RBI advises PSBs feeling capital constraints to focus on less risky assets

Say they have to figure out ways of raising capital from the market or any other methods including additional tier I and tier II instruments

After the government applied efficiency norms to infuse equity in public sector banks (PSBs), the Reserve Bank of India has advised PSBs feeling capital constraints to restructure businesses to have assets which need less capital.

“They (PSBs) have to figure out ways of raising capital from the market or any other methods, including additional tier-I and tier-II instruments. There is also (an) element of balance sheet re-sizing or reallocation of risk assets in such a way that within available capital they can still grow. They have to find out strategies for doing it,” RBI deputy governor R Gandhi said on the sidelines of an event organised by credit information bureau CIBIL.

Responding to queries on the government's decision, Gandhi said there are a variety of strategies that PSBs can follow to handle the required capital. So it is not the case that only enhanced or additional capital alone is the solution. Banks can rejig their portfolios in such a way that they have less risky assets that need less capital, he said.

Of the Rs 11,200 crore provided for investing in equity of PSBs in 2015-16, the government has decided to infuse Rs 6,990 crore in nine state-owned banks based on efficiency parameters — return on equity and return on assets. The Budget for 2015-16 has a lower provision of Rs 7,940 crore. Gandhi said banks will have to find other methods of raising capital and not just rely on the government.

He also had a message for those who had failed to make it to the list. Making capital available for efficient banks is one aspect of giving an incentive for better performance. Those who didn't make the cut would have to pull up their socks and become profitable, he said.

Asked if they could have been given a transitory period, Gandhi said, these banks have more than required capital. Going forward, based on their own business expansion plans, they should also take care of the balance sheet strength, he said.

On consolidation of PSBs, Gandhi said it is for the respective bank board managements to decide. Based on their assessment of the situation they should take a decision.