Financial Services Secretary G S Sandhu reveals the thinking on where the huge recapitalisation needs of public sector banks could come from, on pushing the idea of bank consolidation and what could happen to revamp the process of rescuing loans gone bad. Edited excerpts of a talk with Vrishti Beniwal:
The extra equity capital requirement of public sector banks (PSBs) is estimated to be Rs 2,40,000 crore by 2018. Would retail sale be enough to meet all capital requirements?
No, this will not be enough. But we will get a large part of that through this route.
How much can you get?
By rough estimates, as on date, we can get about Rs 1,00,000 crore, if we go (for it) within a year or so. The amount will go up further because we are taking various other measures as well. Also, the actual capital raised will be much more because we are looking at a timeframe of four to five years. Maybe half the required amount will come out of this.
What about the rest?
The rest of it has to come through other means. Many of these banks have non-core businesses, which could be hived off at a good valuation. These banks can also use their real estate to raise money from the market, through a Special Purpose Vehicle. We are working on a model in the case of Bank of India and are talking to other banks, too. If there is still a shortfall, it can always be met from the Budget.
From the Budget speech, some people have interpreted that the government will be forced to bring down its equity (in PSBs) below 51 per cent; the Nayak committee also recommended that. Is that an option?
Not at all. The minister has very clearly said that the public sector status of these banks will be maintained, which means 51 per cent or more equity will be held by the government only. There will be no dilution below 51 per cent.
The other issue is about consolidation of PSBs. Will you go ahead with State Bank of India subsidiaries first and other banks later? What will be the plan of action?
We have been getting various proposals and suggestions, from various quarters. We are looking at the compatibility of banks, in terms of the technology, branch network, the culture of each bank, etc. It is not that we will only have SBI merging its subsidiaries. That could happen. But there could be other parallel acquisitions.
Would you keep in mind the eight groups that were created, based on core banking solution?
Yes we are looking at those groups. And, there is a study done by SBI CAPS. Some suggestions have come from other banks.
How will you handle the resistance from small banks?
I don't think that will be there. It will not be such a large scale merger or consolidation. We will go first with SBI, merging one or two of its associate banks. Then, we could look at one or two other banks. This will be a gradual process and it will go on for a few years. It's not that we have to merge banks in one go. We also have to figure out what mergers are essential to be done, how much consolidation, to what extent, how many banks, etc. But something will begin this year.
The Budget has not addressed the issue of deteriorating asset quality of the banks. Do you think that has to be handled outside the Budget?
The Budget talks of rising non-performing assets and new debt recovery tribunals (DRTs). We are also looking at present laws - the SARFAESI Act and the DRT Act. Both need some amendments to make bank recoveries more effective. On the power sector, we are working on a separate asset reconstruction company (ARC). Some of the banks and IDFC are willing to come together to form a separate ARC for the power sector, along with the power sector finance companies. If this could happen, they can take over some of these plants, operationalise these and hand over to the earlier management. On the road sector, National Highways Authority of India is willing to join hands with banks to form a separate ARC.