The suspense over the Rs2.11 trillion recapitalisation of India’s public sector banks is over. A week ahead of the budget, the finance ministry announced that the government would infuse Rs88,139 crore in 20 out of 21 public sector banks during the current fiscal year that ends in March.
A June 2016 report in Mint described India Post Payments Bank (IPPB) as the “hottest game in town”. Some 50 entities, including International Finance Corp., Barclays Plc.
The December Financial Stability Report of the Reserve Bank of India (RBI) suggests that the gross non-performing assets (NPAs) in the Indian banking system may rise from 10.2% in September 2017 to 10.8% in March 2018, and an even higher 11.
Globally, bankers are expected to do three things: collect deposits, give loans and invest in government bonds and other financial instruments. In India, they end up doing a few other things as well, including cleaning up the neighbourhood where their branches are located with a broom as part the government’s Clean India Mission to promote sanitation. Ironically, the balance sheets of many banks in India at the moment are in dire need of a clean-up.
Public sector banks (PSBs) are “instrumentalities of the state”; managing them efficiently to promote economic development and further public interest calls for efficient public administration and committed public service with due accountability. For ensuring “efficiency” in management of PSBs, two sets of tools were used by the administrative department, the department of financial services (DFS): the statements of intent (SoI) and memorandum of understanding (MoU). Both were supposed to play a critical role in monitoring capital infusion in PSBs, but a deeper look into how both these instruments were used gives us a sense of the quality of governance in PSBs, if nothing else.
Over the years, the government of India has been infusing “need-based” capital in public sector banks (PSBs) to enable them to maintain capital adequacy (both Tier I and Tier II capital under Basel II norms) while meeting the credit growth expectations. The capital infusion has so far generally been through preferential allotment of equity shares by the banks to their majority owner—the government. In the wake of the global meltdown, a high-level committee on capital requirement of financial institutions (consisting of the finance secretary as chairman, with secretaries from the departments of expenditure, economic affairs and financial services and the chief economic adviser as members) in September 2011 recommended the creation of a holding company for PSBs which could then raise necessary extra budgetary resources.
Mumbai: The Indian government and the country’s central bank are at the final stage of drawing up a plan to infuse Rs2.11 trillion capital into public sector banks (PSBs) which roughly have a 70% share of the assets of Indian banking industry, consisting of 21 public sector banks, 26 private sector banks, 43 foreign banks and 56 regional rural banks. Of this, Rs1.
Globally, bankers are broadly expected to do three things: collect deposits, give loans, and invest in government bonds and other financial instruments. In India, they end up doing a few other things as well, including picking up a broom and cleaning up neighbourhoods where bank branches are located as part of the Swachh Bharat Abhiyan (Clean India Mission). Ironically, balance sheets of many banks in India at the moment are in dire need of a clean-up.