The government’s decision to infuse Rs 6,000 crore in Exim Bank — more than Rs 4,800 crore of capital injection in the last five-and-a half years put together — comes in the backdrop of sharp deterioration in assets quality as well as capital adequacy of the leading export credit agency while it recorded steep losses since 2017-18.
Earlier this week, the Union Cabinet approved plans to inject equity into Exim Bank in two tranches — Rs 4,500 crore in 2018-19 and Rs 1,500 crore in 2019-20.
With the government facing financial constraints, the fund infusion is being done through issuance of recapitalisation bonds, on the lines of similar bonds being issued for capital infusion in public sector banks.
Even as the Union Budget for 2018-19 had allocated only Rs 500 crore for equity infusion in Exim Bank (or Export Import Bank of India), the Centre had to step up funding support sharply to augment the bank’s capital adequacy amidst mounting non-performing loans (NPL) and provisions to cover against loan losses.
No immediate impact expected on fiscal deficit
The strategy of infusing equity in state-owned banks through issuance of recapitalisation bonds has been extended to export credit agency Exim Bank, as the government approved capital infusion of Rs 6,000 crore. Deteriorating asset quality and falling capital adequacy ratio prompted the government to pump in a record amount into the bank. While the infusion through the recapitalisation bonds route does not immediately impact the fiscal deficit, extension of its usage indicates that this is emerging as a key tool for the government to support banks and financial institutions without impact the fiscal consolidation plan.
Exim Bank recorded gross NPL ratio of 12.93 per cent in the first half of the current fiscal, up from 10.34 per cent in 2017-18, according to a recent investor presentation made by the bank. Its net NPL ratio also jumped to 4.14 per cent in first half of current fiscal, from 3.75 per cent in 2017-18.
The bank suffered a net loss of Rs 2,923.7 crore in 2017-18 and Rs 508 crore in the first half of the current fiscal year.
The bank had negative return on assets and negative return on equity in 2017-18 and in first six months of the current fiscal. Further, it had total loans and advances of Rs 1.01 lakh crore in first half of current fiscal.
“Current NPL is primarily due to downgrade of the restructured legacy assets. NPLs are essentially recognition of watchlist assets (and) 49 per cent of the incremental NPLs during FY18 were due to revision of instruction by RBI on resolution of stressed assets,” the bank said in its presentation.
In its February 12 circular last year, the Reserve Bank of India did away with all its earlier instructions dealing with resolution of stressed assets and replaced them with the revised framework for resolution of stressed assets.
The circular specified that the one-day default norm requires banks to implement a resolution plan within 180 days and in case of non-implementation, lenders are required to file an insolvency application.
Exim Bank’s provisions against NPLs jumped nearly three times to Rs 6161 crore in 2017-18 from Rs 2168 crore in 2016-17.
Regulated by the Reserve Bank and fully owned by the central government, Exim Bank lends to exporters and supports overseas buyers and Indian suppliers for export of developmental and infrastructure projects, equipment, goods and services from India.
It provides export finance, buyer’s credit, pre and post shipment credit, lines of credit among others.
While approving equity infusion in Exim Bank, the government said: “The infusion will give an impetus to anticipate new initiatives like supporting Indian textile industries, likely changes in Concessional Finance Scheme (CFS), likelihood of new LoCs (Lines of Credit) in future in view of India’s active foreign policy and strategic intent.” The Centre also approved an increase in the bank’s authorised capital from Rs 10,000 crore to Rs 20,000 crore.