardly any credit growth rate. That's why the percentage goes up. Last year, for example, if we had just a seven per cent growth rate, the new growth rate of credit has nothing to do with the old assets. However, this is the way we are measuring gross NPA. It is unfortunate that we are not able to see this point. So, when the growth rate is subdued, the percentage will go up always.
The power sector accounts for substantial bad debts. Is there any new strategy coming up to restructure state discoms?
We are working with discoms to see they don't face a situation of default. Most of the debt of discoms is on account of two to three things. First, they are not able to improve their operational efficiency. Second, state governments have not extended some of their dues. We are talking to governments on whether it is possible for them to take some part of the debt in their balance sheets. We are working with both and will find a solution and default is not imminent at all. All of that is standard. But during the last quarter of the financial year, when the instalment would fall due, we want to see to it that there is no default.
'Indradhanush' is a very interesting term you have coined. What does it signify?
'Indradhanush' is a spectrum coming out of one white coloured ray. Just like when you merge the seven colored rays and a single white ray will appear, here too it is a single point objective - to improve efficiency of PSBs. To achieve that, there are seven components -some hard and some soft. Like an 'Indradhanush', some colours are dark, some light. There is support being given through capitalisation but there is accountability as well. So, there is hardness and softness. We are giving you support but you will need t o perform. All this put together makes the spectrum very interesting and will achieve one goal.
