Capital infusion cannot be an endless ritual: House Panel

Pulling up public sector banks, the Standing Committee on Finance on Friday said they should generate funds internally for their recapitalisation instead of depending on budgetary support as it cannot be an "endless ritual".

Capital infusion cannot be an endless ritual: House Panel

New Delhi: Pulling up public sector banks, the Standing Committee on Finance on Friday said they should generate funds internally for their recapitalisation instead of depending on budgetary support as it cannot be an "endless ritual".

The Panel also observed that it encourages incompetency and inefficiency in public sector banks.

Meanwhile, the government on Friday said it will disburse about Rs 20,000 crore to these banks in the next two months to shore up their capital base.

The committee headed by Congress MP Veerappa Moily put forth its deliberations before Parliament on Friday and said there is no specific road map by the government to meet capital requirements of public sector banks (PSBs).

"The government had been infusing huge amounts towards capitalisation of PSBs over the years... As such infusion from the Budget cannot be an endless ritual as it encourages incompetence and inefficiency in PSBs.

"The Committee has accordingly recommended that considering the fiscal consolidation and the need for maintaining capital adequacy in PSBs to meet Basel III norms, PSBs should generate funds internally also for their recapitalisation instead of depending on budgetary support alone," said the report.

Expressing disappointment, the Committee said the government made a provision of Rs 11,200 crore for capitalisation of PSBs for 2014-15.

Besides, the Committee pulled up the Finance Ministry for "shedding no light on the formation of a holding company for PSBs to meet their capital requirements".

The banks had urged the Ministry to expedite the process of setting up a holding company.

The committee urged the Ministry to draw out a road map on compliance of PSBs with Basel III norms and ensuring their healthy balance sheet without any further loss of time.

The Reserve Bank earlier in its report had expressed concern over the lowest Capital Risk Weighted Assets Ratio (CRAR) of PSBs.

As per the report, CRAR has declined to 11.24 percent over the last year. It also said poor valuations of bank stocks, especially PSBs, are making it hard for them to raise equity from the market.

"The committee would, therefore, expect the government to consider the capital adequacy question from the perspective articulated by RBI," it said.

It further asked the Ministry to avoid complacency on this critical issue and take timely measures to strengthen and vitalise the banking sector by fully meeting the capital adequacy norms of PSBs, keeping both short and medium terms in view.

By continuing to use the site, you agree to the use of cookies. You can find out more by clicking this link

Close