Money & Banking

Capital infusion in public sector banks intended to redeem large debt-ridden firms, says union

AJ Vinayak Mangaluru | Updated on March 09, 2018 Published on March 09, 2018

Also, high provisioning is eating into banks’ profits

The All-India Nationalised Banks’ Officers’ Federation (AINBOF) feels that no public sector bank (PSB) would require the Centre’s recapitalisation package if the the high levels of provisions are taken back to their reserves and surplus.

It feels that capital infusion plan of the government is an alibi to redeem large non-performing debt-ridden industrial houses.

In a letter to union members, Manimaran GV, General Secretary of the AINBOF, said that the Centre has announced a recapitalisation plan of ₹2.11-lakh crore to PSBs in the country.

He said the ratio of paid-up capital to the authorised capital is up to 30 per cent in 12 PSBs. The ratio is between 30 and 50 per cent in five PSBs, and above 50 per cent in two PSBs.

The fact that 12 of the 19 PSBs have issued just over one-fourth of their authorised capital indicates the true strength of those banks, he said.

Giving details about the provisioning for NPAs (non-performing assets) in proportion to the paid-up capital, he said 11 PSBs have made provisions of up to 10 times their paid-up capital.

“This is the crux of the problem and the real reason for erosion of capital. If these provisions were not required to be made, they would have been directly accounted to profits,” he said.

Two PSBs have made provisions of over 50 times their paid-up capital, and five PSBs 20-30 times their paid-up capital. The higher provision accounts for loss in the profit and loss statement, and also blocks the net worth by eating into the reserves and surplus, he said.

“It is thus clear that if only the provisioning at high levels was not warranted, the fundamentals of PSBs would have been much stronger. Consequently, the recapitalisation may not be necessitated,” Manimaran said.

Stressing the need to take away the ‘enormously high levels’ of provision back to reserves and surplus, he said on the other hand the government should persist with NCLT and bring sanctity to the service-oriented and nation-building motive of the PSBs.

He said capital infusion by the government is an alibi to redeem the large non-performing debt-ridden industrial houses. After that much furore will be made about the ill-perceived inability of the state-run banks to effectively handle their asset and recovery portfolio, due to which the government had to interfere to safeguard the public money by infusing capital, he added.

Published on March 09, 2018
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