Banking on more capital


SS MUNDRAChairman and Managing Director,Bank of Baroda

As bankers reel through capital constraints and bad asset quality, SS Mundra, the Chairman and Managing Director of the country’s third-largest public sector lender, the Bank of Baroda, explains why bad loans are not the only reason why banks need more capital and that all banks cannot thrive on just retained profits. Excerpts:

What are your expectations from the Budget?

We cannot attempt everything in one Budget but from a public sector bank (PSB) perspective; there would be capital needs. The recent perception that a lot of the capital of PSBs is getting locked in NPA (non-performing assets) has very little truth. In any time frame, globally or locally, no bank can keep growing only on retained profits. So I think the banking industry would always need capital, NPA or no NPA. It is also important to create a domestic market for Tier-1 instruments because ultimately under the Basel III framework, banks will need to have a good capital structure. So maybe, the Budget can give some kind of pointers to bring large domestic institutions for Tier-I bonds. Second, some measures are needed to take out infrastructure assets from the balance sheets so that PSBs are free to go ahead with other loan activities. There must be a mechanism through existing methods or Infrastructure Debt Funds or through new vehicle of maybe a national asset company which is being discussed, or from ARCs which already exist.

Third, banks are always required to do long-term funding. So to bring a better balance of ALM (asset liability management), banks can be allowed to issue long term infrastructure bonds.

Another measurewhich could boost investment in bank savingscould be some tax incentives to bank products to improve individual savings in financial products.

What could the government do to further the agenda of financial inclusion?

I think enough has been done on that front and bankers have already created huge capacities. Sorather than bringing any new element to it, I think it will be very meaningful to take a pause and consolidate. So like network that is created, new accounts are open…it is very important that these accounts are activated, then the transaction in these accounts are looked into.

Besides small credit, small insurance can be introduced. I think that will be very meaningful.

Published on June 29, 2014

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