Finance Ministry may pitch for stricter norms for non-performing assets

The banking division of the finance ministry is likely to pitch for stricter measures to deal with non-performing loans and suggest consolidation of public sector banks to create stronger lenders in its presentation to Narendra Modi, who is set to take over as prime minister on Monday.

"We will present all options which can be used to strengthen banks, including consolidation," said a finance ministry official, requesting anonymity. Cabinet secretary Ajit Seth had earlier asked all departments to prepare presentations to apprise Modi of their achievements and plans.

Another official said that the presentation will include a blueprint on the proposed banking captialisation programme, steps towards financial inclusion and measures that can be taken to arrest bad loans at staterun banks.

"Consolidation in PSBs can be looked at if there is a political will. We have to present all options," he added.

Finance Ministry may pitch for stricter norms for non-performing assetsThe ministry will also make a case for early release of Rs 8,000 crore as part of plans to infuse additional capital in the stateowned lenders. The 26 state-run banks will together need about Rs 4.15 lakh crore in capital infusion to be able to maintain lending growth under the Basel guidelines.

The government is unable to meet this demand because of its own weak fiscal position and has allocated just Rs 11,200 crore towards bank capitalisation in the current fiscal year, substantially lower than the amount infused in previous years.

"The banks have also presented various options to raise capital. All these measures will be a part of the presentation," the official said.

Some of these options include allowing banks to set up holding companies that will include all totheir subsidiaries. The holding company will raise money on behalf of these subsidiaries.

Other measures include focused special purpose vehicles (SPVs), such as the one Allahabad Bank has proposed, to monetise real estate assets and raising capital by allowing banks to issue shares to employees.

Some of these proposals are already being discussed with the Reserve Bank of India, the Securities and Exchange Board of India ( Sebi) and the Insurance Regulatory and Developmental Authority ( IRDA), said the official cited above.

The finance ministry has already directed banks to improve their CASA (current and savings accounts) ratio to up to 40% and focus on recoveries. Gross nonperforming assets (NPAs) of state-run banks improved to 4.44% in the quarter to March from 5.07% in the previous quarter.

"We will push for stricter measures which include attaching viable assets of promoters to recover loans," said the finance ministry official, signalling the continuation of the approach that founders be held accountable for the performance of companies they run.


Source: Economic Times

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India Post needs to apply afresh to Reserve Bank of India for bank licence

India Post will have to apply afresh to the Reserve Bank under differential licence guidelines if it wishes to start banking operations. According to sources, aspirants, including the Department of Post, will have to apply once again after guidelines on differential bank licences are issued in the next few months.

India Post was one among the 25 unsuccessful contenders for new bank licences. The Reserve Bank of India (RBI) last month granted licences only to IDFC and Bandhan Financial Services Pvt Ltd.

The applicants also included state-run IFCI and private sector Anil Ambani group and Aditya Birla group, Bajaj Finance, Muthoot Finance, Religare Enterprises and Shriram Capital. Recently, RBI Governor Raghuram Rajan had said it is committed to freeing entry in banking.

"We just announced two new commercial bank licences after a rigorous vetting process. We are examining this experience, and after making appropriate changes, will announce a more regular process of giving licences - what has been termed licenses on tap," he had said At present, there are 27 public sector banks and 22 private sector lenders in the country.

"The RBI can take more of a chance with new players if they get the licence to open only a small bank or to conduct only one segment of banking business. Such differentiated licences - licences with restrictions on the geographical reach or the products offered by a new bank - can generate more organisational variety and efficiency," Rajan had said.

Small banks tend to be better at catering to local needs, including needs of small and medium businesses, he had said. A payments bank, which will take deposits and offer payment and remittance services but be constrained to invest all its funds in safe instruments such as government securities, could be very synergistic with other existing services, he had said.

"For example, the proposed Post Bank could start as a payment bank, making use of post office outlets to raise deposits and make payments," he had said. New bank licences were issued by RBI in April to IDFC and Bandhan after a decade. Before this, the central bank had awarded licences to Kotak Mahindra Bank and Yes Bank in 2003-04.


Source: Economic Times

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Reject Nayak panel report on PSU banks, demands bank union

A bank employees' union has asked the government to reject the Nayak committee recommendations on bank privatisation saying the report would not be against national interest.

"The report of the committee, which was appointed by the RBI Governor, deserves to be rejected by all authorities," All India Bank Officers Association ( AIBOA) General Secretary S Nagarajan said.

Nagarajan also said that banking should also be brought under Banking Audit Commission identical to CAG.

"We have also written to the President of India seeking his immediate remedial action to safeguard the public sector banking from ever growing bad loans due to various external factors," he told reporters here today.

The committee headed by P J Nayak, former chairman of AXIS Bank, has recommended mainly privatisation of public sector banks by reducing the government equity below 51 per cent, merger of Bank, repealing Bank nationalisation which would be against national interest.


Source: Economic Times

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