For re-privatisation of some banks
MUMBAI: Some nationalised banks need to be re-privatised to reduce the amount of capital that the government needs to infuse in them and help maintain fiscal discipline, said Viral Acharya, deputy governor of the Reserve Bank of India (RBI), on Friday.
“This (re-privatisation) will reduce the overall amount that the government needs to inject as bank capital and help preserve its hard-earned fiscal discipline, along with stable inflation outlook and the diverse nature of our growth engine,” Acharya said at an event in Mumbai.
The gross non-performing assets (NPAs) of public sector banks stood at ₹6.15 lakh crore as of December 2016.
“Clearly, more recapitalisation with government funds is essential. However, as a majority shareholder of public sector banks, the government runs the risk of ending up paying for it all. The expectation of government dole-outs has been set by the past practice of throwing more good money after bad,” he said.
To curb this practice, Acharya spelt out five options for resolution of the stress on public sector banks’ balance sheets:
One, healthier public sector banks could raise private capital and reduce the government’s burden of recapitalising banks.
Two, some banks with assets or loan portfolios that are in good shape can sell them on the market. Such asset sales can generate some of the needed capital.
Three, a consolidation exercise that leads to fewer but healthier banks.
Four, under-capitalised banks could be subjected to corrective action, such as under the revised Prompt Corrective Action (PCA) guidelines recently released by RBI. Such action would entail no further growth in deposit base and lending for the worst-capitalised banks. This would ensure a gradual “run-off” of such banks, and encourage deposit migration away from the weakest public sector banks to healthier public sector banks and private sector banks. Under the PCA framework, banks will be assessed on three parametres: capital ratios, asset quality and profitability. Failure to meet any of these norms could invite RBI action.
Five, measures listed above would improve the overall health of the banking sector, creating an opportune time for the government to divest some of its ownership in the restructured banks.
The government is infusing ₹70,000 crore in state-owned banks over four years starting from 2015-16 under the Indradhanush programme. Of this, ₹50,000 crore is the allocation for the first two years, with the balance split between 2017-18 and 2018-19.
On Wednesday, RBI governor Urjit Patel had also hinted at a consolidation in public sector banks. “The weaker banks are losing market share (and) that is a good thing. The stronger banks are gaining share...those who need to shrink are shrinking.”