‘Bank recap is a big-bang move’

| Updated on: Jan 08, 2018

It will help public sector banks turn around, says Deepak Parekh

Likening the government’s ambitious ₹2.11-lakh crore public sector bank (PSB) recapitalisation package to the US’s ‘TARP’ (Troubled Asset Relief Programme), Deepak Parekh, Chairman, HDFC, said this will help PSBs turn around.

It will also help those banks put on prompt corrective action (PCA) framework come out of it.

The Reserve Bank of India has put IDBI Bank, UCO Bank, Central Bank of India, Dena Bank, Bank of Maharashtra, and Indian Overseas Bank on PCA in view of high net non-performing assets (NNPAs) and negative return on assets (RoA).

Under PCA, these banks face constraints including curbs on branch network expansion and dividend distribution; restriction on expansion of high risk weighted assets and capital expenditure other than for technological upgradation and such emergent replacements within board approved limits.

“I think it (recapitalisation) is an excellent move. It is a big bang move. It requires courage. …It may have taken a little longer but then they (government) have taken care (of PSBs capital needs) of the next two years…,” said Parekh

He expects the shares that the government gets for recapitalising the PSBs increasing in value five years down the line than the money it will need to redeem the recapitalisation bonds.

“You can’t have strong economy with weak banks. You can’t be the fastest growing economy in the world with weak banks. You have to rectify your banks,” explained Parekh.

TARP was created to help stabilise the US financial system during the financial crisis of 2008. It included a comprehensive set of measures in five key areas – auto industry, bank investment programs, credit market programs, housing, and investment in American International Group.

With recapitalisation, Parekh said: “PSBs will turnaround….More importantly, what we need now is how to empower PSB officials to take decisions. That is what is important now so that they can go for one-time settlement (OTS).

“Today they are worried about OTS, worried about writing off some loan. They are worrying about selling a loan to an ARC as questions may be asked. So, the one thing which we need to give them is some assurance that we (authorities) won’t go after them. So, that is necessary to clean up the bad loans mess.”

Published on October 29, 2017
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