PSBs need to pass reform test for recapitalisation

New Delhi: The second round of PSB recapitalisation may begin in the July-September quarter. It would be based on lenders action on reforms front and compliance with RBI and finance ministry instructions.

Under RBI’s prompt corrective action (PCA) framework, banks are under close watch due to high non-performing assets (NPAs) and negative return on assets. Under PCA, a bank’s branch expansion is restricted and lending is narrowed to relatively less risky segments.

To get recap funds, banks will have to succeed on factors like co­n­solidation/ratio­n­alisation of overseas operations, sale of non-core assets for cost efficiency and steps for early de­tection of frauds and NPAs.

Some banks have identified non-core assets and st­a­rted monetisation. PNB has announced closure of representative offices in Australia and China. Union Bank of In­dia has sold 40 per cent stake in MF business to Ja­p­an’s Dai-ichi Life Insurance Company. Bank of India has offloaded its entire 5 per ce­nt stake in credit bureau Tra­nsUnion Cibil to US-based TransUnion International.

The 21 PSBs together account for 70 per cent market sh­are and efficiency impr­ovement will have a salutary effect on the sector, the finance ministry feels.

Capital infusion has been necessitated as banks’ gross NPAs surged from 5.4 per cent of gross advances in March 2015 to 13.7 per cent by June 2017. It raised their provisioning requirements to Rs 3,79,080 crore betw­e­en FY15 and Q1FY18, much higher than Rs 1,96,937 cr­ore made during the preceding 10 years. NPAs of PSBs stand at Rs 8 lakh crore.

In October, the government unveiled an Rs 2.11 la­kh crore 2-year roadmap, wh­i­ch includes recapitalisation bonds, budgetary supp­o­rt, and equity dilution, for strengthening PSBs hit by NPAs. Till March 31, 2018, the finance ministry disbu­r­sed Rs 88,000 crore under the plan. While infusing capital in 20 PSBs, the ministry had linked it to a 6-point reform agenda to restore their hea­lth and step up lending to aid growth.

The capital infusion for 2017-18 included Rs 80,000 crore through recapitalisation bonds and Rs 8,139 crore as budgetary support. In addition, banks were to raise Rs 10,312 crore thro­ugh sale of shares.

The reform agenda, aim­ed at enhanced access and service excellence (EASE), focuses on six themes of customer responsiveness, responsible banking, credit offtake, UdyamiMitra for small and medium enterprises, deepening financial inclusion and digitalisation and developing personnel.

“Capital infusion is contingent up on reform perfo­rmance of PSBs. The whole-time directors would be assigned theme-wise reforms and their performance wo­uld be evaluated by the bank board,” a finance ministry statement had said.

Meanwhile, with the increased focus on retail loans, revenue share of corporate lending in banks’ overall loan pie is set to decline to a fourth by FY22, says a report. The share of corporate lending in the overall revenue pie will slide to 27 per cent by FY22 from 39 per cent now, consultancy firm BCG said on Tuesday.

But retail lending will see a rise to 35 per cent from the present 28 per cent, it said. In FY12, corporate lending contributed 50 per cent of banks’ revenue pool from advances or interest income.

The report attributes this to lingering bad debt issue, which has resulted in lower appetite for corporate loans, pressure on margins and also movement away from bank borrowings by the better-rated companies.

Elaborating on NPLs, it said high corporate NPAs have incr­eased pressure on corporate banking and that it is the large and mid-corporate segments, which have been, hit the most.