Bank licences on course despite polls

RBI not constrained by the model code of conduct, says FM

Finance Minister P Chidambaram on Wednesday clarified the Reserve Bank of India (RBI) was likely to issue a few bank licences during the remaining term of the incumbent United Progressive Alliance (UPA) government, notwithstanding the model code of conduct that kicked in with announcement of the election schedule.

“What has the code of conduct got to do with this? The government and regulators are discharging their normal duties. RBI may issue a few licences. That’s the indication we have got. We are not interfering with the process; that is RBI’s decision,” he said after a meeting with heads of public-sector banks on Wednesday.

The Bimal Jalan committee, screening applications for new licences, had last month sent its report, with names of shortlisted entities, to RBI. Though a final approval might come later, RBI is expected to give in-principle approval to a few applicants.

With the model code coming into force, the government will not be able to take any major policy decisions from Wednesday.

Chidambaram said there were misconceptions about what a government could or could not do during the time the code was in force. He clarified normal government functioning would not come to a halt. He added both the Cabinet and the Foreign Investment Promotion Board, which has its next meeting on Thursday, would continue to take decisions on investment proposals.

“Cabinet meetings will take place up to the end. Cabinet will clear proposals based on decisions on policies announced earlier. There are some restrictions placed by the Election Commission. There is a code of conduct. We will observe that,” he said.

Asked about capital infusion in banks, he agreed the interim Budget estimate of Rs 11,200 crore was not adequate and the government would continue to give more money, but added banks must also retain a substantial part of their profits and find additional ways to raise resources.

“We have discussed ways to raise additional Tier-I capital. Hopefully, we can take them forward. I will discuss some ideas when I meet with the RBI board on March 7,” he said.

The suggestions discussed at Wednesday’s meeting included revision in regulations for the Pension Fund Regulatory and Development Authority (PFRDA) and the Insurance Regulatory and Development Authority (Irda) to enable pension funds and insurance funds to be invested in additional Tier-I capital, giving rights issue in equal proportion to minority shareholders (so that their stake was not diluted when the government infused capital) and allowing banks to issue shares to their employees.

On the issue of non-performing assets (NPAs), the finance minister said the biggest challenge facing the public-sector banks was NPAs and their asset qualities and that the bad loans in the current financial year were likely to be higher than last year. He asked banks to focus on recovery of bad loans, which were high among large corporate accounts, while there was a dip in the real estate segment.

Gross NPAs of state-run banks increased from Rs 1.83 lakh crore at the end of March 2013 to Rs 2.5 lakh crore at the end of December 2013. Banks recovered Rs 18,933 crore worth of bad loans during the April-December period of the current financial year.

To a query on lifting curbs on gold imports, Chidambaram said the government would revisit the import duty on gold only after the current account deficit (CAD) figures for the full financial year became clearer.

RBI data on Wednesday showed rising exports and moderation in gold imports had brought down CAD in the December 2013 quarter sharply to $4.2 billion, or 0.9 per cent of GDP.

“With CAD estimated at $31 billion in April-December 2013, we expect the 2013-14 deficit to print at around $35-37 billion, roughly two per cent of GDP,” said Icra Senior Economist Aditi Nayar.

The finance minister also said the government would convene a meeting of telecom service providers and the Indian Banks’ Association to discuss measures for increasing the penetration of mobile banking services in the country.
CLEARING THE AIR
Statements at meet with bankers
Bank licences
RBI wishes to issue a few licences (this year)
Bank consolidation
I advocate consolidation but initiative must come from banks
Capital infusion
BE of Rs 11,200 is inadequate. We have discussed ways to raise additional Tier-I capital

Non-performing assets
Biggest challenge facing PSBs is NPAs & their asset qualities; it’s high in large corporate accounts
United Bank of India
UBI is a special case. The issue will be discussed separately with RBI Governor on March 7
Model code of conduct
We will observe that. Cabinet will clear proposals based on decisions announced earlier
Gold import curbs
We will revisit import duty only after CAD figures become clear for the full year