bank NPAs: Centre assessing capital needs of state-run banks

NEW DELHI: The government is carrying out a detailed assessment of the capital requirements of state-run lenders, a move that comes after some of the public sector banks reported significant losses in the last quarter of 2016-17. Asenior finance ministry official said the government is in talks with all lenders and the new “turnaround agreement” it has signed with them is expected to significantly improve their performance.

“We are holding discussions and an assessment is being done on the steps the banks can take to raise capital, including sale of non-core assets,” said the official, who did not wish to be identified.

IDBI reported a loss of Rs 3,199.76 crore for the quarter to March, almost twice the net loss of Rs 1,735.81crore it incurred a year ago. The other state-run lenders in the red include Central Bank of India, UCO Bank and Indian Overseas Bank.

“Oriental Bank of Commerce and Bank of Maharashtra have slipped and posted losses but other banks have trimmed their bad loans,” the official said. He said the banks are considering all options including closure of non-profitable branches, reduction of overheads and strengthening of their credit appraisal process. The government has allocated Rs 10,000 crore for capital infusion in banks in the current fiscal.

“This may not be sufficient as some banks have come under the prompt corrective action (PCA) plan of the Reserve Bank of India, which will further impact their ability to raise capital from the markets,” a senior bank executive said on condition of anonymity.

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The finance ministry official cited earlier said the RBI has told the government that public sector banks may require capital support of about Rs 30,000 crore this fiscal. “We are hopeful that some of these banks will be able to improve their financials by making more recoveries. Besides, the ordinance will help in faster resolution of bad loans,” the official said.

The government on May 5 promulgated an ordinance to empower the RBI to issue directions to banks for resolution of stressed assets.

ET View: Shoring up Performance
Large scale divestment is the good way to help shore up the performance of state-owned PSUs. The government would do well sell shares in profit-making companies that are not strategic any more, and, also without holding back for the right level of stock prices. It must move out from sectors such as steel and power, where the private sector has developed expertise, and foray into areas such as advanced manufacturing, telecom and aerospace.