CAG doubts public sector banks' ability to meet recapitalisation targets
The Comptroller and Auditor General of India (CAG) has expressed doubts over the public sector banks' ability to raise Rs 1,10,000 crore from markets by 2018/19 as part of their recapitalisation exercise.
- Jul 28, 2017,
- Updated Jul 28, 2017 7:26 PM IST
The Comptroller and Auditor General of India (CAG) has expressed doubts over the public sector banks' ability to raise Rs 1,10,000 crore from markets by 2018/19 as part of their recapitalisation exercise.
The CAG audit report on recapitalisation of public sector banks (PSB), tabled in the Parliament today, said that the banks were able to raise only Rs 7,726 crore during January 2015 and March 2017. It has led to the doubt on the possibility of raising the balance, amounting to over Rs 100,000 crore, from the market by 2019.
The report pointed out that the basis for working out the parameters for capital infusion changed between actual and estimated values from year to year and often within different tranches of the same year (2010/11, 2015/16 and 2016/17). It also stated that the rationale for distributing the central government's capital among different PSBs was not found on record in all cases. Some banks, which did not qualify for additional capital as per the decided norms, were infused with capital; a bank was infused with more capital than required while others did not receive the requisite capital to meet their capital adequacy requirements.
Over 2008-16, the advances of PSBs had more than doubled, from Rs 22,59,212 crore to Rs 55,93,577 crore, although the rate of growth in advances decreased from 19.56 per cent in 2009/10 to 2.14 per cent in 2015/16, the report noted.
It also pointed out that the PSBs' return on assets (ROA) - a measure of their profitability - has been consistently lower than that of the scheduled commercial banks or SCBs (2011-16). "PSBs account for nearly 88 per cent of the gross non-performing assets (GNPAs) of the banking sector in 2015/16. There is a significant gap between the book value and the market value of the PSB shares, with most PSBs having a lower market value, which may come in the way of the PSBs approaching the market for additional capital funds," the report said.
The central government, as the majority shareholder, has infused Rs 1,18,724 crore between 2008/09 and 2016/17 in the PSBs to meet their capital adequacy requirements or based on their performances.
The CAG report stated that in many cases, the parameters mentioned in the Statement of Intent (SOI), which set targets for a set of parameters to monitor the performance of PSBs, was not adhered to. "Out of the nine years reviewed, in only one year, conditions were stipulated in the sanctions that were issued to five PSBs for infusion of capital," it said.
The CAG noticed these conditions were significantly different from the targets set for the same parameters in SOIs for the same period.
The CAG has recommended that the criteria for fund infusion, once finalised, should be consistently applied across all PSBs. However, in case of variations, reasons should be well documented. It also wanted that the purpose of fund infusion, for which the Cabinet Committee on Economic Affairs' (CCEA) approval is taken, may be adhered to by the government. Changes, if necessary, in the purpose of fund infusion may be approved by the CCEA before being implemented, it suggests. It has also called for an effective monitoring system to ensure fulfilment of the intended objectives of fund infusion.
The banking system in India comprises commercial and co-operative banks with commercial banks accounting for the bulk of the banking assets. PSBs account for over 70 per cent of the deposits received in and advances made by the SCBs. The capital requirement of PSBs is driven by credit growth in the economy and prudential regulatory requirements. The regulatory framework for banks is globally developed by the Basel Committee on Banking Supervision, which is adopted by the Reserve Bank of India for the Indian banks.
The Comptroller and Auditor General of India (CAG) has expressed doubts over the public sector banks' ability to raise Rs 1,10,000 crore from markets by 2018/19 as part of their recapitalisation exercise.
The CAG audit report on recapitalisation of public sector banks (PSB), tabled in the Parliament today, said that the banks were able to raise only Rs 7,726 crore during January 2015 and March 2017. It has led to the doubt on the possibility of raising the balance, amounting to over Rs 100,000 crore, from the market by 2019.
The report pointed out that the basis for working out the parameters for capital infusion changed between actual and estimated values from year to year and often within different tranches of the same year (2010/11, 2015/16 and 2016/17). It also stated that the rationale for distributing the central government's capital among different PSBs was not found on record in all cases. Some banks, which did not qualify for additional capital as per the decided norms, were infused with capital; a bank was infused with more capital than required while others did not receive the requisite capital to meet their capital adequacy requirements.
Over 2008-16, the advances of PSBs had more than doubled, from Rs 22,59,212 crore to Rs 55,93,577 crore, although the rate of growth in advances decreased from 19.56 per cent in 2009/10 to 2.14 per cent in 2015/16, the report noted.
It also pointed out that the PSBs' return on assets (ROA) - a measure of their profitability - has been consistently lower than that of the scheduled commercial banks or SCBs (2011-16). "PSBs account for nearly 88 per cent of the gross non-performing assets (GNPAs) of the banking sector in 2015/16. There is a significant gap between the book value and the market value of the PSB shares, with most PSBs having a lower market value, which may come in the way of the PSBs approaching the market for additional capital funds," the report said.
The central government, as the majority shareholder, has infused Rs 1,18,724 crore between 2008/09 and 2016/17 in the PSBs to meet their capital adequacy requirements or based on their performances.
The CAG report stated that in many cases, the parameters mentioned in the Statement of Intent (SOI), which set targets for a set of parameters to monitor the performance of PSBs, was not adhered to. "Out of the nine years reviewed, in only one year, conditions were stipulated in the sanctions that were issued to five PSBs for infusion of capital," it said.
The CAG noticed these conditions were significantly different from the targets set for the same parameters in SOIs for the same period.
The CAG has recommended that the criteria for fund infusion, once finalised, should be consistently applied across all PSBs. However, in case of variations, reasons should be well documented. It also wanted that the purpose of fund infusion, for which the Cabinet Committee on Economic Affairs' (CCEA) approval is taken, may be adhered to by the government. Changes, if necessary, in the purpose of fund infusion may be approved by the CCEA before being implemented, it suggests. It has also called for an effective monitoring system to ensure fulfilment of the intended objectives of fund infusion.
The banking system in India comprises commercial and co-operative banks with commercial banks accounting for the bulk of the banking assets. PSBs account for over 70 per cent of the deposits received in and advances made by the SCBs. The capital requirement of PSBs is driven by credit growth in the economy and prudential regulatory requirements. The regulatory framework for banks is globally developed by the Basel Committee on Banking Supervision, which is adopted by the Reserve Bank of India for the Indian banks.