 "P Chidambaram")
Finance Minister P Chidambaram today asked public sector banks to increase profitability by containing non-performing assets (NPAs) in view of the huge capital requirements over the next five years because of the implementation of Basel-III norms. Speaking at the annual general meeting of the Indian Banks’ Association, Chidambaram said huge provisioning for NPAs is eating into the profits of state-owned banks. He asked the banks to take steps to reduce NPAs.
The finance minister said, “While I will be very happy if all the equity that is required is provided by promoters, non-promoter shareholders. But I am afraid that is not how capital is found for running enterprises. A significant portion of capital has to come from retained earnings. That can happen only if banks’ profitability increases, which can happen only if you are able to contain non-performing assets.”
Indian banks will be required to raise an additional Rs 5 lakh crore of capital to meet the Basel III capital rules, including Rs 3.25 lakh crore of non-equity capital and Rs 1.75 lakh crore of equity capital, Reserve Bank of India Governor Duvvuri Subbarao said yesterday. “A significant proportion (of the capital that banks would need to infuse) has to come from retained earning,” he said. Although the government may continue to infuse capital in public sector banks, which could be in the region of Rs 15,000 crore to Rs 20,000 crore every year, banks also have to pay attention to their profitability,” said Chidambaram. This year, the government plans to infuse around Rs 14,000 crore in public sector banks, compared with last year’s Rs 13,000 crore. On an average, the government holds 60 per cent stake in public sector banks, said the finance minister.
At end-December 2012, the capital adequacy ratio (CAR) of the aggregate banking system stood at 13.5 per cent with a Tier-1 capital ratio of 9.7 per cent. “It is expected that the long timeframe, up to March 2018, to phase in Basel-III capital requirements will allow banks to make a smooth and non-disruptive transition,” the RBI governor had said yesterday. Voicing concern over asset quality, the finance minister asked banks to differentiate between wilful defaulters and borrowers who are impacted due to genuine reasons.
FM expects new bank licences before March
Finance Minister P Chidambaram expects the Reserve Bank of India to issue fresh licences for new banks by March 2014. The regulator had issued the final norms for new bank licences in February this year. It also issued a clarification on June 3 in response to some issues raised by banking aspirants.
“RBI has released guidelines for licensing on new banks. and I hope that some of the banks will be licensed before the end of the financial year,” said Chidambaram, adding the new banks will help in financial inclusion.
The deadline to apply for banking licence expires on July 1. Applications will be shortlisted by an internal committee of RBI and then forwarded to a panel for vetting. The final decision will be taken by RBI’s top brass.
