At Pune retreat, bankers look at ways to raise capital

The government is looking at ways to improve the functioning of banks and make it easier for them to raise capital, financial services secretary Hasmukh Adhia said here Friday.

"If we have to give better support to banks, if the banks have to play a complimentary role, can we think of some other structures by which it is easy for the banks to manage their affairs, it is easy for them to get capital from the market and it is easy for them to improve the balance sheets?" Adhia said here.

He was briefing reporters on the subjects that would be discussed at the two-day retreat for banks and financial institutions called Gyan Sangam that will help prepare a draft for reforms in the financial sector.

"We would like to generate ideas on what could be the priority sector prescription for the banks in view of the present state of the economy," he added.

The lenders will discuss various issues starting from financial inclusion, profitable priority sector lending (PSL), effective risk profiling and recovery mechanisms, along with consolidation and restructuring of these banks for better efficiency, governance and capital efficiency, the union finance ministry said in a statement.

The retreat in Pune at the National Institute of Bank Management was inaugurated by Minister of State for Finance Jayant Sinha. Prime Minister Narendra Modi is to meet bankers Saturday during the concluding session of the retreat.

Finance Minister Arun Jaitley along with Reserve Bank Governor Raghuram Rajan will be attending the retreat.

Adhia also raised the issue of high levels of stressed assets across public sector banks (PSBs) and low credit growth. Stressed assets at public sector banks, including bad debt and restructured loans, rose to 12.9 percent of total loans as on September-end, 2014.

On banks' non-performaing assets (NPAs), Adhia said methods to improve risk management, asset quality and recovery would be discussed.

Another issue that needed to be addressed, Adhia said, was to raise the savings rate from 30 to 35 percent, using the accounts as channels for direct transfer, pension, insurance products and leveraging technology to improve banking technology.

The government decided last month to permit public sector banks to raise up to Rs.160,000 crore from capital markets by diluting government holding to 52 percent in phases so as to meet Basel III capital adequacy norms.

The government controls 22 of the 27 public sector banks through majority holding. In the remaining five banks, state-run State Bank of India holds majority stake.

Presenting his maiden annual budget in July, Finance Minister Arun Jaitley said that the capital of state-run banks will be raised through sale of shares to the public.

Upwards of Rs.240,000 crore of capital by equity is required to be infused into India's banking sector by 2018.

The Basel III norms, which will come into effect March 31, 2019, were put in place following the 2007-08 financial crisis in the US.