Finance Minister Arun Jaitley on Saturday said the government will immediately set up an expert group to examine consolidation of public sector banks and consider allowing PSBs to issue employee stock options (ESOPs).
He said banks have to take all measures to clean up their books by effecting recoveries. The government, he said, is also working on strengthening the debt recovery mechanism to deal with non-performing assets (NPAs).
Speaking to reporters at the end of the two-day Gyan Sangam, a retreat of heads of public sector financial institutions, Jaitley said the country needs strong banks rather than a large number of banks.
“The first (issue) relates to consolidation of several banks. The bankers themselves… have strongly supported the idea. You need strong banks rather than numerically a larger number,” he said. “What is the strategy for this consolidation… bankers themselves have suggested an expert group to immediately go into this issue,” he said.
The Finance Ministry indicated recently it was open to merging subsidiary banks with parent banks — as in the case of State Bank of India — and to consolidate weak banks into larger banks. Consolidation of weak banks also reduces the burden of capitalisation on the government.
State Bank of Saurashtra and State Bank of Indore were merged with parent SBI in 2008 and 2010 respectively. SBI is now left with five associate banks — State Bank of Patiala, State Bank of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of Travancore and State Bank of Mysore.
Another suggestion that the government will consider is to allow PSBs to issue ESOPs. “The third thing which the government independently is considering, again at a very advanced stage, is the whole idea of ESOPs for bank employees,” Jaitley said.
To boost employee morale and performance, the SBI last year suggested that the government allow PSU banks to give ESOPs to their top management and share a higher proportion of profits with employees.
Jaitley said the government is working to strengthen the bad loan recovery process at the banks. The Finance Ministry has estimated that the banking sector has Rs 8 lakh crore of stressed assets, out of the total outstanding loan book of Rs 69 lakh crore. Stressed assets include NPAs as well as loans that are written-off by banks.
“In the current global environment, banks have to take all measures to clean up their books by effecting recoveries,” he said.
“There is a suggestion for some amendments to the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act). There is also a suggestion with regard to expediting the DRT (Debts Recovery Tribunal) process by some more amendments to the Act. Department of Financial Services is working in that direction, it is in a fairly advanced stage,” he said.
“As far as recovery is concerned, whatever steps have to be taken… banks have various rights for recovery through DRT, SDR… Neither loan waiver has been given to anyone, nor will be given,” he said.
Gross NPAs of public sector banks stood at Rs 3.60 lakh crore at December-end, up from Rs 2.67 lakh crore at the end of March 2015. Due to mounting bad loans, profitability of public sector banks has taken a hit.
On February 16, the Supreme Court took suo motu cognisance of a report in The Indian Express which disclosed that Rs 1.14 lakh crore of bad debts had been written off by state-owned banks between financial years 2013 and 2015. Calling it “a big fraud”, a bench headed by Chief Justice T S Thakur ordered the RBI to share with it names of the biggest defaulters, who, the court said, lead “lavish lifestyle” despite not repaying the loans.
Jaitley said the government is also setting up an expert committee to recommend how public sector banks too can go in for best recruitment, such as campus recruitment which is available to private sector banks.
The government has already constituted a Bank Board Bureau which seeks to reform the appointment process for top posts and improve governance at public sector banks. Vinod Rai, former Comptroller and Auditor General, has been appointed chairman of the bureau, which has six other members.
The second edition of Gyan Sangam — the first was held in Pune last year and was addressed by Prime Minister Narendra Modi — debated issues such as restructuring and consolidation in state-owned banks, recovery of NPAs, sale of non-core assets and credit growth.
Participants were divided into five working groups — one each on Restructuring, M/A (Mergers and Acquisitions), NPA Management and Recovery, Technology, Digital and Financial Inclusion, Credit Growth and Risk Management.
Top officials of the Finance Ministry, RBI Governor Raghuram Rajan and senior management of all PSBs attended the Gyan Sangam.