Revival plan: directors of PSBs suggest easing of loan-provisioning norms

With the share price and market capitalisation of public sector banks taking a beating due to mounting bad loans, Officer Employee Directors of seven banks met Reserve Bank of India Governor Raghuram Rajan on Friday to seek specific measures, including doing away with provisioning towards certain loans to nurse the banks back to health.

The Officer Employee Directors of seven public sector banks — Bank of India, Canara Bank, Punjab National Bank, Syndicate Bank, Indian Bank, Corporation Bank and State Bank of Hyderabad — got an audience with the Governor.

Harvinder Singh, Director, Bank of India, suggested that provisioning should be restricted to declared bad and doubtful loans. Spreading the provision requirement (over a few quarters), as permitted earlier, is necessary to maintain the confidence of the public at this juncture.

The general provisioning for standard loans, including 2 per cent for teaser (housing) loans, 1 per cent for commercial real estate loans, 0.25 per cent for direct advances to agricultural and Small and Micro Enterprises, and 0.40 per cent for all other standard loans, should be done away with, said Singh, who is also the General Secretary of the All-India Bank Officers’ Confederation (AIBOC).

The Confederation has estimated that more than ₹20,000 crore is held in the balance sheets of public sector banks towards these provisions and since the norms for bad loans are quite adequate and stringent, this amount can be unlocked.

Referring to a peculiar situation where the Income Tax Department raises its tax demand even on loss-making banks, GV Manimaran, Director, Canara Bank, explained that the revenue authorities recognise ‘operating profit’ as taxable instead of ‘declared net profit/loss’.

The charge to profit and loss account towards provisions is disallowed as an expense, thereby causing public sector banks to report ‘net loss’. “Other sectors are treated differently by the I-T Dept. The RBI should advise the government to stop the unfair requirement of recasting the balance sheet for income tax purposes.

“Policies of the RBI and government should match and the balance sheet prepared as per the accounting policies of RBI should be acceptable to the revenue authorities,” said Manimaran.

Harshavardhan Madabhushi, Director, State Bank of Hyderabad, observed that the implementation of Basel III along with managing cleaning up of bank balance sheets is a difficult task.

“Capital-raising will be a major issue and the government also cannot help fully. Under these circumstances, sudden implementation of asset quality review has placed banks in a difficult situation.”

Pointing out that the RBI is the most profitable bank in India with over ₹50,000 crore profit, the Confederation, in a statement, said: “The regulator makes more profit when commercial banks are in loss! There appears to be some serious gap in the system. There is a need for the RBI to address these issues immediately.”

The Confederation said when banks are bleeding and RBI is posting fabulous profit, it would be fair and equitable for the central bank to pay interest on cash reserve ratio balances maintained with it by banks.

Pointing out that ‘Officer Employee Director’ positions have been lying vacant in 18 public sector banks for a long time, the Confederation said: “This is not good from the point of view of corporate governance. Positions of Workmen Directors are also vacant in many banks.”

AIBOC wants the RBI Governor to ensure that the sanctity of important laws affecting the functioning and governance of banks is respected.

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