Public sector banks may require an additional capital infusion from the government as they will have to make higher provisioning for bad loans in the wake of bankruptcy proceedings against 12 large defaulters, Reserve Bank Deputy Governor SS Mundra said.
Mundra said, “I think the finance minister has always been mentioning that if there is a need we will find resources.” The process of NPA resolution and capitalisation are closely associated, Mundra said, adding that banks may need additional capitalisation post the exercise. Finance Minister Arun Jaitley earlier announced capital infusion of Rs 10,000 crore for the current fiscal in line with the Indradhanush scheme.
“There is no question of maximum or minimum haircut. Haircuts have to be taken depending on need and requirement (for resolution),” Mundra said on the sidelines of an Assocham seminar in New Delhi. Various solutions may emerge as part of insolvency process, he said. It could be merger, restructuring and haircut, or provisioning may be required depending on the structure which is finally adopted under the Insolvency and Bankruptcy Code (IBC), he said.
When asked about the names of the 12 accounts, he said the RBI’s Internal Advisory Committee (IAC), comprising a majority of its independent board members, will come out with the list at an appropriate time. Steel companies account for 50 per cent of 12 large corporate defaulters identified by the IAC of the Reserve Bank for insolvency proceedings under the newly enacted Insolvency and Bankruptcy Code 2016 (IBC).As much 40-60 per cent provisioning is needed on the steel
As much 40-60 per cent provisioning is needed on the steel accounts, and even larger provisions for the others. It’s estimated that 6-9 months are needed for creditors to come up with a resolution, failing which liquidation would take place. A huge amount of over Rs 2 lakh crore bad loans is stuck in these 12 large defaulters.
The RBI is expected to come out with changes in provisioning needs for cases referred to the IBC, which may defer immediate provision needs. However, resolution will precipitate the need for additional capital at corporate lenders. On the balance sheet cleaning exercise, Mundra said, “to believe that all this (cleaning) can happen without additional provisioning would be too optimistic. I would strongly say we should be realistic rather than pessimistic or optimistic.”
Public sector banks need to raise Rs 1.10 lakh crore from markets, including follow-on public offer, to meet Basel III requirements, which will start from March 2019. This will be over the Rs 70,000 crore that banks will get as capital support from the government. Of this, the government has already infused Rs 50,000 crore in the past two fiscals and the remaining will be pumped in by the end of 2018-19.
Mundra said the RBI is deliberating on a framework for co-origination of loans by banks and the non-banking finance companies/ microfinance institutions with risk participation which would leverage upon unique strength of both entities, while benefitting the entrepreneurs in form of lower credit costs.
“Along with measures to improve accessibility, there is also a need to concentrate on new modes of delivery. Reaching out to the MSMEs in the remote corners has always been a complex issue in view of lack of brick and mortar branches across the country,” he said.