FinMin, banks to mull on higher capital infusion for PSBs

RBI has asked FinMin to increase capital infusion, says Mundra

Reeling from a low capital adequacy ratio and high non-performing assets (NPAs), public sector banks (PSBs) are likely to push for higher capital infusion at their meeting with the finance minister on Friday.

The Reserve Bank of India (RBI), too, recently told the government that public banks need more capital.

“We have been telling the finance ministry from time to time that public sector banks need more capital than what the Budget indicated. Besides raising the issue at different forums, RBI also wrote to the government about it,” said RBI Deputy Governor S S Mundra said in New Delhi at an event.

 

He added: “The budgeted amount — more than Rs 7,000 crore — will not be adequate to enable the banks to clean up their books, which is much needed, and also support growth.”

Mundra, however, did not elaborate on the adequate amount that the state-owned banks need from the government.

 

The government, in the previous financial year, had infused Rs 6,990 crore in the PSBs based on their performance. The ministry has decided any future infusion of capital would be based on the efficiency of banks on parameters such as return on asset and return on equity.

The banks had in an earlier instance pitched to the government to widen the criteria for capital infusion. The ministry is open to widening the parameters and might include level of NPAs but the performance criteria will stay.

 

The quarterly meeting between Finance Minister Arun Jaitley and chief executive officers of the PSBs and financial institutions (FIs) would broadly review the annual financial performance of the PSBs during FY15.

He will also review the performance of banks with regard to their performance in overall credit growth with particular reference to agriculture credit, education loans, housing loans and NPAs.

The government is also expected to push banks to increase their home loan book.

“There would be a review of the progress of three social security schemes such as Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Atal Pension Yojana (APY). He will also review the progress made with regard to Micro Units Development & Refinance Agency (MUDRA),” stated a release by finance ministry.

The meeting would also be attended by Jayant Sinha, Minister of State for Finance, Hasmukh Adhia, Secretary, Department of Financial Services.