Govt must merge only strong state-run banks: Acharya

Mint Asia ST - - Inside - BAY SIT R ANJAN M ISHRA

Re­serve

Bank of India (RBI) deputy gov­er­nor Vi­ral Acharya on Fri­day, 8 Septem­ber, said the gov­ern­ment should only merge strong pub­lic sec­tor banks (PSBS) while al­low­ing weaker banks to re­cu­per­ate af­ter ad­e­quate re­cap­i­tal­iza­tion.

“Some­times merg­ing stronger en­ti­ties with weaker en­ti­ties leads to bring­ing down the stronger en­tity. The cal­cu­la­tion has to be right,” he said while speak­ing at an event in New Delhi.

How­ever, Acharya clar­i­fied that these are his per­sonal views and do not re­flect the views of the cen­tral bank.

Giv­ing the ex­am­ple of Bank of Amer­ica (BOA), which was one of the health­i­est banks be­fore the real es­tate cri­sis started in 2008, Acharya said Bank of Amer­ica weak­ened sig­nif­i­cantly af­ter it ac­quired Coun­try­wide and Mer­rill Lynch, which had a lot of bad loans.

“My own sense is let the healthy banks merge with each other if con­sol­i­da­tion in the sec­tor is the ob­jec­tive. Keep re­cap­i­tal­iza­tion of the weak banks as a sep­a­rate thing, re­cap­i­tal­ize them and then merge them with other healthy banks. Or else, you have to do the cal­cu­la­tion right so that the healthy bank has so much cap­i­tal that it can ab­sorb the losses of the weak bank,” Acharya said.

State Bank of India merged the op­er­a­tions of five of its as­so­ciate banks and Bharatiya Mahila Bank with it­self ear­lier this year, mark- ing the first con­sol­i­da­tion move in the sec­tor fol­low­ing the bad loan cri­sis.

The merger has re­duced the num­ber of state-con­trolled banks to 21 from 26.

Acharya said if the gov­ern­ment can­not re­cap­i­tal­ize pub­lic sec­tor banks due to its tight fis­cal sit­u­a­tion, then it should con­sider pri­va­tiz­ing some of these banks.

“You still have stakes in these banks even if you can’t re­cap­i­tal­ize them. And you can sell these stakes in the mar­ket and some­one can take over the banks. The reg­u­la­tor should en­sure such pri­vate banks re­main well cap­i­tal­ized,” Acharya added.

Un­der the In­drad­hanush scheme in­tro­duced in 2015, the gov­ern­ment had agreed to in­fuse Rs70,000 crore in state-run lenders over four years.

They were to re­ceive Rs10,000 crore in 2017-18 and the same amount the fol­low­ing year which an­a­lysts con­sider to be in­ad­e­quate.

The gov­ern­ment has so far pro­posed to in­fuse Rs8,586 crore in 10 lenders this year, sub­ject to the banks meet­ing strin­gent re­quire­ments for im­prov­ing their health.

On the bad bank pro­posal which was meant to take over all the bad loans of PSBS, Acharya said it is presently not un­der con­sid­er­a­tion be­cause it may be dif­fi­cult for the gov­ern­ment to man­age a new en­tity if it can­not ad­e­quately re­cap­i­tal­ize the ex­ist­ing PSBS.

San­jeev Sanyal, prin­ci­pal eco­nomic ad­viser in the fi­nance min­istry, re­cently told Mint the gov­ern­ment is look­ing to re­duce the num­ber of pub­lic sec­tor banks to 10-15, more than what was en­vis­aged ear­lier, through a se­ries of merg­ers and ac­qui­si­tions so that none of the banks be­comes too big to fail.

“Con­sol­i­da­tion will not be taken too far to four or five as spec­u­lated since the whole sys­tem breaks down even if one fails. Even­tu­ally, the pos­si­ble num­ber will come down be­tween 10 and 15. It will be done purely on a com­mer­cial ba­sis,” Sanyal said in an in­ter­view on 21 Au­gust.

Pri­va­ti­za­tion plan: Vi­ral Acharya. RBI deputy gov­er­nor

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