RBI in capital push for banks

New Delhi, June 11: The Reserve Bank today asked the finance ministry to increase the recapitalisation of PSU banks, weighed down by bad loans.

“We have been suggesting to the finance ministry from time to time that the public sector banks need more capital than what the budget has indicated,” RBI deputy governor S.S. Mundra said after a meeting with finance ministry officials today.

RBI governor Raghuram Rajan, who met finance minister Arun Jaitley today to discuss interest rates and the macro-economic situation in the light of a possible withdrawal of stimulus by the US Fed, is believed to have written to the North Block on the issue.

In this year’s budget, the government had announced a capital infusion of Rs 7,940 crore for state-run banks, which is nearly half of what the RBI feels they require.

Last year, the government had budgeted Rs 11,200 crore towards bank recapitalisation but actually infused a mere Rs 6,990 crore based on the banks’ performance parameters.

On the additional amount of infusion needed, Mundra said, “We have done some broad calculation for the entire part of Basel-III implementation. What we are trying to indicate is that at this point of time because of some stress on the book, some of the capital will be consumed for cleaning the books.”

The gross non-performing assets of PSU banks have gone up to Rs 2,60,531 crore as on December 2014, or 5.6 per cent of the total advances.

The RBI believes the banks have to be recapitalised not only to meet the more stringent new Basel norms but also to help them clean up their balance sheets, blotched in parts by red ink, because of bad loans.

“That is the whole idea of increased capital. It can partly help to clean the balance sheet. Make the balance sheet ready to support when growth returns, additional capital will support the growth also,” he said.

It, however, remains to be seen whether the finance ministry, constrained by a sluggish manufacturing sector and rising oil costs, is able to rise to the occasion and fund the banks.

Jaitley meet

The finance minister will possibly have to address the issue at a meeting of PSU bank chiefs tomorrow. Jaitley is expected to review the banks’ annual performance and the bad loan situation.

The top 30 defaulters are sitting on bad loans of Rs 95,122 crore, which is more than one-third of the entire bad assets of public sector banks.

Also on the agenda will be the overall credit growth and the progress of the government’s social security schemes.

Jaitley is expected to ask the bankers to pass on the 0.75 per rate cut by the RBI to consumers.

Most banks have passed on only about 0.4-0.5 per cent and absorbed the rest to provision against bad loans and higher provisioning for certain kinds of loans, including real estate.

Officials said both the RBI and the North Block were also reviewing the macro-economic situation that might arise if the US Fed started withdrawing its stimulus programme.

“Though there are indications it may not do so at the current juncture, we have to be ready,”

[“source – telegraphindia.com”]