FinMin Talk­ing to PSBs to Link Cap­i­tal Sup­port to Per­for­mance

Re­view to be based on re­cov­ery, lend­ing and other op­er­a­tional ef­fi­cien­cies

The Economic Times - - Economy - Dheeraj.Tiwari@ times­group.com

New Delhi: The gov­ern­ment plans to al­lo­cate cap­i­tal to state-run banks on the ba­sis of their per­for­mance and dis­burse just a par­tial amount to help them meet reg­u­la­tory re­quire­ments.

The finance min­istry is dis­cussing the mat­ter with these banks, of­fi­cials said. “The ini­tial idea was to al­lo­cate only 25% amount and the re­main­der based on the six-month per­for­mance re­view,” said one of the of­fi­cials, who did not wish to be iden­ti­fied. The gov­ern­ment has bud­geted .₹ 25,000 crore for bank cap­i­tal­i­sa­tion in cur­rent fis­cal, as part of its .₹ 70,000 crore cap­i­tal in­fu­sion plans till 2019.

“The per­for­mance re­view will be based on re­cov­ery, lend­ing and other op­er­a­tional ef­fi­ciency fac­tors. We want banks to also look at rais­ing re­sources in­ter­nally,” the of­fi­cial said.

Last year the gov­ern­ment had de­cided to pro­vide cap­i­tal sup­port based on per­for­mance as a tool of more ef­fec­tive util­i­sa­tion of lim­ited re­sources and also en­cour­age­ment to lag­gards to do bet­ter.

Banks have op­posed the link­ing of cap­i­tal sup­port to per­for­mance, es­pe­cially when the sec­tor is in stress.

A se­nior banker said that the banks have op­posed the move, ar­gu­ing that it makes no sense to give just 25% amount. “Our over­all busi­ness plans also fac­tor in the gov­ern­ment sup­port that we are due to get. Such half-hearted mea­sures may only lead to fur­ther stress in the bank­ing sys­tem,” he said.

An­other banker said that the gov­ern­ment should come out with a firm plan at the start of the fis­cal rather than al­lo­cat­ing cap­i­tal at year-end.

“You re­view the per­for­mance on that ba­sis and not al­lo­cate the amount when the bank is al­ready strug­gling to in­crease credit growth or even meet reg­u­la­tory re­quire­ments un­der Basel III norms,” he said.

A finance min­istry of­fi­cial said the pro­posal is still be­ing dis­cussed and the gov­ern­ment is open to sug­ges­tions. “Banks should re­alise that cap­i­tal comes at a cost. Any cap­i­tal al­lo­ca­tion will be based on per­for­mance. The con­tours of it can, how­ever, be dis­cussed,” the of­fi­cial said.

The mea­sures are part of the sev­en­pronged re­vamp plan called ‘In­dra Dhanush’.

Finance Min­is­ter Arun Jait­ley had said in his bud­get speech on Fe­bru­ary 29 that the gov­ern­ment will pro­vide ad­di­tional cap­i­tal if re­quired by banks and will find the re­sources for do­ing so. “We stand solidly be­hind these banks,” he had said.

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