Riyaz Ahmed Bhat
The recapitilisation of Indian Public Sector Banks by a whopping 2.11 Lac crore has been welcomed by the various sections of our population. The said recapitalization is to be implemented in two years time and is in line with various such actions of many governments across the globe to salvage the banking industry of their countries. One such move which is widely remembered was undertaken by US administration after Sub Prime crisis of 2008-2009.
The resources for this recapitalization, as per details issued by Finance ministry, are to be mobilized from budgetary provisions of 18139 crores, issuance of recapitilisation bonds worth 1.35 lac crores and rest 58000 crores from market through dilution of Government equity. Though various set of conditions, for PSBs, are likely to be set for getting the capital infusion from GOI Yet the RBI,as per expectations, has welcomed the decision. It has hoped that such a coherent and comprehensive step will replace the piecemeal strategy, adopted previously by GOI while tackling challenges before Indian banking sector. Experts opine that impact of such a massive package, on Indian banking, needs to be supplemented by more actions on the economic front before one can conclude whether it is cure for ills of the Indian banking industry or if this is just one more dosage of symptomatic cure of the ailment of this Industry.
As thought the recaptilisation will improve the fundamental financial ratios of Indian public sector banking controlling almost 70% of the market. The cleaning of Balance sheets of these PSBs will be improving the image internationally, expected to present strong and vibrant banks before foreign investors. Experts terming this step as a bold decision have opined that capital base of PSBs will be strengthened which had been eroded by provisioning for their huge NPA portfolio of 7.33 lac crores as on 30.06.2017 which constitutes almost 90% of 8.29 lac crore, total NPAs of the industry. It had been widely accepted that such a situation has curtailed the capacity of PSBs to finance big hall projects thought necessary to be undertaken for economic revival.
As has been observed in recent past, the growth in the economy has been not generating desired employment opportunities for working population thus the fruits of development have not reached individual population. This individual population constitutes the market for manufacturing industrial sector generating demand for its produce. Hence, any lack of demand is likely to affect the sector which in turn is affecting performance of the banking industry. The result has been evident that industrial sector NPA presently constitutes major chunk of bad cum stressed asset portfolio of PSBs needing heavy provisioning thus affecting their profitability. As we all are aware that such a situation has not arisen for the first time in history but arises repeatedly all over world affecting banking systems of different countries. In the same backdrop in 1990 when major banking reforms were undertaken by the GOI it supplemented these reforms with reforms in overall economy which resulted in growth and job generation. But presently in the emerging situation should be major concern for government needing a prioritized strategical tackling so that this move of recapitalisation works yielding desired dividends.
At the same time recapitalisation should not also be regarded as a bailout package for PSBs, out of tax payer’s money.It is an established fact that the mess of public sector banking is creation of certain policies of the successive Governments. This mess includes the governance issues in these banks and entrusting PSBs with the jobs which otherwise are responsibility of government administrative machinery. This way PSBs have been restricted from utilization of their capacity to do the business for profitablity. Also the regulation of credit flow by the GOI, to have an inclusive growth, alongwith interference from political executive has landed the PSBs in financing of unviable projects. Furthermore non performance of economy has adversely affected the banking industry as a whole and same is cemented with the fact that credit growth in the banks on YOY basis was around 4% on March 2017 and negative in July-August 2017. In other words it can be said that overall economic slowdown has a direct impact on performance of banking industry. So it will be logical to state that long term solution of banking woes, in general and for PSBs in particular, lies in revival of economic activity. This includes the revival of manufacturing industrial sector and the option for same remains in increasing the Govt cum public spending. Coming back to issue of recapitalization package it is true that through it we can see the improvement in PSB balance sheets, increasing availability of lendable funds which are presently choked for high value financing due to poor Capital adequacy ratio(CAR) of the banks or prompt corrective action framework (PCAF) imposed by RBI, in some banks. But at the same time such an action cannot raise the credit appetite of the industry which is already very low. In such a situation having a rosy position of banking industry for international market will not have respite for ailing Indian industrial manufacturing sector which have no credit appetite for launching of new ventures.
As we know the route of repairing the balance sheet of Indian PSBs lies through repairing of balance sheets of industrial manufacturing sector which can be achieved by giving flip to job creating economic growth in the country. Such an approach will help the banks to recover the funds advanced to corporate India for setting up of these manufacturing units.
Summing up the discussion on recaptilisation it can be concluded that in absence of any coherent initiatives, to be undertaken for the revival of economic growth with job generation, the recapitalization of PSBs may look like painting of a vehicle without refueling it.
(The author is Sec General Jammu and Kashmir Bank Officers Forum)
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