NEW DELHI: The government is advising loss-making small public sector banks to sell their riskier assets to larger peers to reduce the capital requirement as these banks have been hit hard by the RBI’s latest norms on provisioning for bad debt.
PSBs that are part of the RBI’s prompt corrective action (PCA) plan are being advised to get rid of more risky assets, which are loans to companies with weak finances. This is because the finance ministry has ruled out any fresh fund infusion beyond the Rs 65,000 crore that was announced as part of the Rs 2.1-lakh-crore re-capitalisation plan.
In addition, lenders are being pursued to aggressively sell non-core holdings, including stakes in mutual funds and insurance arms as well as real estate assets — some of which are in prime locations across the country.
Government-owned banks are in deep distress, with higher provisions pushing most of them into the red during the last fiscal and in the first quarter of current fiscal. While their cumulative losses added up to Rs 73,000 crore during the last financial year and combined bad debt has crossed Rs 8.5 lakh crore, PSBs have declared losses of over Rs 50,000 crore in the first quarter of the present fiscal.
The high provisions have eaten up a large part of the capital base, requiring fresh addition, which can come as a contribution from the government or via fresh fund-raising. Alternatively, profit from the sale of non-core assets can come to their rescue.
Banks such as Andhra Bank or Dena Bank — which are part of a consortium of lenders but have only, say, 5% of the exposure — are being encouraged to sell their loans to SBI or Bank of Baroda, which have a much larger presence.