Criteria for assessing PSB recapitalisation candidates may change

The government is likely to change the criteria for assessing candidates for recapitalization, among state-owned banks.

The new criteria may include extra parameters like operating income, the level of non-performing assets these banks hold in their books, their ability to manage risk, as well as the cost to income ratio, Business Standard has learnt.

Finance Minister, Arun Jaitley has budgeted bank recapitalisation of Rs 7,940 crore for 2015-16. For last fiscal, although he had proposed a capital infusion of Rs. 11,200 crore, only Rs. 6,990 crore was disbursed to nine state-owned banks, including the State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank and Indian Bank, based on their performance.

This led the other PSBs to cry foul, stating that very narrow parameters had been used to decide which banks made the cut for capital infusion from the centre. Last fiscal, the Finance Ministry's Department of Financial Services (DFS) had considered only two parameters, namely return on equity, and return on assets.

As per senior government officials, the DFS is now seriously considering the suggestions given by the banks and the Indian Banking Association (IBA) on tweaks in performance criteria that make them eligible for recapitalisation.

The IBA is working on the drafting the final parameters that could be considered in future by the Finance Ministry. The association is expected to submit the new criteria by month end. Last month, in a post-budget interview with Business Standard, Financial Services Secretary Hasmukh Adhia had stated that the performance criteria for bank recapitalisation could change.

"We might change the parameters by which we judge their performance, based on the suggestion banks provide. But the performance factor stays. We could consider the level of non performing assets (NPAs). But you have to remember some of these are legacy issues. What we can do is incentivize those who have tried to rescue stressed assets," Adhia had said.

Additionally, the Finance Ministry is also mulling changes in the appointment terms for top posts in remaining 5 PSBs. The appointment could be for more than one term of three years and the age limit could also be relaxed from 55 to 57 years. This has come after criticism that at a time when the government is trying to reform the working and management of PSBs, a three year term is just not enough time for the chosen person to bring changes.