PSU bank dividends will be returned as capital infusion: Hasmukh Adhia -LiveMint
Banks that do not meet efficiency criteria set by Centre may have to look at shrinking balance sheets, says secretary, department of financial services
New Delhi: Perform or consolidate. That is the message that the government is giving state-run banks. Signalling the adoption of a stricter approach, the government will restrict its capital infusion into public sector banks to the dividend income received from these banks, said Hasmukh Adhia, secretary, department of financial services in the ministry of finance.
In a post-budget interview, he said banks that do not meet the efficiency criteria set by the government may have to look at shrinking their balance sheets. He also talked about the steps taken by the government to revamp state-run banks.
Edited excerpts:
The government has not allocated too much funds for capitalization of state-run banks in the budget. Along with the newly laid down efficiency parameters by the government, are you forcing banks to consolidate?
Let me clarify. Unlike the perception in economic circles that public sector banks are inadequately capitalized, we are more than adequately capitalized. We are meeting all Basel-III norms. RBI (Reserve Bank of India) has further tightened these norms and we are meeting those as well. There is no shortage of capital as of now. As per Basel III and RBI norms, we are supposed to have a total capital of 9%-common equity plus additional tier I plus additional tier II. The average of all banks is 11.5% today. If you take the criteria of common equity, it is 5.5%. This is going to remain constant till 2019. It is not going to change. There also, the average of all state-run banks is 8%. If you take the worst of all state-run banks also, it is 6.5%. We have calculated that even if the government does not give any money to banks; and even if they do not raise any money from the market, then also they will be adequately capitalized till March 2016.
Having said that, the government can only allocate a certain amount of funds. It is not fair to put taxpayers’ money into equity of banks whose value is getting eroded. It is not a good idea. We have decided, more or less, that to the extent that the banks give dividend to the government, the same amount will be returned to banks in the form of equity infusion. We do not want to retain dividends since banks are not doing well. We got Rs.6,000 crore as dividend last year. We gave Rs.6,990 crore in capital infusion this fiscal. We are estimating that next year we will get a dividend of around Rs.8,000 crore and, hence, we have budgeted Rs.7,940 crore as capital infusion in 2015-16. But we will use efficiency parameters.
We have already allowed banks to reduce the government’s stake to 52%. Even at today’s market valuation of state-run banks that is highly beaten and highly suppressed, if all banks reduce the government’s stake to 52%, Rs.80,000 crore is available. Banks made a net profit of Rs.40,000 crore last year, of which they gave the government Rs.6,000 crore. The remaining amount of profits is retained and is available to them.
If I distribute Rs.8,000 crore among 26 banks, is it going to make a significant difference to them? No. They have to look for alternatives. And they have to shrink in size, if need be. They can take a strategic retreat. They can consolidate and reorganize portfolios, go into niche banking, say focus on retail. They can decide ‘we will not grow our credit by more than 5%’.
Should these banks that do not meet the efficiency criteria merge with other banks?
The government’s view is that consolidation proposals should come from bank boards themselves. It is possible they may not do it themselves. That’s why the concept of bank board bureaus. The bank board bureaus, apart from taking over the appointment function from the appointment board, will also look at the business strategy of every bank and suggest the right fit.
What will be the constitution of the bank board bureaus?
It will have professionals. Out of the six people in the board, five will be professionals and one will be a government nominee (the department of financial services secretary). Of the five professionals, at least three have to be bankers either from the private or public sector who have retired, and the rest can be professionals. The chairman will also be a banker and not the government representative.
They will suggest to the government the name of the MD (managing director) and CEO (chief executive officer), the name of the non-official chairman and non-official directors.
How will a bank investment company (BIC) work? The idea of a holding company for state-run banks has been floated many times in the last few years.
It will happen after a couple of years. Bank board (bureaus) is the first step in the direction. We want to have a buffer between the government and public sector banks. The idea of a BIC is to have a professional company managing all banks and to capitalize all banks. We have a clear roadmap in our minds for BIC, but it will take a couple of years. We will sort out the issues with the BIC model. It is an eminently suitable proposition.
What more can the government do to improve the functioning of state-run banks?
The government has to improve the governance process of state-run banks. There are many vacancies on the boards of banks. Many appointments have not been made in the last few months. This is because we want to fill them up with the right kind of people and not just any one. The criteria for these non-official directors is pending with the government. Either they should be an economist or a big expert or a retired government officer with at least five years’ banking or financial services experience. People can apply on the portal and get selected.
Once the appointments panel of cabinet approves the criteria, we will be able to appoint good people on the boards. It should happen any day now.
We want to stop giving them guidance on important issues. We want them to be more responsible. Once the quality of the MD and CEO of a bank improves, the bank board improves. One good leader can change the entire organization.
Will you look to appoint a MD and CEO from the private sector for other banks also, besides the five for which the government has initiated the process?
No. Right now we are experimenting with only five big banks. If we extend it to others, there will be dissatisfaction among the rest as there are many executive directors who would want to become chiefs of banks. But these five banks are too big.
There was a proposal for setting up asset reconstruction companies specifically for dealing with bad debt in roads and power sectors. What is its status?
There is no such proposal under consideration. There are so many asset reconstruction companies already.
Will the government look to bring down stakes in state-run insurance companies?
25% PSU Bank Staff to Retire in 5 Years: Minister-NDTV
The government on Tuesday said that an average 25 per cent of the total staff presently working in public sector banks will retire over the next five years.
"On an average, about 25 per cent of officers and employees would retire by 2020 in PSBs (public sector banks)," Minister of State for Finance Jayant Sinha said in written reply in the Rajya Sabha.
PSBs assess and anticipate vacancies including retirements annually and take necessary action to fill the same including intimating their requirement to Institute of Banking Personnel Selection (IBPS) for making allotment well in advance, he said.
The government has granted managerial autonomy to the PSBs in the matters related to Human Resource including recruitment, he said, adding the government has also advised all PSBs to prepare a succession plan.
In a separate response, Mr Sinha said RBI collects and compiles information on defaulters (non-suit filed accounts) for Rs 1 crore and above on half-yearly basis and wilful defaulters (non-suit filed accounts) for Rs 25 lakh and above on quarterly basis from banks and financial institutions.
It is disseminated among banks and financial institutions for their confidential use, he said.
Besides, banks have been advised to submit the wilful defaulters' data for non-suit filed accounts to Credit Information Companies (CICs) from December 2004 onwards, he said.
Also the list of wilful defaulters (suit filed accounts) is now prepared by CICs and banks directly, he added.
"On an average, about 25 per cent of officers and employees would retire by 2020 in PSBs (public sector banks)," Minister of State for Finance Jayant Sinha said in written reply in the Rajya Sabha.
PSBs assess and anticipate vacancies including retirements annually and take necessary action to fill the same including intimating their requirement to Institute of Banking Personnel Selection (IBPS) for making allotment well in advance, he said.
The government has granted managerial autonomy to the PSBs in the matters related to Human Resource including recruitment, he said, adding the government has also advised all PSBs to prepare a succession plan.
In a separate response, Mr Sinha said RBI collects and compiles information on defaulters (non-suit filed accounts) for Rs 1 crore and above on half-yearly basis and wilful defaulters (non-suit filed accounts) for Rs 25 lakh and above on quarterly basis from banks and financial institutions.
It is disseminated among banks and financial institutions for their confidential use, he said.
Besides, banks have been advised to submit the wilful defaulters' data for non-suit filed accounts to Credit Information Companies (CICs) from December 2004 onwards, he said.
Also the list of wilful defaulters (suit filed accounts) is now prepared by CICs and banks directly, he added.
Moody's downgrades IOB, Central Bank's deposits-Business Standard
Says standalone credit quality more important for ratings; assumes lower support form government
Ratings agency, Moody's, has downgraded ratings for Central Bank of India and Indian Overseas Bank's (IOB) local and foreign currency deposits from "Baa3" to "Ba1" following government's policy to differentiate between public sectors banks (PSBs) when distributing capital.
The government has indicated that efficient banks will receive capital from its majority owner (Government of India). PSBs have to reorient policies to rejig businesses and compete for equity capital.At the same time, IOB's senior unsecured debt, issued from its Hong Kong branch was also downgraded to Ba1 from Baa3, Moody's said in a statement.
The rating action reflects Moody's assumption of a lower level of support from the Government of India following its recent decision indicating policy to differentiate between state-owned banks (SOE banks) when distributing capital.
It continues to assume a very high probability that the government would support these two state-owned banks.
Change in rating stance
Now, the standalone credit quality of PSBs has become a more important consideration for the senior unsecured and deposit ratings of the banks compared to previously when Moody's rated all SOE banks at the same level as the Government of India.
At the same time, Moody's has maintained its negative outlook on Central Bank's local and foreign currency deposit ratings. Moody's has also maintained its stable outlook for IOB's senior unsecured debt and local and foreign currency deposit ratings.
CBI and IOB have the weakest standalone credit profiles among Moody's rated Indian banks, as indicated by their baseline credit assessments (BCA) of b3 and b2 respectively.
Moody's said the new policy for capital allocation to PSBs represents a marked departure in its approach to allocating capital until now.
Under the new criteria, the government will give preference in allocating capital to banks whose average return on assets over the past three years and whose return on equity over the past one year surpass the corresponding weighted average ratios of SOE banks.
In contrast, over the last four years, banks with weaker capital levels received higher capital allocations, regardless of their size or profitability. Moody's notes that this new approach has been reflected in the capital allocations earmarked for the fiscal years ending March 2015 and March 2016.
For FY 2015, the government only allocated Rs 6,990 crore from its initial budget projection of Rs 11,200 crore. Only nine banks -- which had satisfied the profitability criteria -- actually received capital.
For FY 2016, the government has only allocated Rs 7,940 crore for capital infusions even though the capital requirements of the SOE banks remain at high levels.
RBI panel suggests easy passage for banks in meeting priority targets --Economic times
KOLKATA: The priority sector lending targets may turn less rigorous for banks with a Reserve Bank of India panel suggesting two-to-three years' spell to comply with the proposed set of rules that envisage making bank credit accessible to the hitherto unbanked segments in step with the nation's financial inclusion goal.
The RBI working group, formed to examine the existing set of rules, has suggested a uniform 40% target for all banks irrespective of their network strength even as it ..
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