The Telegraph
Tuesday , April 10 , 2012
Since 1st March, 1999
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Heat on laggard bank branches

New Delhi, April 9: The government may consider shutting down loss-making branches of state-owned banks and insurance firms to stave off bad debts. It also plans to take a view on further recapitalisation of PSU banks by June to enhance business growth and meet capital adequacy norms.

“This is part of an ongoing dialogue… not only banks, but also insurance companies. If there are loss-making branches then we have to take a re-look at it. Ultimately, branches have been set up to earn,” D.K. Mittal, financial services secretary, told reporters on the sidelines of an industry event.

He said the government was open to the idea of working out a business strategy, relocating branches and maybe even scale down staff to address this issue.

The non-performing assets (NPAs) of banks have risen to Rs 1.27 lakh crore till December 2011. Of this, public sector banks’ gross bad debt jumped over 51 per cent to a whopping Rs 1.03 lakh crore. There are about 87,000 branches of public sector banks across the country.

The government is also working on capitalising banks to meet the tough global norms.

Mittal said “end of May or may be by the end of June we will have a fairly clear picture as to which bank has to be capitalised and by how much”.

“All banks (public sector banks), we have said, should be touching 9 per cent of tier-I capital and the State Bank of India should be touching 11 per cent. This is the strategy,” Mittal said.

“The provision, which is there this year (for recapitalisation of banks), will be available only when the budget has been passed.”

The budget has made a provision of Rs 14,588 crore towards recapitalisation of PSU banks in 2012-13.

The government had infused Rs 12,000 crore into public sector banks in 2011-12 to help them maintain a minimum Tier I capital at 8 per cent as on March 31, 2012, and to increase the government’s shareholding in the banks to 58 per cent.

The State Bank of India had got Rs 7,900 crore of the total amount. It issued 3.65 crore equity shares at Rs 2,191.69 apiece through preferential allotment to the government.

On financial inclusion, Mittal said financial institutions had a strategic role. With appropriate financial products, technology and partnerships, financial inclusion is a viable business model.

In addition to access, livelihood generation is a key aspect of financial inclusion. This is necessary to ensure a safe return of the money lent, he said.

Analysts said these measures should prove to be beneficial for banks and even the government. While the proposed financial holding firm could ease the burden on the Centre to frequently fund the capital requirements of banks, Mukherjee’s bait of tax relief on savings bank accounts would put the latter on a better footing vis-à-vis other competing instruments.

The Centre has in the past stepped in to infuse funds into banks, so that they could fund the growing requirements of the economy.