Finance Ministry's principal economic advisor Sanjeev Sanyal said on September 6 that while the cleaning up of stressed loans was the top priority of the government, the issue of reducing the number of PSB to 10-15 was also under consideration. The operational plan was to first make PSBs financially sound and then consolidate their numbers.
He clarified that "We are not going to take it too far down...We need to consolidate some of these large numbers of banks, but be clear that we are not going to reduce these down to some people think like 4-5 national champions".
"We recognize that that will lead to too many 'too-big-to-fail' banks. Currently, we have one large bank State Bank of India... We do not want to create a large number of them. Then we will have a real problem in terms of concentration of risks," Sanyal said at the India Economic Summit.
He said consolidation of banks is longer-term commercial decisions, whereas recapitalization of PSBs is "more an urgent issue" in order to get the banking system running again.
Adding to inefficient banks does not lead to a bigger efficient bank. So, this cleaning up of the bad loans problem is the first priority, he said.
As part of the cleanup process, the RBI has already started recognizing the bad assets, provision them and is taking some of them to bankruptcy and insolvency process.
"Now, the second step consequently is recapitalization and getting these banks running again... that will be done in the next few months. The government is fully aware that we need a much larger banking system by factors of multiple than what it is today," Sanyal said, adding India's banking system is way too small for future and needs to be expanded significantly.
Recapitalisation bonds are one of the options for infusing capital into banks, he said, adding that the government could also dilute its stake in some lenders to 52 percent.
"There are many options and all of them will be explored in combination," he said.
As per S&P Global Ratings, PSBs will need at least Rs 1.9 lakh crore additional capital by March 2019 as the lack of it will restrict their ability to write down non-performing loans.
Sanyal further said the government is moving from "rent-seeking patronage-based economy" to "rule-based, entrepreneur based economy".
"When you introduce radical changes like this (demonetization and GST), you have to expect unintended consequences. So, it was a huge political step to step into the water and then learn to swim," he added.
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Sanyal lays down roadmap for PSBs
By IndianMandarins - 2017-10-07 11:56:54
Finance Ministry's principal economic advisor Sanjeev Sanyal said on September 6 that while the cleaning up of stressed loans was the top priority of the government, the issue of reducing the number of PSB to 10-15 was also under consideration. The operational plan was to first make PSBs financially sound and then consolidate their numbers.
He clarified that "We are not going to take it too far down...We need to consolidate some of these large numbers of banks, but be clear that we are not going to reduce these down to some people think like 4-5 national champions".
"We recognize that that will lead to too many 'too-big-to-fail' banks. Currently, we have one large bank State Bank of India... We do not want to create a large number of them. Then we will have a real problem in terms of concentration of risks," Sanyal said at the India Economic Summit.
He said consolidation of banks is longer-term commercial decisions, whereas recapitalization of PSBs is "more an urgent issue" in order to get the banking system running again.
Adding to inefficient banks does not lead to a bigger efficient bank. So, this cleaning up of the bad loans problem is the first priority, he said.
As part of the cleanup process, the RBI has already started recognizing the bad assets, provision them and is taking some of them to bankruptcy and insolvency process.
"Now, the second step consequently is recapitalization and getting these banks running again... that will be done in the next few months. The government is fully aware that we need a much larger banking system by factors of multiple than what it is today," Sanyal said, adding India's banking system is way too small for future and needs to be expanded significantly.
Recapitalisation bonds are one of the options for infusing capital into banks, he said, adding that the government could also dilute its stake in some lenders to 52 percent.
"There are many options and all of them will be explored in combination," he said.
As per S&P Global Ratings, PSBs will need at least Rs 1.9 lakh crore additional capital by March 2019 as the lack of it will restrict their ability to write down non-performing loans.
Sanyal further said the government is moving from "rent-seeking patronage-based economy" to "rule-based, entrepreneur based economy".
"When you introduce radical changes like this (demonetization and GST), you have to expect unintended consequences. So, it was a huge political step to step into the water and then learn to swim," he added.
