Government to reward efficiency as it infuses Rs6,990 cr in 9 public sector banks
07 February 2015
The government will infuse Rs6,990 crore in nine public sector banks (PSBs) out of the current year's budget, for which orders are being issued, an official notification said today, adding that the government has adopted a new criteria in which the banks that are more efficient would be rewarded with extra capital for their equity so that they can further strengthen their position.
The methodology for arriving at the amount to be infused in these banks has been based on efficiency parameters. First, the weighted average of return on assets (ROA) for all PSBs for last three years put together was arrived at and all those who were above the average have been considered.
The second parameter that has been used is return on equity (ROE) for these banks for the last financial year. Those that have performed better than average have been rewarded.
The release said the government was conscious of the fact that a lot of reforms are required in the public sector banks (PSBs) and the two-day conference of PSU bank CMDs held in Pune on 1 and 2 January 2015 had generated an agenda in which banks themselves were supposed to undertake certain activities individually or jointly and there were certain things which were supposed to be done by the government.
One of the general principles adopted during the retreat was that efficient banks should be encouraged. For the last few years, the government has been infusing capital to those banks whose equity erosion has taken place. Therefore, this year, the government has adopted this new criterion in which the banks which are more efficient would only be rewarded with extra capital for their equity so that they can further strengthen their position.
As per these two efficiency criteria, the amount allocated bank-wise is as follows :