With the estimated capital requirements for state-owned lenders pegged anywhere between Rs 1.5 lakh crore and `6 lakh crore by 2018-19, depending on the rate of growth of assets, Tuesday’s infusion of Rs 22,915 crore for a clutch of 13 banks might seem small.
Nevertheless, the amount will come in handy as banks grapple with rising non-performing assets (NPAs) and more debt is recast even as demand for credit remains subdued. In 2015-16, the government had infused Rs 20,088 crore in line with the Indradhanush plan to provide Rs 70,000 crore in four tranches by 2018-19.
Tuesday’s allocation is based on the compound annual growth rate (CAGR) in loans for each bank in the past five years as also the potential for growth. However, a look at the data and projections made by banks reveals there might have been some exceptions. The two banks with the lowest CRAR (capital to risk weighted assets ratios) have received relatively bigger infusions.
For instance, while Indian Overseas Bank (IOB), with a 7.54% CAGR in advances in the past five years, has been allotted `3,101 crore, Syndicate Bank, with a CAGR of 13.53% and a loan book significantly larger than that of IOB, has been allotted just `1,034 crore.
Similarly, while United Bank of India (UBI), with the smallest loan book and the second-lowest growth rate in loans among the 13 banks, has been allotted `810 crore, which is more than what several of its better- performing peers have received.
That IOB and UBI have the lowest capital to risk-weighted asset ratio (CRAR) probably means more consideration has been given to lower capital adequacy.
While the median CAGR in advances in the past five years of the 13 PSBs stands at 10.23%, their median CRAR at the end of FY16 was 11.02%. While 75% of the `22,915 crore has been released, the rest would be ‘linked to performance’, a ministry release said.
The PJ Nayak Committee had estimated the capital requirement for all public sector banks at Rs 5.87 lakh crore between January 2014 and March, 2018, assuming a growth in risk-weighted assets of 16%. In a recent estimate, Moody’s had pegged the requirement for eleven PSUs at Rs 1.45 lakh crore.
At the time of the capital infusion by the government in FY15 of Rs 6,900 crore a set of metrics including the three-year average weighted return on assets (RoA) and return on equity (RoE) was used to decide the allotment. Only nine banks were beneficiaries in that round.
After an extensive asset quality review (AQR) conducted by the Reserve Bank of India in mid-2015, the central bank directed banks to come clean on stressed assets and make adequate provisions for them. The total gross non performing assets (GNPAs)of state-owned lenders stood at Rs 5.4 lakh crore at the end of March, 2016. Banks have provided an amount of `1.6 lakh crore for stressed assets as also emerging stress’ in the six months to March, 2016.
“The front-ending of non-performing loan recognition and provisioning results in a corresponding need to boost capital levels,” Srikanth Vadlamani, vice-president and senior credit officer, Moody’s, had noted before the Union Budget for 2016-17.
Welcoming the government’s move, Arundhati Bhattacharya, chairman of State Bank of India, said, “The provision of bank capital is most welcome and is very timely. We are hopeful that such provision of capital will help the banks in increasing lending, raising additional funding and cleaning up their balance sheets.”
