Bank Mergers To Be Part Of Recapitalisation Plan, Says RBI Governor
Government and RBI working on a capitalisation plan for banks
The government and the Reserve Bank of India (RBI) are working together on a plan to recapitalise state-owned banks, which will include mergers between some of these lenders, said Governor Urjit Patel at an event in Mumbai on Saturday.
Discussions are underway to shore up bank capital, said Patel. The package will include raising capital from the market, funds from the government and mergers, he added.
Patel’s comments come at a time when state-owned banks are struggling to provide for the rising pool of bad loans on their books. Gross non-performing assets (NPAs) of all listed banks rose to Rs 8.3 lakh crore at the end of the June quarter, data compiled by BloombergQuint showed. In providing for these loans, a number of state-owned banks reported losses. The aggregate losses of state owned banks in the June quarter stood at Rs 277 crore.
As per the Indradhanush plan for the recapitalisation of banks, the government intends to infuse Rs 10,000 crore into state-owned banks in FY18 and FY19. Most external agencies, however, believe this amount will be inadequate. Finance Minister Arun Jaitley at the time of the Union Budget had said that more funds will be provided if necessary.
Patel, speaking at a conference on the Insolvency and Bankruptcy Code (IBC), also defended the RBI’s decision to direct banks to refer 12 large stressed accounts for resolution under the IBC.
The criteria used to pick 12 accounts for insolvency are in-line with the objective of recovering maximum economic value, said Patel while adding that the threat of liquidation should provide enough incentive to bankers and promoters to speed up the resolution.
Speaking at the same event, M.S. Sahoo, chairman of the Insolvency and Bankruptcy Board of India said that 250 insolvency transactions have been admitted across National Company Law Tribunals. He said 11 of the 12 accounts referred by banks at the direction of the RBI have also been admitted.
Commenting on the divergence in assessment of bad loans between banks and the RBI, Patel said this was a serious issue. Earlier this year, the regulator asked banks to divulge these divergences in their annual reports. Following the directive, a number of private banks including Yes Bank Ltd, Axis Bank Ltd and ICICI Bank Ltd reported divergences.
Weak credit discipline in banks is an important reason for the build-up of stress, said Patel while adding that an enforcement department has been set up within the RBI to address the issue of stressed assets.
