Branches of loss-making PSU banks may be closed

The government may ask public sector banks and insurance companies to relocate or close loss-making branches as part of rationalisation.

“This is part of an ongoing dialogue for not only banks but also insurance companies,” financial services secretary D K Mittal told reporters, when asked if the government had asked banks for a report on loss-making branches. “If there are loss-making branches, then we need to re-look at why they are there. If that needs working out a business strategy — maybe relocating it, maybe scaling down of staff — all needs to be looked at.”

Ultimately, he said, branches have been set up to earn. “If they (loss-making branches) have been there for sometime, say 12 months, then I think there is a case to re-look at shutting them,” he said on the sidelines of a CII event here.

There are about 87,000 branches of public sector banks across the country. Rising interest rates and slowdown in the economy has impacted the repayment capacity of borrowers, especially small and medium enterprises, leading to a rise in non-performing assets (NPAs) of banks.

NPAs have risen to Rs 1.27 lakh crore till December 2011. Of this, public sector banks’ gross bad debt jumped 51 per cent to Rs 1.03 lakh crore in 2011. The gross NPAs of public sector banks increased from Rs 68,597 crore at December 2010 end, to Rs 103,891 crore as on December 2011.

Mittal said the government will take a view on further recapitalisation of state-owned banks by June-end to help them enhance business growth and meet capital adequacy norms.

“End of May, or maybe by the end of June, we will have a fairly clear picture as to which bank has to be capitalised and how much,” he said.

The financial services secretary said all public sector banks should be touching nine per cent of Tier-I capital and State Bank of India should be touching 11 per cent. “This is the strategy,” he added. “The provision, which is there this year (for recapitalisation of banks), will be available only when the Budget has been passed.”

The Budget has made a provision of Rs 14,588 crore towards recapitalisation of public sector banks in 2012-13. The government had infused Rs 12,000 crore into public sector banks in 2011-12 to enable them maintain a minimum Tier-I at eight per cent as on March 31, 2012, and also to increase shareholding of the government in the banks to 58 per cent. State Bank of India got Rs 7,900 crore. SBI issued 3.65 crore equity shares at Rs 2,191.69 apiece through preferential allotment to the government.