In the past five financial years, the government has infused Rs 2.5 lakh crore in the public sector banks (PSBs), barring the State Bank of India. The amount has snowballed from Rs 4,020 crore in FY15 to Rs 1.25 lakh crore in FY19, according to a recent Kotak Institutional Equities report titled 'Never waste a good crisis'.
In fact, the total bank recapitalisation amount between FY15 and FY19 is roughly 9 per cent higher than the total market cap of the 18 PSBs (excluding the country's largest lender) currently, pegged at nearly Rs 2.3 lakh crore. The report included the market caps of Dena Bank and Vijaya Bank which merged with Bank of Baroda in April this year.
With Finance Minister Nirmala Sitharaman's declaration of an upfront capital infusion of Rs 70,000 crore into the PSBs two weeks ago, the state owned banks have now been recapitalised to the extent of Rs 3.82 lakh crore. Apart from the capital infused by the government, the PSBs had mobilised another Rs 66,000 crore on their own.
In FY19, the PSBs that bagged a lion's share of the recapitalisation kitty are IDBI Bank with Rs 19,187 crore, Bank of India (Rs 14,724 crore), Allahabad Bank (Rs 11,740 crore) and Corporation Bank (Rs 11,641 crore). The lowest fund infusion went to Syndicate Bank in the last fiscal, at Rs 3,963 crore. Interestingly, only Allahabad Bank from these four banks had been recapitalised in FY15.
The objective of recapitalisation is "to pursue timely resolution of NPAs", as the government has explained. In absolute numbers, the gross NPAs (GNPAs) of the PSBs stood at Rs 8.06 lakh crore as on March 31, 2019. That was after the aggressive bank recapitalisation and another Rs 3.21 lakh crore being written off. As per RBI data, the GNPA ratio (as a percentage of gross advances or loans) of the PSBs has gone up from 4.4 per cent in FY14 to 12.6 per cent in FY19.
The Kotak Institutional Equities report calls for structural reforms to improve GDP growth rates, which plummeted to a six-year low of 5 per cent during the first quarter of the ongoing fiscal. According to the authors, "the government has low capacity to provide meaningful fiscal stimulus to the economy given faltering tax revenues and stagnant GST revenues".
They called for a re-evaluation of the Centre's direct role in public-sector undertakings. Among the reasons cited for this were the PSUs' typically inefficient operations versus their private counterparts and the "large drag on the government's financials with continuous funding of certain PSUs", including the loss making PSBs.
The report added that the PSUs may not have the flexibility to manage costs given their very high employee costs and inflexible employment conditions. The average employee cost for the PSBs and state-owned insurance companies ranged from Rs 8 lakh to Rs 18 lakh in FY19, while that for the top public companies fell in the Rs 14-41 lakh range. In comparison, the leading private banks like HDFC Bank, ICICI Bank and Axis Bank boasted an average employee cost of just Rs 8 lakh in the last fiscal.
"We would not rule out more PSU companies becoming loss-making over the next few years without a radical overhaul of their governance and incentive structures," the report said, adding that the government may want to consider large-scale privatisation of PSUs to generate sufficient resources to fund its ambitious infrastructure programme.