Centre to infuse Rs8,586 cr capital in 10 weak banks

The centre has eased its stance on infusing fresh capital in strong banks only and has now decided to infuse a total of Rs8,586 crore into 10 weak banks, but subject to commitment to quarterly performance assessment of  both the management and employees, reports quoting a top leader of All India Bank Employees` Union (AIBEA) said.

Reports also said the government has asked SBI Caps to draw a bank wise action plan based on which a tripartite agreement between the government, bank management and employee unions will be signed committing themselves towards certain milestones.

"The central government has written to the heads of 10 banks indicating the amount of fresh capital it would infuse during FY2017. But the infusion is subject to a tripartite agreement between the central government, banks and the unions for a time bound turn around programme," IANS quoted AIBEA general secretary CH Venkatachalam as saying on Sunday.

According to the union leader, the government wants a tripartite memorandum of understanding (MoU) to commit all the three parties – the government, bank management and employees - to commit to specified and quantifiable quarterly targets.

Venkatachalam said the government has insisted on the following:

  • Active management of non-performing assets (NPA);
  • Strengthening of lending and monitoring processes;
  • Tapping the market for capital;
  • Effective disposal of non-core assets;
  • Divestment of stakes in subsidiaries;
  • Closure of loss-making domestic and international branches; and
  • Reduction in operational expenses, including employee benefits.

Once these targets are achieved and banks turn around, all benefits to employees would be brought back.

Venkatachalam said the reason for signing the MoU is understandable and AIBEA is ready for it.

He said the unions may be agreeable with all the conditions except the raising of equity capital from the market as it would result in disinvestment.

"All the government-owned banks are making good operational profits. The net profit is low owing to provisions for bad loans. If only the bank management focus their energies on recoveries than all the government owned banks will be very much profitable," Venkatachalam said.

As per the proposed fund infusion plan, IDBI Bank will get the largest share of Rs1,900 cr, followed by Bank of India (Rs1,500 cr), UCO Bank (Rs1,150 cr), Indian Overseas Bank (Rs1,100 cr), Andhra Bank (Rs1,100 cr), Dena Bank (Rs600 cr), Allahabad Bank (Rs418 cr), United Bank of India (Rs418 cr). Bank of Maharashtra (Rs300 cr) and Central Bank of India (Rs100 cr).

Meanwhile, economic affairs secretary Shaktikanta Das has said that while adequate capital will be made available for state-owned banks, tax payers' money given would be linked to their performance.

Acknowledging non-performing assets of banks as one of the challenges for the economy, he said, "the easier solution people have been talking about the problem of balance sheet of the banks, the problem of NPA is to provide more capital, inject more capital into the banks."

As of 30 September 2016 gross NPAs of public sector banks rose to Rs6,30,323 crore against Rs5,50,346 crore at end-June 2016- an increase of Rs79,977 crore quarter on quarter.

The government has already announced fund infusion of Rs22,915 crore, out of the Rs25,000 crore earmarked for 13 PSBs for the current fiscal. Of this, 75 per cent has already been released.

Under Indradhanush roadmap announced last year, the government will infuse Rs70,000 crore in state-owned banks over four years, while they will have to raise further Rs1,10,000 crore from the markets to meet their capital requirement in line with global risk norms Basel-III.