New Delhi: While the central government is patting its own back over improvement in the public sector banks’ health following introduction of the Insolvency and Bankruptcy Code (IBC) and the Rs 2.11 lakh crore recapitalisation plan, lenders have raised doubts over their impact if government continued to fleece them by demanding higher dividend payouts.
“The planned recapitalisation would just be ‘peanuts’ in the face of ocean of bad loans. We don’t see any improvement in PSBs’ financial health in coming days. Actually, it will worsen PSBs’ financial health as they continue to pay huge amounts to the exchequer,” said a top official of a public sector bank.
PSBs paid the government Rs 2.25 lakh crore by way of dividend and cumulative taxes between FY06 and FY17. During the same period, the Centre infused Rs 1.29 lakh crore as capital into the banking system. Of the government’s earnings, Rs 75,000 crore came by way of dividend and Rs 1.5 lakh crore as cumulative income taxes paid over the decade.
Keeping the past decade’s performance in view, bankers don’t foresee any improvement in the state-owned lenders’ health in the near future, as the recap move may not fulfil their needs to support credit growth in the sector.
“Banks have paid the government twice the amount of capital support as dividend and tax,” the official said. PSBs may face the similar fate after the government’s October 2017 recap proposal.
A senior official of a leading PSB said, “We have paid the exchequer more than the recapitalisation amount that has come to banks.”
PSBs are saddled with about Rs 10 lakh crore toxic loans, which has increased their capital requirement as provisioning for bad loans lock up a large part of their funds. Lower capital affects banks’ lending and puts pressure on their financial performance.
The finance ministry this week approved first capital infusion of Rs 11,336 crore in five PSBs, including PNB, Corporation Bank and Andhra Bank, to help them meet capital needs.
As per the plan, PSBs are to receive Rs 1.35 lakh crore through recapitalisation bonds and Rs 58,000 crore through raising of capital from the market. Of the Rs 1.35 lakh crore, the government has infused Rs 71,000 crore through recap bonds in banks and the balance would be done during FY19.
On bonds, the banker said, “We want to raise capital through bonds, but the present market in the country is not in a good shape. While the market is in a nascent stage, nobody wants to invest in these bonds.”
Echoing the view, leading global rating agency Moody’s Investors Service had recently said, “Government’s recapitalisation plan will still broadly resolve the regulatory capital needs of PSBs and help augment banks’ loan-loss buffers, but will be insufficient to support credit growth.” “PSBs’ capital shortfalls are larger than the scale the government had expected when it announced recapitalisation, mainly because banks have failed to raise additional capital from the market, and it may be difficult for them to raise more capital, given the substantial decline in their share prices,” said Alka Anbarasu, Moody’s VP and senior credit officer, in a note.
