Reserve Bank on Tuesday made a strong case for providing more capital to public sector banks to deal with the problem of stressed assets and get back to a position from where they can start generating internal accruals. “Indian banks got into stress before implementation of Basel III and revised IFRS which provide protection against system level stresses…so we have to find more capital for supporting banks today. Of course government of India has supported entire AQR (asset quality review) exercise that we have done,” RBI Deputy Governor N S Vishwanathan said.
“The government has been supportive and they have provided requisite capital for the public sector banks. We need to ensure that stressed asset build-up is contained so that banks get back to generate adequate internal accruals,” he said.
He also said that provision coverage ratio (PCR) has witnessed a decline in the last few months. “PCR means the difference between gross NPA and the net NPA, that much has to be covered if net NPA is zero which means assets are fully provided for. At one point of time, it used to be 70 per cent…as banks are able to generate profit they will be able to do that,” he said at an Assocham event here.
Last month, the government injected Rs 22,915 crore capital in 13 lenders including SBI and Indian Overseas Bank to revive loan growth, which hit a two-decade low, to shore up cash-strapped public sector banks. This is the first tranche of capital infusion for the current fiscal and more funds would be provided in future depending on the performance of PSBs.
Finance Minister Arun Jaitley has also promised to provide more capital to public sector banks if they require. Overall Rs 70,000 crore in capital is to be invested over four years to contain risks in the banking industry. Out of the Rs 22,915 crore, State Bank of India (SBI) will get Rs 7,575 crore, followed by Indian Overseas Bank Rs 3,101 crore and Punjab National Bank Rs 2,816 crore.
The infusion will boost the government’s shareholdings in the banks, which have been under-capitalised compared with their private peers because of restrictions on their ability to sell equity to raise money. The average Capital Adequacy Ratio (CAR) – or the ratio of a bank’s capital to its risk — for public sector banks stood at 11.6 per cent as of March 31, lower than 13.2 per cent for banking system as a whole. Basel-III regulations provide for bank to have a minimum capital ratio of 9 per cent by March 31, 2019.